financial planning

How to Talk to Mom and Dad About Their Money

Ashley Eneriz — Tue, 05 Jun 2018 08:00:29 +0000

Good ol' Mom and Dad. Many of us can remember our parents complaining that money didn't grow on trees and grumbling over wasted money every time we left a light on or took too long in the shower. As our parents get older, however, roles and responsibilities start to switch. Eventually, a time comes when we have to have the talk about money with our parents.

Sharing financial advice with your parents can be challenging and uncomfortable, but it is an essential talk to have. Here's how you can go about discussing money with your aging parents in both a respectful and productive way.

Set up a meeting

It can be hard to talk seriously when kids are running around or when the family is supposed to be enjoying a fun night together. Don't put a damper on a family get together by blindsiding your parents with bank statements. Instead, arrange to talk over coffee or breakfast, or even agree to meet with a financial adviser or estate planner if you think that will make the meeting go smoother. (See also: How to Talk to Friends and Family About Money (Without Making Everyone Mad))

Don't point fingers

If you start a conversation with your parents saying something like, "You don't have enough saved for retirement — what are you going to do?" they are going to be quick to put up a wall. From your perspective, it might seem like your parents have been careless with finances, but there is a chance that you don't know the whole story. Instead, approach them on mutual grounds.

Instead of being accusatory, invite discussion. Start off the conversation with something like, "I would love to discuss what you would you want me to do if there comes a time that I need to be your full-time caregiver," or, "I know you mentioned that you wanted to set aside money for your grandkids' education, and I would love to know more about it so that it is done in a way that the kids aren't penalized if they need to apply for financial aid later on."

Offer help

Ask Mom and Dad if there is anything you can do to help lighten their load. They might need someone to teach them how to access their bank info online, do their taxes, or help them prepare a will. Sometimes parents feel embarrassed about asking their kids to take over financially, and may not be ready to hand over the reins right away. You can still extend the invitation by saying something like, "If there ever comes a time where you don't want to deal with budgeting/paying bills/etc., let me know and I will gladly help out as much as possible."

Ask for access to their important financial information

There are no guarantees in life. You never know when your parents will pass away or become fully dependent on you. It is important to have a list of their financial information so that you can access it when the time comes. Here are some important things to know:

Social Security numbers.
Financial information for each bank, investment, retirement, and debt account.
All insurance information, including health, long-term care, and life insurance.
Estate planning documents such as will, trust, and power of attorney.
Real estate papers, such as deed and title.
Contact information for all financial advisers, accountants, lawyers, etc.

Create a future plan

According to AARP, 30 million households care for an adult over 50, and that number is expected to double in 25 years. Share that statistic with your parents and explain to them that while you don't like imagining them getting older, that is going to happen regardless — and you want their guidance and advice before that time comes. Ask them what living arrangements they want when they can't care for themselves and how they want their finances, assets, and property dealt with after passing. (See also: 6 Financial Steps to Take When Your Aging Parents Move In)

Make sure everything is up to date

Ask your parents if their important financial and legal documents are up to date. Does their will and power of attorney for health and finances reflect what they want it to reflect? If not, encourage them to update these legal documents as soon as possible. (See also: 6 Things You'll Encounter When Taking Over a Loved One's Finances)

Have patience and get the family involved

Don't expect to conquer your parents' financial future in one go. Depending on how complicated their finances are, it might take several talks and several prompts of encouragement to get things on the right track. If possible, have other siblings get involved in these financial conversations. Show siblings that if they keep borrowing money from Mom and Dad, they will drain them of essential money needed to pay for health care and living expenses down the road.

Talking about money is already an uncomfortable and unpopular topic. Add your parents to the mix, and things can get hairy and emotional quick. Remember to go slow and come from a place of love. (See also: 6 Ways the Sandwich Generation Can Get Ahead)

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This article is from Ashley Eneriz of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

8 Ways Retirees Can Spring Clean Their Finances

Tim Lemke — Wed, 28 Mar 2018 09:00:07 +0000

So you've finally made the jump out of the working world and into blissful retirement. Congratulations! If you've been careful in your financial planning, you should have plenty of money to sustain yourself for a long time and have a happy post-work life. But even the most well-off retirees could benefit from re-examining their financial situation.

Here are a few ways retirees can get their finances spic and span this spring.

1. Check your spending

After you've spent a large portion of your life amassing a large retirement fund, you may feel like your days of watching every dollar are over. But it's still important to make sure your expenses aren't higher than what your savings can afford. Now that you are home instead of heading to the office every day, you may be spending more on utilities. You may have unreimbursed expenses relating to caring for your grandchildren. That African safari trip may have cost you more than expected.

If you have an annuity or are making regular withdrawals in retirement, it's important to avoid spending more than those payments. Otherwise, you may find yourself lacking in funds down the road. You may be fortunate to live for many more years, but you don't want to go broke along the way. (See also: 6 Ways You Can Cut Costs Right Before You Retire)

2. Meet with a financial adviser

Even retirees who have plenty of money and a good financial plan can benefit from a checkup with an adviser. A good financial planner can help you assess whether your retirement savings are still on track to last and if there are any necessary tweaks. An adviser can also help walk you through any changes to tax laws and explain any changes to the investment landscape. Once you retire, don't just put your head in the sand and assume your money will last as long as you do. A periodic financial check-in with an expert can be hugely valuable to anyone seeking the best retirement possible. (See also: 3 Reasons to Be Picky When Hiring a Financial Planner)

3. Assess your withdrawals

Once you reach age 70 ½, you may be required to make minimum withdrawals from your retirement accounts. The ultimate size of these withdrawals — and whether you decide to start withdrawing sooner — will determine how much you have to live on, and how much you'll have left in your accounts. If you are taking withdrawals already, take some time to determine whether the amount taken out each month is sufficient or too much. (See also: 3 Financial Penalties Every Retiree Should Avoid)

4. Re-examine your will

You remember filling out a will many years ago, but do you remember what it says? Do you still agree with the directives regarding who gets your assets when you pass? These aren't pleasant things to think about, but your family will appreciate it if your wishes are made clear. It may even make sense to discuss this with your children and other family members so there are no surprises or acrimony later. (See also: 6 Times You Need to Update Your Will)

5. Rebalance your portfolio

If you are retired, your investment portfolio should be geared more toward preserving income than growing it. It's OK to own some stocks, but it makes sense to also mix in some bonds, cash, and other more conservative investments. You may think your portfolio is optimized for retirement, but there's a chance it may have gotten out of balance. This is especially true over the last few years when stocks have performed very well.

Everyone, not just retirees, is encouraged to rebalance their portfolios every year. If you haven't taken a hard look at your investments in a while, take the time to see if some smart buying and selling will get you back on the right track. (See also: 7 Reasons to Invest in Stocks Past Age 50)

6. Do a deep dive into your charitable giving

You may finally be in a position to be generous with your money. But are you being smart and strategic about how you are giving to charity?

Charitable donations are not only a wonderful thing to do, they can help you financially by saving you on taxes. If you itemize tax deductions, charitable donations can reduce your tax bill. Donating shares of stock to a charity can help you avoid capital gains taxes. If you are considering donating to charity, come up with a smart plan to support the causes you love as part of a broader tax savings strategy. (See also: 5 Ways Giving to Charity Is Good for You)

7. Assess your health insurance situation

Older Americans can benefit from Medicare, but you may not be eligible if you retire early. And even if you do get Medicare, that doesn't cover every medical expense. Most retirees find that they need to purchase a Medicare supplement plan, as well as additional insurance for eyeglasses, hearing aids, dental work, and other health needs. You'll also need to consider whether long-term care insurance is right for you. Don't assume you are properly insured just because you are eligible for Medicare. (See also: How to Make Sense of the Different Parts of Medicare)

8. Hit the gym and eat better

Exercising may not seem like a financial decision, but in many ways it is. Getting and staying healthy will not only help you enjoy retirement more, but it could help reduce medical bills that may not be covered by insurance. Work to lose weight, lower your blood pressure, and make better lifestyle choices. You may find yourself not only healthier, but wealthier too. (See also: 7 Smart Ways to Invest in Your Health)

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This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

6 Reasons Why Financial Planning Isn't Just for the Wealthy

Dan Rafter — Wed, 14 Feb 2018 10:00:06 +0000

There's an unfortunate divide when it comes to financial planning. The lower your income, the less likely you are to have a financial plan. But it doesn't have to be that way.

A 2016 Financial Engines report found that only 37 percent of American workers with yearly incomes between $35,000 and $100,000 have a comprehensive financial plan to grow their wealth. Meanwhile, 48 percent of workers with an annual salary of more than $100,000 do have a plan. What's more, wealthier Americans tend to have more comprehensive financial plans than those followed by middle-income earners.

The problem with this is obvious: Financial planning can help everyone, not just people with higher salaries. But too many lower- and middle-income earners think that they don't make enough money to warrant having a financial plan. This is dangerous thinking, as lacking a financial plan can scuttle your efforts to save for retirement, help pay for your children's college education, or even buy a home.

Here are six reasons why you need a financial plan, even if you don't make over $100,000 per year.

1. Without a plan, it's harder to set or meet financial goals

How much money do you need to save for a healthy and happy retirement? Without a financial plan, you probably have no idea. And how do you accumulate these savings? Again, if you don't follow a financial plan, the odds are likely that you won't meet your retirement goals.

According to the Financial Engines study, people with financial plans save about 10 percent of their salaries toward retirement, while those without save only 6 percent. This can make a big difference. The study uses the example of a person starting out with $50,000 in retirement savings. If that person earns $100,000 each year, and saves 10 percent of that salary for 25 years, they will have amassed as much as $1.13 million in retirement savings. Meanwhile, someone saving 6 percent of that income for 25 years will only have saved around $890,000. (See also: Here's How Far $1 Million Will Actually Go in Retirement)

2. A financial plan can help you rein in your spending

When you get to the end of every month, is your bank account nearly drained? Do you know where your money has gone? If not, a financial plan can help.

A basic pillar of creating a financial plan involves tracking where your money goes each month. It's all about creating a household budget that lists the average dollars you spend on everything from utilities and rent, to transportation, groceries, dining out, and entertainment. Once you have these figures in front of you, and once you compare them with how much income you bring in, you can adjust your spending so that you aren't constantly running out of money each month. Without a financial plan, you'll just keep overspending. (See also: Build Your First Budget in 5 Easy Steps)

3. It will help you reach big financial goals

Do you want to buy a house? Or maybe you dream of helping your children pay for their college education. Attaining big financial goals such as these is a far more challenging task if you don't have a financial plan to guide you.

A financial plan will spell out how much money you'll need to reach life's big financial goals — everything from saving enough for a down payment on a home, to buying your first car, to saving enough money to help your children graduate from college without mountains of student loan debt.

Unfortunately, a majority of Americans earning lower or middle-class incomes don't plan for attaining these big goals. The Financial Engines study found that only 41 percent of middle-income workers have financial plans for saving for a child's college education. A far higher number — 61 percent — of wealthier Americans have financial plans that address this challenge. (See also: Why Saving Too Much Money for a College Fund Is a Bad Idea)

4. It will help you protect your loved ones

If you died unexpectedly, what financial ills would fall on your children or partner? If you invest in life insurance, you can help protect these loved ones in case you do die.

The problem is, Americans who don't have financial plans are far less likely to take out enough life insurance or disability insurance to properly protect their families. The Financial Engines study found that 67 percent of middle-income earners have purchased life or disability insurance, while 83 percent of upper-income earners have these policies in place. (See also: Why Your Group Life Insurance Is Not Enough)

5. With a financial plan, you're likely to have less credit card debt

The 2013 Household Financial Planning Survey and Index, completed by the Consumer Federation of America and the CFP Board of Standards, found that those with financial plans tend to have less credit card debt and, when they do, are more likely to have a plan for paying it off.

According to the survey, 38 percent of adults without a financial plan have significant credit card debt, and only 47 percent of these people have plans to reduce it. Meanwhile, even a little bit of financial planning seems to help people rely less on credit cards. Among adults who fall into the "limited planners" category — meaning they have a financial plan, though not an especially detailed one — are less likely to have such debt. The survey found that 61 percent of these limited planners have no credit card debt at all. And only one in five people with comprehensive financial plans have significant credit card debt that needs to be paid down, with 92 percent having a plan to do so. (See also: 5 Ways to Pay Off High Interest Credit Card Debt)

6. You'll be better prepared for a financial emergency

What happens if your car's transmission goes on the fritz? What if your home's furnace conks out in the middle of a chilly night? If you don't have an emergency fund built up, you might have to pay for those repairs with a credit card.

Even worse — what if you suddenly lost your job? This is why that cushion is so important. Financial experts recommend that you have at least six months' to a year's worth of daily living expenses saved in an easy-to-access fund, like a savings account.

Building an emergency fund takes time, but if you have a financial plan, you're far more likely to set aside the money you need each month — even if your salary isn't particularly high. Just $200 or $300 a month can add up over time. And if you have a financial plan that shows you how to save that money every month — perhaps by cutting down on unnecessary expenses — you're far more likely to build an emergency fund. (See also: 7 Easy Ways to Build an Emergency Fund From $0)

Creating a plan

Now that you know why a financial plan is so important, it's time to create one. The good news is that while a financial planner can help, you don't necessarily have to work with one if doing so is too costly.

Start by creating a household budget that shows how much you spend each month, including estimates for discretionary expenses, and how much you earn. Then, determine how much money you need to save for retirement, college tuition, and building an emergency fund. If you can't save a lot, start by saving whatever you can each month. From there, you might be able to boost those savings by reducing some of your less important expenses.

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Plan for a Forced Early Retirement

Denise Hill — Mon, 11 Dec 2017 09:30:10 +0000

Every working adult dreams of the day they can retire and take it easy. But for some, retirement is forced upon them sooner than expected. When this happens, a world of financial stress can follow.

LIMRA Secure Retirement Institute found that 51 percent of workers retire between ages 61 and 65, while 18 percent retire even earlier than that. It may not have been in your plans to retire so soon, but life doesn't always go accordingly — things like declining health or caregiving for a loved one can force people to leave the workforce earlier than they anticipated.

Retirement experts advise that in the face of this new trend, your retirement plan should include early retirement options and safeguards. Below are six things you can begin doing now to prepare for an unexpected early retirement.

1. Start planning early

Retiring just five years early — at age 60 versus 65 — can significantly impact the amount of income you may need to retire comfortably. One common retirement rule of thumb that can help you roughly determine how much you should save is the four percent rule.

Financial experts believe you can safely withdraw about $4,000 a year per $100,000 of savings during retirement, and that would last you approximately 33 years. So, if your living expenses are $40,000 a year, you'd need to save $1 million. This simple rule does not account for inflation or other sources of income such as Social Security benefits, but experts believe it’s a good baseline for gauging your retirement needs. (See also: 4 Retirement "Rules of Thumb" That Actually Work)

Bumping up what you contribute to your retirement fund, even by just a few dollars a month, along with lowering your cost of living is a great way to prepare yourself and your family in case you have to retire prematurely.

2. Plan for inflation

While the four percent rule is a great place to start, if you know that early retirement is highly likely for you, you need to be more aggressive. Fidelity advises that your goal should be to save at least six times your current annual salary by the time you are 50, and 10 times your income by the time you are 67. If you are not near these targets, it’s time to rearrange some things, rein in your spending, and begin aggressively saving.

Another pitfall of retirement many people forget to plan for is inflation. Retirement investments have failed to keep pace with our aging population, Social Security cuts, and hedge against the investment risks brought on by the shift from traditional pensions to individual savings.

When you retire, the world will be a more expensive place than it was while you were saving. You must understand and plan for the fact that $10 today will not buy the same thing in 2035. (See also: 4 Ways to Protect Your Retirement From Inflation)

3. Don’t take Social Security early

In 2014, LIMRA found that 57 percent of men and 64 percent of women took their Social Security benefits early. But since monthly benefits rise five to eight percent annually between ages 62 and 70, the longer you can wait, the better off you'll be. For example, if your full retirement age is 66, but you begin collecting benefits early at 62, your benefit will be reduced by about 30 percent.

In years past, once you hit 65, you were eligible for full Social Security benefits and could retire and receive a monthly check from the government. However, that is no longer the case — especially for younger workers who must put in more years to reach their full retirement age. Experts agree that you should only take your benefits early if you absolutely need to. Proper planning can prevent this from being your only option. (See also: 5 Questions to Ask Before You Start Claiming Your Social Security Benefits)

4. Consider a partial retirement option

"Partial retirement" simply means keeping a job on a part-time basis as a means to help stretch your retirement savings. By remaining in the workforce for a little while longer, you can defer retirement funds — such as Social Security, pensions, and even savings — until you decide to fully retire.

Some places, such as government agencies, offer phased retirement plans. These plans allow you to supplement your income by working part time while still contributing to your retirement fund and allowing you to keep a portion of your benefit package. It’s important to begin researching these things and understanding your options while you are able bodied. (See also: 4 Reasons You Might Have a "Phased" Retirement)

5. Find a side gig

If your company does not offer a partial or phased retirement option, side gigs are a great way to supplement your income and help tide you over until you reach full retirement age. And while most side gigs don’t come with benefits, you do get to set your own hours and work as you are able.

Now is the time to look into different side or part time jobs that fit your ability, skill set, and situation. What interests and hobbies do you have that could become profitable? Write them down and research ways you can make money doing those things. You may also want to research jobs you could do from home that are not too physically demanding.

Side gigs and part time jobs can also be good for your health. A 2016 Oregon State University study found that those who retire early die sooner than those who work beyond age 65. (See also: 9 Easy Ways Retirees Can Earn Extra Income)

6. Stick to a budget and pay off debt early

Surviving in retirement is not only dependent on how much you save, but also how much you spend. Most people have to scale back a bit during retirement due to a reduction in income. Scaling back after you retire is a tough thing to do. You have more free time to travel, indulge in hobbies, and spoil the grandkids rotten — all of which can quickly shrink your nest egg.

Start now by creating and sticking to a conservative budget. The extra money you save should go into your retirement fund or toward paying down debt. Scale back on expenses where you can and consider downsizing before it's time to retire for good. Establishing disciplined spending habits now will carry over and benefit you later — when it really counts.

A great way to reduce your overhead and free up some cash is to pay down your debt as quickly as possible and to get rid of your mortgage before you retire. The less debt you have, the more spending money you have. (See also: 6 Ways You Can Cut Costs Right Before You Retire)

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This article is from Denise Hill of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

8 Money Moves You Can Make When We Turn the Clocks Back for Fall

Emily Guy Birken — Mon, 23 Oct 2017 08:00:08 +0000

It's nearly the end of Daylight Saving Time, which means we're close to one of my favorite days of the year: the Sunday in autumn when we get an extra hour in the day. As a perpetually busy person, I have a tendency to consider the gift of an extra hour in my weekend to be better than Christmas.

Of course, that extra hour is only as valuable as you make it. It can be very easy to fritter away the time on Facebook or on your latest binge-worthy Netflix series — and I have certainly been guilty of wasting my extra time in years past. That's why this year, I'm going to dedicate my extra hour of Daylight Saving Time to making some smart money moves.

Each of the following eight money moves will take you less than an hour, and taking care of one or more of them will help you improve your bottom line without eating into any of your usual time.

1. Set up an automatic transfer to savings

An emergency fund is the cornerstone of good financial health, but it's also the kind of thing that can easily get pushed to the back burner. If you try to find money at the end of the month to put into savings, you'll often discover there's nothing but pocket lint in your checking account, and another month will go by with no deposits into your emergency fund. This is why so many personal finance experts recommend creating an automatic transfer from checking to savings on payday. If you save your money before you have a chance to spend it, then it will actually be there for you in an emergency.

During your extra hour this year, log onto your bank's website and set up your automatic recurring transfer online. Even if you can only afford to transfer $20 each paycheck, your recurring transfers will add up over time. While you're setting up the recurring transfer, set it to automatically increase in three months' time, and again in six months' and nine months' time so that you don't have to think about upping your savings rate again until the end of next year's Daylight Saving Time. (See also: Where to Find Emergency Funds When You Don't Have an Emergency Fund)

2. Bump up your contribution to retirement

November is when many employers are going through their benefit cycles, so now is a great time to amp up your retirement savings. Increasing your contribution to your 401(k), IRA, or other retirement account is of the sort of thing that you never get around to since you have to get in touch with your HR department or otherwise look up how to do it. But contributing as little as an additional 1 percent of your paycheck to your 401(k) or other retirement savings vehicle will add thousands of dollars to your retirement savings. And if you are not already contributing the amount necessary to meet your employer's matching amount, remember that you are leaving free money on the table. Increase your contribution so you can get your employer's matching contribution. (See also: 401(k) or IRA? You Need Both)

3. Adjust your withholding

In 2017, the average American received a federal tax refund of about $2,800 — which basically meant most Americans sent nearly $3,000 on a field trip to the IRS and received no interest when the money came back. While it's always exciting to receive a big check from Uncle Sam in April, you can do more with your money if you keep it in each paycheck rather than send it off as an interest-free loan to the government.

To reduce your tax refund, start with the IRS withholding calculator. This tool will help you determine how many withholding allowances you may take. Your withholding allowances do not determine your tax bill, only how much you pay in taxes per paycheck, so your answers on the calculator can be approximate. Once you have figured out your allowances, request and fill out a W4 form from your employer's HR department.

Spending some of your extra hour doing these calculations will result in fatter paychecks as soon as your HR department files the new paperwork. Not bad for less than hour of truly "free" time.

4. Freeze your credit

The Equifax hack served as an important wake-up call on just how vulnerable our financial information can be. You probably looked into ways to protect yourself when Equifax was dominating the news, but it's understandable if you never got around to actually implementing the necessary work to keep your financial information from ending up in the hands of a scammer.

One of ways you can protect yourself after such a data breach is to freeze your credit. You will pay a small fee, and then no one — including you — can open new credit in your name. The freeze will last indefinitely, so there is no need to remember to renew. The fees range from $5 to $10 per credit bureau, depending on which state you live in. This means you will pay between $15 and $30 to freeze your credit with all three bureaus — although Equifax has currently waived fees for initiating a credit freeze. In addition, if you have ever been the victim of identity theft, the fee for freezing your credit report is waived.

You will need to call the credit reporting companies to place a freeze on your file. Here are the numbers to call:

Equifax: 800-685-1111 (NY residents: 800-349-9960)
Experian: 888-397-3742
TransUnion: 888-909-8872

Once your credit is frozen, you will have to temporarily lift the freeze if you want to purchase a new car or home or otherwise open up your credit. For instance, if you are leasing a car, you can ask the dealership which credit reporting company they're going to use to access your report, and simply lift the freeze at that company. It takes no more than three days to lift a freeze for this purpose.

Spending time on the phone with a credit reporting agency is no one's idea of fun, but using your extra hour to do this means you don't have to carve out time elsewhere in your schedule. (See also: How to Protect Your Credit After the Equifax Breach)

5. Check your credit report

In addition to freezing your credit, don't forget to take a gander at what's on your credit report. You are legally allowed free access to credit reports from TransUnion, Experian, and Equifax once a year, and your extra hour is an excellent time to look them up.

To do so, just log onto annualcreditreport.com for access your credit information. Getting your report will take just a few moments — you just need to fill out one form to request up to three credit reports (one from each agency), pick which agency's report you want to look at, and verify your identity to receive your credit report.

While printing out your reports will take next to no time, be sure to use the rest of your hour to go over the reports in detail to make sure there are no errors. (See also: How to Read a Credit Report)

6. Set up overdraft alerts

Overdrawing your checking account is one of those easy-to-do mistakes that can cost you big-time. Your bank might offer you "overdraft protection" that allows you to continue to make purchases while you are in the red, but the accompanying overdraft fees can be a serious budget-killer.

So while you're enjoying your extra hour, log onto your bank account and sign up for overdraft alerts. With these alerts, you'll get a text or email when your account balance dips below a certain level, keeping you from feeling the sting of overdraft fees.

7. Use up your excess FSA funds at the FSA store

Setting money aside in your flexible spending account is an excellent way to earmark funds for medical and other health costs throughout the year, but FSA money is use-it-or-lose-it, which means that at this point in the year, you might have a hefty amount of money you're in danger of losing.

Instead of just giving up money that will be left unused, you can spend some of your remaining FSA dollars at fsastore.com, an online marketplace for sunscreen, contact lenses, bandages, and other health-related items that you are allowed to use your FSA money to buy. Of course, you can spend it just as readily at your local pharmacy, too.

8. Update your beneficiaries

Do you know who your beneficiary is for your life insurance and other financial accounts? If you haven't checked the paperwork in a few years, you might find that you have an out-of-date beneficiary listed.

For instance, when my sister first started her career, she named me as her life insurance and retirement account beneficiary. Since that time, my sister has gotten married and gave birth to my niece, which means it would be completely inappropriate for me to still be her beneficiary. Because these policies can often last for decades, many people forget to update their beneficiaries even as their lives change.

Take your extra hour to look up your life insurance and other financial paperwork to make sure your beneficiaries are up-to-date and you're no longer leaving your life insurance money to that ex you were engaged to 15 years ago.

An extra hour of financial productivity

We all love having an extra hour of the weekend when Daylight Saving Time ends, but you can make that hour even more valuable by using it to make great financial choices. You'll be glad you did.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

6 Financial Steps to Take When Your Aging Parents Move In

Annie Mueller — Thu, 10 Aug 2017 08:00:07 +0000

Long-term elderly care can be prohibitively expensive. Fortunately, there's a long, worldwide history of having a multigenerational household, and moving your aging parents in with you can provide multiple benefits. You know your parents will receive the care and attention they need, and you gain precious time with them.

Making this transition can be complex, though. If you've decided to bring your aging parents to live with you, consider these smart money moves to simplify and support the process. (See also: A Simple Guide to Planning For a Loved One's Long-Term Care)

1. Organize their finances

Since bringing your parents into your home affects your finances, too, you need to have some honest discussions with them about their financial resources, and yours. You need to know what they can handle financially, and what you'll need to take on. Getting their financial information in order is an important first step, so you can assess the combined financial picture together and plan accordingly.

Since financial matters are often stressful, these discussions can be the most delicate part of the transition. Discuss with your parents the importance of simplifying and organizing their finances. Work with your parents to locate and organize all important financial information. Consider purchasing a fireproof safe or renting a safety deposit box for the most important financial and legal documents.

2. Plan for their finances

Once you have all the financial information at hand, you'll need to sit down with your parents to make some decisions. It's often a good idea to set up a meeting with a financial adviser to discuss creating a will and making a plan for how to handle illiquid assets, investments, and any liquid wealth in the most beneficial way possible for your parents.

You also need to discuss options for helping your parents handle their finances in the event that they are not able to do so independently. You (or another adult child) may need to be included as a primary holder on their accounts. (See also: 6 Things You'll Encounter When Taking Over a Loved One's Finances)

Finally, examine the costs and expenses of having your parents move in with you. First consider the initial modifications and supplies needed to set your parents up with comfort and accessibility in your home. Then estimate how much your parents' ongoing monthly living expenses will be, and work together with your parents on the best plan for covering these expenses.

3. Create an independent living space

If both of your parents are moving in with you and at least one of them is still functioning moderately well, they may be able to handle a little more space and separation from you. On the other hand, if your parents need assistance with their daily needs and/or medical care, you'll want to be nearby.

For parents who want more independence, consider the "granny pod" trend. This is a small but separate structure, often placed in the backyard. It can be a tiny home, guest cottage, small prefabricated home, or a converted workshop or garage. The separate building helps you all maintain some privacy and space, but still keeps you close and connected.

If your parents will be in your main house with you, there are many cost-effective options for creating a usable living space for them.

Convert an unused room. An empty dining or living room can become a spacious bedroom.
Close in an outdoor space. That patio, deck, or porch may already have the structural elements in place.
Use the basement. Transform the empty downstairs of your home into a suite for your parents (just be sure that accessibility isn't an issue).
Change your configuration. Perhaps you'll give up your master bed and bath for your parents, but convert the basement into your own luxurious suite.

While some changes may be costly upfront, any improvements and updates you make to your home can add to its long-term value. Keep good records so you can validate the increased value of your house if you decide to sell in the future.

4. Consider accessibility needs

There are several accessibility and safety needs to consider with your aging parents. Will they need a wheelchair ramp for getting in and out of the house? If they will be using stairs, are there adequate, sturdy handrails? (These are an important safety feature for anyone, not just aging parents!) Talk with your parents' medical provider about any other special safety or accessibility concerns.

5. Investigate financing options

Once you know what your parents need, investigate options for financing it. Your parents' insurance may foot all or part of the bill for necessary home modifications for safety or medical reasons. Medicaid and Medicare generally don't cover home modifications, but may provide needed in-home equipment. The Department of Veterans Affairs also covers some home-modification needs.

Beyond insurance, there are some state programs that provide financial assistance for elder-care home modifications and there are grant and loan programs from the Department of Agriculture, as well as from the Department of Housing and Urban Development and the Federal Housing Authority. Finally, many local nonprofit groups provide financial assistance or volunteer labor to help with home modifications for seniors.

If you do have to fork out your own money, you may at least get some relief from the IRS, as some home improvements qualify for tax deductions.

6. Establish a caregiver agreement

If your aging parents will need help with daily activities or will require in-home medical care, consider establishing a formal caregiver agreement. A formal agreement can help you continue to personally afford your parents' care, especially if you need to forego other employment to provide that care.

Without this agreement, it's more difficult to qualify for tax deductions, and your parents may find their Social Security payment lowered. With an agreement, you can set out the formal cost of your care in terms of a fair-market rent and the hourly rate of a caregiver. This protects both you and your parents from a financial loss you don't need to incur.

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This article is from Annie Mueller of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

7 Strategies for Paying Off Debt When Living on a Variable Income

Annie Mueller — Wed, 02 Aug 2017 08:00:09 +0000

Paying off debt can be a challenge even if you have a steady paycheck. When your income is variable, it's even harder. These strategies can help you take care of your financial obligations even when your salary isn't stable.

1. Set a budget from your baseline

Take a look at your earning potential and set a baseline. Base it on what you can expect to earn even in a worst-case scenario month. For example, if you're in sales and you earn a base salary plus commission, your baseline is your base salary. If you're a freelancer with several contracted clients and fluctuating income from other projects, your baseline is what you earn from the ongoing contracts.

From your baseline, build a budget that covers the minimum payments you need to make every month. If more money comes in, you can split it among savings and paying down debt. (See also: The Smart Way to Budget on a Freelance Income)

2. Reduce your expenses and bills

Be very detailed in your baseline budget. Your recurring bills are the starting point; your actual spending is just as important. You need to know, for example, if you spend $100 on books every month, or if your grocery bill is $200 more than you think it is. Once you're aware of all your bills and expenses, look for ways to reduce them. You don't need to reduce them all; keep the expenses that give you the greatest payback in satisfaction and minimize the costs that don't add much to your quality of life.

If you're paying off more than one debt, debt consolidation might be key to reducing multiple high-interest payments into one monthly payment. Explore your options to determine if you can lower your debt interest and payments and close that gap.

3. Build up your gap savings

When you have a high-earnings month, send a percentage into a savings account and let it accumulate over time. When needed, you can use it to fill in the gap when your baseline earnings aren't quite enough.

4. Pick up a side hustle

Another strategy for closing the baseline gap is to pick up a steady side job. There are many kinds of side hustles and part-time jobs you can consider; it's most helpful, in this case, if you find one that will give you a predictable amount of earnings every month. That way, you can add it to your baseline so that there's no longer a gap between what you'll make and what you need to make.

When you get that big commission or finally get paid for the last project, it's tempting to splurge and enjoy the high times. A little splurging is good for morale, but the key to surviving and thriving on a variable income is making the most of the big paydays.

5. Follow a savings plan

You may not be able to add to your savings during the lean times. But when your earnings spike, save a good percentage of it. Put a plan in place before you get the big payday. You might decide, for example, that anything over your baseline gets divided into three categories: 30 percent for savings, 30 percent for debt payments, and 30 percent for expenses that have been on hold. That leaves you 10 percent for splurge money.

6. Follow a debt reduction plan

If you use the plan above, or one similar to it, you'll know that a set percentage of your earnings over baseline go to reducing your debt. It's good practice to pay off the debt with the highest interest rate first, otherwise known as the avalanche method. You can also negotiate with creditors if you have a good chunk of the debt ready to pay. Some creditors will reduce your total amount owed if you're able to pay off most of it in cash, right away.

7. Maximize your savings

Finally, don't let a variable income keep you from being smart about how you save. While it feels good to have cash at the ready, it's a smarter long-term strategy to put your savings into high-earning investments. Build up a decent emergency fund so you can handle a crisis and close that baseline gap as needed. Put any savings beyond the emergency fund into longer term investments with a higher yield, so you make the most out of your income, variable or not.

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This article is from Annie Mueller of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The Financial Basics Every New Grad Should Know

Matt Bell — Fri, 21 Jul 2017 08:00:11 +0000

If you're a recent college grad, congratulations. As you settle into your first job, you'll probably have more money flowing through your life than ever before.

Take a minute to think of your financial potential. Let's say your starting salary is $45,000. If you're 21 years old, earn a 3 percent raise each year, and work until you're 70, you will have made nearly $5 million by the time you retire! (To use your actual salary and change other assumptions, use this lifetime earnings calculator.)

Here are seven ideas for making the most of your financial potential.

Plan to succeed

To be intentional about your use of money, you need a plan. That's right, you need a budget — or as I prefer to call it, a cash flow plan. Today, free tools such as Mint.com make the process relatively painless.

There are three key activities involved in using a budget: planning, tracking, and adjusting. First, figure out how much of your income you need to allocate to housing, food, clothing, and all the rest of your expenses. Your income will determine how much you have for discretionary spending on, say, entertainment.

Then, keep track of your expenses. You can jot them in a notebook or spreadsheet, or link a tool like Mint to your checking account and credit cards, so it can do much of the tracking for you.

Don't be discouraged if you don't hit your numbers each and every month. Your assumptions may have been unrealistic. Plus, your goals and circumstances will change, so the amounts you allocate for various categories will need to be adjusted over time as well.

Put some away

The key to building wealth is to set aside a portion of every dollar you earn for saving and investing. There are two separate types of savings that are important.

First, there's an emergency fund. In life, stuff happens. An important way to avoid going into debt for that stuff is to have some money set aside in savings. Financial advisers often recommend your emergency fund have enough to cover three to six months' worth of essential living expenses.

But when you're just starting out, you probably have relatively few breakable moving parts in your life. For example, renting an apartment is less financially risky than owning a home. If that's you, having three months' worth of expenses in savings is probably enough.

The second type of savings is for periodic expenses. These are expenses that occur every year, but not every month — things like a semiannual car insurance premium, end-of-year holiday gifts, or a vacation. Take the annual total of each of these items, divide by 12, and then put that much in savings each month. That way, when the expense comes due, you'll have the money already set aside.

Invest for your future

A little bit of money invested each month for a long time and at a decent rate of return will eventually turn into a lot of money you can use for retirement. Using our earlier assumptions (age 21, starting salary of $45,000, and a 3 percent annual raise), if you invest 10 percent of your salary (a good target) and generate an average annual return of 7 percent, by the time you're 70, you will have built a retirement nest egg of $2.7 million!

Bottom line? If your employer offers a workplace retirement plan, such as a 401(k), sign up as soon as possible. And don't miss out on any matching money.

Keep your biggest expense under control

Aim to spend no more than 25 percent of your monthly gross income on housing — even better if you can keep it to no more than 20 percent. If you own, that's the combination of your mortgage, insurance, and property taxes. If you rent, that's the combination of your rent, insurance, and utilities.

Keeping your housing costs within that range will give you the margin you need to save, invest, and enjoy financial peace of mind.

Avoid a car payment

Vehicles depreciate in value quickly, so avoid financing them. If you can't pay cash right away, see if you can go without a car, at least while you save up for one. That may be viable if you live in a city with good public transportation. If not, get the least expensive used car that's highly rated by Consumer Reports.

You're not looking for something flashy. You're looking for a car you can pay off quickly and keep for a long time. By the time you need to replace it, the combination of your savings and the value you'll still be able to get when trading in your current car should enable you to afford a nicer car.

Choose your bank or credit union carefully

Too often, people choose where to open a checking account based on which bank has the best promotion. Once you go to the trouble of setting up online bill-pay with your utilities, insurance providers, and others, the hassle factor involved in changing banks goes up a lot. So, choose carefully.

If you use an ATM frequently, you'll want a bank with lots of ATM locations. And you'll probably want a bank that doesn't charge a fee for a low balance.

Get a credit card

Having a credit card in your own name will help you start building a credit score, which is beneficial for everything from getting a job to paying the least for insurance. (See also: How to Use Credit Cards to Improve Your Credit Score)

If you don't have a credit card already, see if you could get one through your bank. If not, a retailer may be more willing to approve you — but retail cards are notorious for having high interest rates, so make sure you pay off your bills quickly. If you still have trouble, look into getting a secured card. With a secured card, you'll have to put down a deposit, which will usually be equal to your credit limit.

Just be sure to be responsible. That means using your credit card only for preplanned, budgeted expenses, recording any charges in your budget right away, and paying the balance on time and in full each month.

If you take the steps and build the habits described above, you'll give yourself the best possible chance of making the most of your financial potential.

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This article is from Matt Bell of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

8 Questions Financial Advisers Hear Most Often

Tim Lemke — Fri, 02 Jun 2017 08:00:10 +0000

No one goes to a financial adviser if they already know everything there is to know about retirement planning and investing. So most people will, logically, come armed with a variety of questions when they meet with an adviser, especially if it is for the first time.

Financial advisers say they hear many of the same questions repeatedly from clients looking to build their retirement savings or live large in retirement. Most of the questions center around the ability of clients to retire, or the information needed to build wealth in the hopes of retiring comfortably.

This list of common questions for financial advisers was compiled with the help of Greg Hammer of Hammer Financial Group in Northwest Indiana, and Willie Schuette, financial coach with JL Smith Group in Ohio.

1. "Can I retire?"

This is really the ultimate question posed to most financial advisers. Clients want to know if they can afford to stop working. And if not now, when?

A financial adviser will help you determine how much money you have and how much more you'll need, based on your life expectancy and retirement plans. Both Hammer and Schuette said they often have to break the news to clients that they need to keep working, but that's better than telling them after they’ve retired that their money is likely to run out.

2. "Can you help me avoid paying taxes?"

The Internal Revenue Service can take a chunk out of your earnings, and often leave you with less cash than you originally planned. Financial advisers say they get a lot of questions about how to avoid a big tax hit, especially from retirees looking to preserve every dollar they have.

Advisers field many questions about Roth IRAs, which allow investors to invest money and withdraw it tax-free upon retirement. Many investors turn to financial advisers for advice on the tax implications of converting traditional IRAs into Roth IRAs. There are also a multitude of other tax questions relating to municipal bonds, inheritance taxes, and tax deductions.

3. "How can I preserve my money?"

Financial advisers say clients are generally aware that they need to invest more conservatively as they get older to protect against market downturns, but aren't quite sure how. What's the right investment mix based on their age, their money saved, and retirement date? What's the best way to go about shifting away from stocks to cash and bonds?

Hammer and Schuette say they get questions like this all the time, and are happy to walk clients through the best approach to keeping their retirement nest eggs secure.

4. "When should I collect Social Security?"

Retirees can begin collecting Social Security benefits as early as age 62, but will get larger monthly payments the longer they wait. Financial advisers will usually work with retirees to develop income sources that will allow them to delay collecting Social Security. But both Hammer and Schuette said their recommendations depend on the individual client's circumstances and financial needs. (See also: 5 Sobering Facts About Social Security You Shouldn't Panic Over)

5. "What's the deal with health care?"

With Congress working to repeal and replace the Affordable Care Act, many clients are wondering how their health care may be affected. Financial advisers have received this question from retirees who are not old enough to collect Medicare, as well as younger clients who don't get insurance through an employer. Advisers say they will walk clients through the cost of health care and the proper plans, as well as assist with setting up things like health savings accounts and emergency funds.

6. "I know I need life insurance, but what kind? And how much?"

Financial advisers say clients usually know they need some sort of life insurance to protect their families, but are often bewildered by the offerings. There's whole and term life insurance, and policies with varying sizes, lengths, and premiums. An adviser can help find the right kind of insurance for each person and their unique situation. (See also: Why Your Group Life Insurance Is Not Enough)

7. "My spouse just died. What do I do?"

Many people feel confident in their financial planning, until something changes in their life that throws things out of whack. A loss of a spouse or other major change cannot only be challenging emotionally, but it can drastically change a person's financial needs. There may be a sudden loss of income when a spouse dies, and there are endless concerns about taxes, life insurance, and even real estate.

8. "How do I take care of my heirs?"

For most people, the main financial goal is amassing enough wealth to last their full retirement, and there's not much consideration for the next generation. After all, saving for your own several decades of life after retirement is hard enough.

But Hammer and Schuette say there is a segment of clients seeking the best approach to passing wealth onto to their children and other relatives. Financial advisers say that in these cases, the conversation centers not only on amassing wealth, but taking into account things like inheritance taxes, and performing full, in-depth estate planning.

This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

11 Secrets You Need to Tell Your Financial Adviser

Tim Lemke — Tue, 28 Mar 2017 10:01:05 +0000

So you've made an appointment to sit down with a financial adviser and formulate a plan for your future. Are you prepared to talk about your full money situation? In order to truly help you, your financial adviser needs to look at the big picture. That means there can be no major money secrets.

Financial advisers will often begin each session by asking a lot of questions that may seem personal. But they'd be negligent if they didn't. In fact, it's their fiduciary duty to learn as much about you as they can in order to advise you properly.

Here's a list of secrets you'll need to share with your financial planner if you want the best advice.

1. All of your debt

When you're being crushed under a mountain of debt, you may not want to talk about it. But a financial adviser is perhaps the best person to discuss it with. Your adviser can't craft a sound financial plan for you if they're unaware that a good chunk of your income is going to pay off debt. If you let them know about your full debt situation, however, they may be able to assist you in climbing out of the hole and onto the path toward financial freedom.

2. Any job loss

It's not always easy to admit you are out of work. But a financial adviser can't help you properly if you don't provide a full picture of your income situation. If you're out of work now, let your adviser know. If you were out of work for a long stretch in the past, let them know that as well. Financial advisers can also help you navigate what to do when your income has been cut, as well as advise you on what to do with old 401(k) accounts and pension money. (See also: If You're Lucky Enough to Receive a Pension, Here Are 6 Things You Need to Do)

3. Family members you support

Do you pay child support? Do you regularly send money to your brother up in Buffalo? Do you have an elderly parent living with you? Your financial adviser will want to know about any money you spend to support other people, even if it's only occasionally or informally. These are expenses that have an impact on your overall financial picture, and are not the kinds of costs that you can easily eliminate.

4. Sizable gifts

You're fortunate enough to be given $25,000 from your generous Uncle Steve, but you feel like it's really not something you want people to know about. After all, who might come knocking on your door now that you have this extra cash on hand? That's understandable, but it's important to tell your financial adviser, because they can offer advice on what to do with the new funds. An unexpected influx of cash, even if it's just a one-time gift, can have a ripple effect on your overall saving strategy.

5. Tax troubles

Have you been diligent about paying your taxes? If not, this is something you'll want to tell your adviser. This goes for late taxes, tax liens on properties, and past audits. The longer you wait to take care of tax problems, the more you may end up paying in penalties and fees. Your financial adviser can help you clean up your tax issues, and will be in a better position to help you plan your future.

6. The status of your marriage

If you're meeting with an adviser, it helps to let them know if you're about to get married, or if your marriage is about to end. Marriage and divorce have all kinds of financial implications on everything from income to taxes to planning for retirement.

7. Your vices

Gambling. Alcoholism. A shopping addiction. We all have our bad habits, but it's important to be aware of those vices that impact your finances. Are you at risk of incurring debt due to a major gambling binge? Is alcohol preventing you from landing steady work? Your financial adviser can't accurately assess your finances if they don't know the situation.

According to Doug Amis, a CFP with Cardinal Retirement Planning in Cary, NC, even casual marijuana use is something clients should disclose to planners, because many life insurance companies still test for it.

8. Anything that your kids need to know

Hans Scheil, CEO and owner of Cardinal Retirement Planning, says that his most challenging clients are those who have kept important information from family members. This secrecy can create difficulty in later years, when facing important estate decisions.

"What happens with people now is that they develop dementia, or some sort of chronic illness, and they end up needing care," Scheil said. "This is when all of the family scandals come out."

Scheil says it's important to anticipate what your children and grandchildren may need to know about your estate to avoid strife down the road.

9. Charitable giving

It may seem odd to think of this as something you'd hide, but financial advisers say they've met with clients who have quietly been giving to a cause that their spouse or other loved ones might not agree with. Your donations to charity may not seem like anyone's business, but they can impact your overall savings if you give a substantial amount. A financial adviser can also walk you through getting tax deductions for your charitable donations.

10. Your own lack of financial knowledge

Are you the type who doesn't know an IRA from an IPA? Are you mystified by mutual funds and baffled by bonds? It's OK, your financial adviser is not there to judge you and will likely be more annoyed by any attempt to bluff your way through a meeting. Financial advisers can help you understand the ins and outs of investing and estate planning, so it's useless to pretend to know more than you do.

11. All of your side hustles

When your financial adviser asks you about your income, they want to hear about everything. Not just your day job, but your side work giving piano lessons, your freelance writing, your pottery sales, and even your gambling winnings. You may be hiding this income because you don't want to pay taxes. But your adviser needs to know about this extra income, or else any financial plan they create will be flawed. Moreover, your financial adviser can often give you advice on how to turn a quiet side hustle into a legitimate, profitable business.

This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

9 Costly Mistakes DIY Investors Make

Tim Lemke — Wed, 05 Oct 2016 10:30:08 +0000

With the right approach and education, it's possible for people to handle their own investments. But it's also easy to make mistakes that could cost you large sums of money in the long run.

If you're a do-it-yourselfer, ask yourself whether you're making any of these mistakes below. If so, it may be worth seeking professional advice from a certified financial planner.

1. Trading Without Considering Fees and Taxes

For many investors, it's fun to trade stocks. The actual buying and selling can be a bit of a rush, especially when things are going well. But all of that activity can come with a cost, in the form of transaction fees and capital gains taxes. If you are finding that the returns on your portfolio seem a bit lackluster, it may be because you're investing without taking these costs into account. More experienced investors and financial advisers understand how to avoid extra fees and maximize returns as a result.

2. Getting Emotional

Investing your own money can sometimes be hard on the psyche. You may go through stretches where you see your portfolio shrink. Stocks that you personally selected may not always perform the way you predicted. Markets can be volatile, and not everyone can stomach it. If you find yourself getting stressed out by the investing process or buying and selling based on emotion, you may want to consider having a financial adviser take over the reigns.

3. Not Investing Enough

When you invest on your own, you may only be guessing as to how much you need to save. And it's common for investors to feel a little skittish and invest too little if the market is down. A financial adviser may be more tuned into the appropriate level of risk an investor can take on, and will usually advise a more aggressive approach for someone far out from retirement.

4. Not Diversifying Enough

Most do-it-yourselfers understand the basics of diversification, and will invest in index funds that track the S&P 500 or broader stock markets. And that's perfectly fine. But often, these funds are heavily weighted toward larger companies or certain industries. If you are investing only in basic index funds, you may not have good exposure to international markets or smaller companies, for example. There may be entire industries that will be underrepresented in your portfolio.

To achieve true diversification, you can have an S&P Index fund as a base, but should also look for funds and stocks that fill in the gaps.

5. Failing to Rebalance

You may think you're creating a diverse portfolio based on the investments you've selected. But have you checked the balances recently? Over time, portfolios can get out of whack if certain investments are performing better than others. For example, you may think you're investing in 50% large cap, 25% small cap, and 25% mid cap stocks. Until one day, you check your account and realize that small cap stocks make up 40% of the portfolio. Financial advisers will recommend when to rebalance, and offer advice on how to avoid taxes in the process.

6. Trying to Beat the Market

Some investors insist on doing things themselves, because they believe they are expert stock pickers and can beat the performance of the overall stock market. In most cases, they are wrong. Numerous studies have shown that even professional investment managers can't beat the market on a regular basis, and that most investors would be best off with a portfolio of index funds.

7. Falling in Love With Shiny New Things

Do-it-yourselfers can become enamored with whatever the hot stock is at the moment. They go for name brands and flash rather than looking closely at a balance sheet. They also tend to go with what's familiar, rather than doing some research and finding investments that are less well known but of sound quality.

8. Having No Backup Plan

If you are an older DIY investor, do you have a plan for what happens to your investments if you are incapacitated? Are you sharing your investment accounts with your spouse or other loved ones? Many DIY investors are too stubborn to seek help from anyone, and thus run into problems when they are no longer in a position to manage things themselves. It's fine to handle your own investments if you're confident enough to do so, but it's wise to have a plan for how things will be dealt with if you're no longer in charge.

9. Becoming Too Consumed

Realistically, the average person can handle their own investments while checking in only periodically each week. A properly balanced portfolio does not need a lot of maintenance. But investing can be like an addiction to some people, and it's possible to spend hours a day buying and selling and becoming obsessed with the movement of the markets. If you're finding that your investing is having a negative impact on your relationships and other aspects of your life, it may be best to back off and let someone else handle things.

This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The 7 Most Important Financial Moments of Your Life

Tim Lemke — Thu, 23 Jun 2016 10:30:04 +0000

We all have turning points in our life. They are moments when it seems like our future rests on what happens next. Perhaps it's when we met our spouse, or decided on what college to attend.

There are a number of moments like these that could have major impacts on our finances, depending on how we react and whether we are prepared. Consider these seven key moments or decisions and how they affect your financial future.

1. You Get Your First Credit Card

Right around the time you graduated high school, you probably got solicitations for credit cards in the mail. If you went to college, credit card companies may have stopped by your dorm or had a booth set up on campus. Credit card companies wanted you when you were young, and once they got you, they wouldn't let go. (See also: Best Credit Cards for College Students)

For those who haven't gotten a credit card yet, there's a lot you need to know before signing up. Yes, you will want to get a credit card or two in order to build a credit history. But learn to use them with caution. Do your own research and find the credit card that is best for you. (Look for the lowest interest rates and the best rewards.) When you use a credit card, pay your balance in full each time. Get an understanding of how high interest on credit card debt can pile up. If you start off with bad credit card habits, you may enter a debt spiral that will be hard to escape from, and it may have a ripple effect on every aspect of your financial life.

2. You Move Out

Everyone reaches a point in their life when they can no longer mooch off Mom and Dad. If you're lucky, your folks have been letting you shack up in their basement and raid their fridge even after you've long been able to support yourself. But at a certain point, it's time to leave the nest. This is when budgeting and watching your expenses becomes key. It's also a time when you may find that your ambitions are bigger than your finances can allow. Can you really afford that apartment in the city? Are you really planning to go clubbing and eating out with your friends every weekend?

It's tempting when you go out on your own to want to live it up, but this is a time when young people often find themselves in financial pickles. Learn to budget, spend sensibly, and understand that it's possible to live the fun, single life without going into debt.

3. You Get Your First Salaried Job

It was a great feeling to get that first paycheck as a teenager, but an even bigger moment was when you landed your first job that you consider part of your "career." This is the type of job that pays a salary rather than a living wage, and may even offer benefits like a 401K plan.

These first big jobs are when you start to actually think hard about where your money is going. You'll want to pay attention to your tax withholding to avoid paying too little or too much tax. You'll want to set a certain amount aside to pay down debt. Once that's taken care of, you'll want to invest. And don't forget about health and life insurance. A big job often means some big financial decisions. Are you ready?

4. You Have Your First Big Emergency

Maybe it's a serious illness. Maybe you totaled your car. Or maybe your heat furnace blew out unexpectedly. Whatever it is, it's going to cost you some money. Did you plan for this? Do you have an emergency fund of three to six months' worth of expenses? It's moments like these that test your financial discipline. Those that come through relatively unscathed are much better off in the long run. And even if you're not prepared this time, you learned enough to be prepared for the next emergency, which may be coming sooner than you think.

5. Your Child Is Born

So you have a new bundle of joy in the house. Wonderful news, and congrats! Are you financially prepared for this? Because kids aren't free. It costs at least $11,000 annually to raise a child in the United States, according to the USDA, and that total could be much higher depending on where you live and any child care costs. Having a child also may impact your investment choices. The good news is that there are tax credits for having children — but the bad news is that they hardly offset the added expenses.

Having a child is an amazing, life-altering event. Just be prepared for how those kids impact your finances.

6. You Decide to Buy a Home

Buying a home is one of the most exciting, but stressful decisions you will ever make. Before taking this plunge, there are a number of big financial questions you'll want to answer. How much money do you have saved for a down payment? How much money will you need to borrow? What's the interest rate and terms of the loan? These are key pieces of information that will impact how much you end up spending in housing each month. You'll get some nice tax breaks when you buy a home, but ideally, you want to spend no more than about one-third of your household income on housing. Otherwise, you may find yourself without enough cash to build an emergency fund, invest, or spend on other necessities.

7. It's Time to Retire

It's the moment of truth. All of the hard work, the saving, the investing. Do you have enough money to last another 20, 30, or even 40 years? Are your investments protected in case of a big market downturn? Do you have a plan for when you might not be able to care for yourself any longer?

This is a critical moment in your financial life, but it should be one that is free of drama if you made the right financial choices along the way.

Any key financial life moments we've overlooked? Tell us about them in comments!

This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

7 Lessons About Money I Learned After Having Twins

Damian Davila — Wed, 17 Feb 2016 11:30:04 +0000

When I first found out that my wife and I were having twins, I figured that raising our boys would be expensive. Learning that the U.S. Department of Agriculture (USDA) estimated that middle-income parents would spend an average $25,880 on twins in their first year really shocked me.

The USDA estimated that U.S. families could spend from $353,100 to $815,640, depending on the family’s income level, to raise twins born in 2013 through high school. These estimates didn’t even include college tuition!

The good news is that there are plenty of ways to bring down the estimated costs of raising twins. Here are the seven lessons about money I learned after having twins.

1. Don’t Buy Everything

“Two of everything!” is one of the first things that people tell me once they find out that I have twins. In theory, having twins should double your expenses. In reality, it doesn’t. More than one parent of multiples advised me not to buy everything and they were 100% right. You can do just fine with only one of many items, including baby bathtub and pack-and-play.

Even more, there are so many baby items marketed to parents that you can do without, such as the Baby Brezza Formula Pro One Step Food Maker retailing for $150. While you always want to give your babies the very best, keep in mind that sometimes less is more. You already have a long list of must-buy-two items, including car seats and cribs (you can get away with just one only for so long!), so don’t hesitate to cut down on non-essentials.

Money Lesson

Warren Buffett said it best: “If you buy things you do not need, soon you will have to sell things you need.” Splurging should be the exception and not the rule.

2. Look for Niche Discounts

Somedays you may feel that you’re the only parent of twins in your neighborhood. The reality is that the U.S. twin birth rate was 33.9 per 1,000 births in 2014, up from 33.7 per 1,000 births in 2013. As more parents have twins, more businesses are extending special discounts to those parents.

Babies R Us extends a 10% discount when you purchase two of the same item on the same in-store visit. Qualifying items include baby furniture, car seats, strollers, high chairs, and gates.
Pampers offers a one-time set of coupons to parents of twins and multiples by mailing your name and address along with the hospital discharge copies to: Pampers Multiple Birth Offer, The Procter & Gamble Company, P.O. Box 599, Cincinnati, OH 45201 or by calling 1-800-726-7377.
Luvs Diapers also offers a one-time set of coupons as well and you can write to the same mailing address as above with attention to “Luvs Multiples Birth Program” or call 1-888-665-3257.

Money Lesson

Businesses seek ways to attract customers from different niches. There may very well be a discount out there for you, but it may require you to do some extra leg work, such as calling the company or mailing a letter.

3. Buy Life Insurance

Now that you are a parent, buying life insurance is one of the money moves to make or you’ll regret it 20 years from now. Right now is the cheapest rate that you’ll ever be able to get life insurance, so you’re better off locking into it now than waiting several years.

If you’re the main or sole breadwinner of your household, provide financial security to your dependents in case you’re no longer there for them. Could your spouse tackle the monthly mortgage payments, car payments, and living expenses without you at all? Nobody likes to think about their own mortality, but things are very different now.

Money Lesson

Life insurance is the foundation of financial planning to help protect your family against life’s pitfalls.

4. Start or Build Up Your Emergency Fund

With twins, I have learned how essential it is to have a cushion to lessen the blow of many surprise costs — such as certain vitamins and medicines not covered by health insurance, or changing to a more expensive baby formula due to sensitive digestive systems. Only 38% of Americans can pay unexpected expenses, such as $1,000 for an emergency room visit or $500 for a car repair, from savings. Achieving the right balance between interest rate and liquidity is often possible with a high-yield online savings account, which provide interest rates ranging between 0.75% and 1.25%. Make sure to read the fine print on access to funds to avoid surprises.

Money Lesson

Having a rainy day fund is essential to keep your monthly budget on track, so start (or build up!) yours today.

5. Adjust Your Withholding

Of course, since I’m asking you to start paying for life insurance and putting money away in a savings account, I do need to give you a way to come up with those extra monies! The easiest one is to revisit how much you’re currently withholding every month for taxes. In 2014, the IRS doled an average of $3,096 in tax refunds.

Unless you got a refund entirely based on tax credits, you’re withholding too much in taxes. Using the $3,096 average, you could have an extra $258 every month. Now that you have dependents, you may qualify for several exemptions and tax credits, including the Child Tax Credit and the Child and Dependent Care Credit, to effectively reduce your tax bill.

Remember that a refund is money that just sits in Uncle Sam’s pocket making you 0% interest!

Money Lesson

Use the IRS Withholding Calculator or talk with your accountant to find out how much you should withhold every month. Then, accordingly adjust your W-4 with your employer.

6. Open a Traditional or Roth IRA

While the 401K is the most popular type of retirement account, the Roth offers much more flexibility when it comes to taking distributions before age 59 1/2. As a parent of twins, having my retirement account as a last-resort fund that I could tap into without IRS penalty to help my sons is very important.

For example, I could take up to a $10,000 distribution to help them to pay for their first home. As long as I don’t go over that total limit, I can split the distribution as I see fit and can take one in separate years. Another penalty-free withdrawal from an IRA I can take is to cover qualified higher education expenses, including tuition, fees, books, supplies, and equipment required for the enrollment or attendance of my sons at an eligible educational institution.

Bonus: Using an IRA, you can save an extra $5,500, or $6,500 if you're age 50 or older, in 2015 and 2016 for retirement.

Money Lesson

Saving in an IRA allows you to take early distributions without penalty for qualifying purposes.

7. Start Saving for Your Kids

Another great Buffet-ism is "Someone’s sitting in the shade today because someone planted a tree a long time ago." Imagine if you had an extra 18 years to save for college or retirement, wouldn’t that be awesome? That’s exactly the lesson that my wife’s and my own parents passed on to us the moment they found out we were having twins. (See also: 8 Money Moves to Make When You Find Out You're Pregnant)

A little bit goes a long way. Even saving $100 every year for 10 years is much better than starting to save $1,000 10 years from now:

With a 0.5% annual rate of return, you would end up with $1,025.57.
With a 1% annual rate of return, you would end up with $1,051.88.
With a 2.5% annual rate of return, you would end up with $1,135.45.
With a 4.5% annual rate of return, you would end up with $1,258.57.
With a 7% annual rate of return, you would end up with $1,443.48.

When thinking about saving for your kids, especially for education-related expenses, evaluate all options, including custodial IRA accounts and 529 plans. Many of these type of accounts provide full or partial income tax deductions. (See also: The 9 Best State 529 College Savings Plans)

Money Lesson

Leverage the power of interest compounding over a long period of time and give your children a head start on saving for education or retirement.

What money lessons did you learn with the arrival of your baby?

This article is from Damian Davila of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

8 Steps to Budget Mastery in 20 Minutes a Month

Shannah Game — Wed, 21 Oct 2015 13:16:44 +0000

The word "budget" strikes fear and panic in many. No one likes to think about them, let alone talk about them. The truth of the matter is that most budgets fail, and they fail badly, because most budgets lie. Yes, that's right — they lie. A budget can represent whatever numbers you put in it. If you forget to add a bunch of expenses in each month, then it makes sense that you would be over budget month after month after month

In order to break this silly cycle of money mayhem, here is an easy eight-step system you can use to master your budget in only 20 minutes a month. Open up a spreadsheet and let's get started!

1. Create a Second Column

Not to be redundant, but we've got to first start with the budget. Why most budgets fail is because they only have one column, the budgeted column. We've already gone over why this doesn't work. Instead, upgrade your budget to a two-column layout for success. Your first column is the "What I Think I Will Spend" column, and the second column is the "What I Actually Spent" column. Basically, you create two mirror columns to accurately display what is going on in your budget for a given month.

2. Fill in "What I Think"

The "What I Think" column should be the easiest column to complete and shouldn't take you more than a couple of minutes at most. This column represents all of your budgeted items. It's an approximation of what you think you will spend during the month. Most of the numbers should be easy to access from your normal monthly expenses. Don't labor over this column too much, but make sure that you attempt to accurately itemize each income and expense item.

3. End of Month

The end of the month is where things start to get a bit more analytical (but don't let that scare you). At the end of each month, print off your most recent bank or credit card statements in which you've incurred your expenses for the month. This is the easiest step in the eight-step process, but it's critical to analyzing what went on during the month.

4. Add It Up

Once you're armed and ready with your statements (and receipts, for cash spending), get out a handy calculator and some highlighters. Color-code your statements for budget expense items like groceries, eating out, gas, clothing, utilities, phone, and so on. Then go through the list and highlight each item in each category. This makes it easy to add it all up when you are finished. There's nothing yet to analyze in this step, you are simply categorizing for step six. This will take you the longest out of all the steps, so allow 10 minutes to conquer your statements. Once you do this process for a month or two, it should be very easy to go through your statements in five minutes or less. Practice makes perfect.

5. "What I Spent"

Now it's time to fill in the second column, "What I Spent." Simply take the numbers from your statements and input them into the budget template. If you notice that you've left off a category on your budget, add it and put it in bold so it can jog your memory next month. Each month has its own twists and turns, so it's common that you might leave out a category by accident.

6. Compare the Columns

You've done the heavy lifting now, and are almost through your 20 minutes this month. Take a look at your budget and compare the two columns. Are there any areas that surprise you? Did you come in under or over budget, and why? What about those missing categories, are they essential to include going forward? You see the power is in comparing these two columns. It gives you a chance to evaluate your budget from estimation in the beginning of the month, to an absolute at the end of the month.

7. The Envelope Trick

If you have a category that is always your Achilles' heel, and month after month you are overspending, then it might be time to kick it old school. For instance, let's say eating out is always an area you overspend in. If you've budgeted $200 for the month in your first column, then at the beginning of the month you can withdrawal that $200 in cash, and stick it in an envelope. For the entire month, every time you eat out, you must dip into this envelope. Once the money is gone, your eating-out budget is gone. While this might seem harsh, it's an old school way to force you to stay within budget. At the end of the day though, none of these steps will work unless you put effort in and are committed to mastering your budget.

8. Reward Yourself

We all love a good reward, and you should pat yourself on the back if you've completed these steps for the month. No matter the outcome, you've taken small moves that will lead to big changes in your cash flow. Pick a dollar amount that you are comfortable with at the beginning of the month, and set a goal for yourself. Maybe you want to treat yourself to an extra cupcake at the end of the month, or go to that concert that you are dying to see. Whatever it is, give yourself a pat on the back, but not for too long — next month is coming quickly and it will be time to restart the 20-minute system.

What's your budgeting system?

This article is from Shannah Game of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Start Saving for Retirement at 40+

Qiana Chavaia — Tue, 28 Apr 2015 11:00:29 +0000

Perhaps you missed the memo urging you to start saving for retirement in your 20s or 30s. Or, if your situation is anything like mine, you started a family early or didn't find your passion in life until you were in your 30s.

Fortunately, it's not too late to start saving for retirement, because you're likely earning more today than you did a decade ago. You should be able to start saving now and still retire with a hefty nest egg. But first, you must take some essential steps.

1. Evaluate Your Savings Potential

Be realistic. Sure, we all wish we could save $5,000 per month, but can you actually achieve this based on your earnings and expenses? Remember, no savings amount is so small that it won't positively impact your goals. Save what you can, even if it's only a few hundred dollars per month. There are always ways to push your savings goals further by establishing a budget, creating a side business, downsizing your life, or all of the above.

2. Set a Financial Goal

How much do you need to retire? Start by taking an assessment of where you are financially and where you need to be. How much money do you need to live comfortably in retirement? Do you anticipate a need for $25,000, $50,000 per year, or maybe more? It may be that you have to postpone your retirement by a few years while you make a few adjustments and implement a quick-fix plan to catch up with your goals.

3. Create a Plan

Any good financial plan should begin with an honest assessment of your goals and the steps you'll take to get there. Try using a retirement calculator to determine how much you'll need to save each month in order to retire by your desired date.

You may be surprised by how much money you'll need to save, but don't fear the challenge. Consider working longer, finding a second income, or downsizing your lifestyle to enable progress toward your savings goals.

4. Bias Your Portfolio Towards Stocks

Because stocks offer higher returns than other, less aggressive investments, and you're playing a bit of catch-up, you will want to take on more risk by favoring these over bonds or other more conservative investments. As you grow nearer to retirement, you can take a more conservative investment approach.

5. Max-Out Retirement Accounts and Catch-Up Contributions

Max out your retirement accounts. Take full advantage of employer-sponsored accounts whether your employer offers match contributions, or not. If you don't already have one, open an Individual Retirement Account (IRA) and make the maximum contribution of $5,500. At retirement, given your account has been open at least five years, you can make withdrawals absolutely tax-free.

If you're over the age of 50, the government allows you to make catch-up contributions to your 401(k) or IRA plans, thus enabling you to save even more tax-deferred money for retirement.

6. Take Your Retirement Savings to New Heights

If you need to boost your savings in order to meet your goals, consider falling back on your business consulting skills, or any other skill you've developed throughout your career, and using it to create a second income. Freelancers, independent contractors, and small business owners can deduct many of their expenses.

There's also a retirement savings incentive for being self-employed. The self-employed can set-up retirement accounts that allow both employer and employee contributions. For 2015, annual plan contributions for a SEP-IRA is up to $52,000, SIMPLE IRA is up to $12,500 plus an employer contribution of 3% of income, and the Solo 401(k) is up to $53,000.

The IRS allows the self-employed to make contributions to both an IRA and 401(k). That's a lot of savings towards retirement.

What steps are you taking toward retirement savings after age 40?

This article is from Qiana Chavaia of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: