Mending Your #SafetyNet

Edwin Harris – Mending The Nets (Photo credit: Wikipedia)At the end of the season, it’s a good time to mend your nets.

Updated Jan 2019.
Originally posted 2013.
Given today’s lengthy, record-setting US government shutdown and the hashtag #shutdownstories, this post needed an update. As a friend told me when we hit 40; “Exercise is no longer a luxury.” A safety net and emergency funds are no longer a luxury. This shutdown illustrates with stories the numbers about Americans living paycheck to paycheck.



When we reach the financial adult stage (your chronological age may vary); you may wish to mend or create a safety net. Safety nets are different from person to person; so feel free to select the pieces that match your own situation. 

Security Risk management: often solved with insurance products. Car, renters, condo, house, flood, fire and theft, cell phone, jewelry, business continuation etc. Even if you think you don’t have expensive things, you probably do. How much were your electronic gizmos? Can you afford being without [insert category here]? Many rental complexes now require renters to have insurance, which will also shield you from many liabilities (kitchen or electrical fire, water heater or tub overflow, leaky toilet, disposal failure, to name a few.) Check your specific policies for new exclusions based on the sharing economy, such as AirBNB or or using your car for ridesharing.

Savings (also known as cash these days due to barely visible interest). Rates are rising and one can earn more than whisper of interest One person’s emergency fund is $500, another’s is $10,000 and I have met someone whose security needs are met by one year’s income in the bank ($65,000). I like to suggest thinking of this fund in terms of months of income or expenses (whichever is greater). There’s a joke in there, sort of. What should be the minimum? My audiences are well informed and I hear 3-6 months from many when I ask this question. I suggest making the fund real by linking it to your insurance deductibles, the cost of 4 new tires, or even your family OOP, out of pocket limit for annual health care costs.

Residence  Home is where the heart is (and the bills) and your fridge. (see my earlier post called Clean One Refrigerator Shelf at a Time here)

Friends and Family Shoulders to cry on or celebrate with. Who can help you stay accountable to yourself? Who will understand and support your goals? Which of your friends or other loved ones can give you an assist with tangible or intangible help? Do you need to move into someone’s spare bedroom for three months while you save up for XYZ goal? (Tip: set a deadline for being in-residence-the relationship is something you don’t want to lose).

The Future What does your future hold? What’s on your bucket list?

• Encore Career
• Additional or ongoing education or professional development
• Retirement
• Caregiving for family member (s) now or in future
• Travel both domestic and foreign
• Volunteering (Peace Corps, Volunteer Vacations, International Red Cross)

Tools
Education, knowledge or wisdom (not to be confused with advertising, too many data points, endless supply of new products, Squirrel!),
Wisdom comes from mistakes, mistakes come from experience.  Or,

There is only one thing more painful than learning from experience, and that is not learning from experience.  ~Laurence J. Peter

Emotional IQ  Know yourself. Are you a DIY (do it yourself) person? How resilient are you? Can you reframe an experience and move forward? Do you want to bury the memories? What makes you feel shame (if anything) ? What are your money values ? Status or security, self fulfillment or self indulgence? Are you a planner, spontaneous spender, or celebrator?

How do you like to learn new information? Are you a lifelong learner? I have always enjoyed the opportunities I have had in my career to ask other people about their questions, or to consider what the important questions are for me when making a decision. Getting help with the right questions can be better than only searching for the answers.

Before You Quit Your Job-Five Factors to Consider

Hire a Professional: 6 Steps to Prepare

One of the most common questions every financial adviser hears is,”What shall I bring to a meeting?

In order to maximize your time with a professional (visit www.letsmakeaplan.org to find a CFP® ), I suggest six steps to take first:

 

1. Pull a truly free copy of your credit report at www.annualcreditreport.com  (your scores are based on the report information)

2. Pull a copy of your accrued Social Security Benefits ( Yes, you will be able to receive a benefit in the future)

3. Gather up your employee benefits books or intranet site, last year’s tax return (first two pages is a good beginning) and any company retirement plan/bank/credit card/student loan statements.

4. Write down some family lessons that you learned about money (take 5 minutes and see what you come up with). For example, never borrow money, save 10% of everything, always buy on sale, etc. Walking up and down every grocery aisle was one of mine.

5. List your expenses (all of them), and then your income. See how they match up to the 50/30/20 rule. 50% needs/30% wants/20% savings.  (from the book called All Your Worth by Warren and Tyagi)

6. What are your financial hopes and dreams? Retire at 50, travel around the world for one year, start your own business…do share those with your adviser as well.

Now you are more knowledgeable about your financial past and present, so that you can use a professional to discuss your financial future.

PS: You may decide to interview more than one person. Prepare these items and see who asks questions on any of the topics.

Is a Layoff in Your Future? 5 Steps to Take With Your Family

Gather the family around the campfire and prepare for the conversation of your life. Now is the time to let go of any family taboos around discussing money.  This is especially true if you have children living at home. You can adjust your talking points, depending on the ages of your children, but you need to be united on this.

I’ve been answering questions over at www.nerdwallet.com for the last three weeks. This post is from an article by me published in their Advisor Voices section last Friday.

Before we get to the 5 things, two suggestions for framing:

• Be truthful-mom or dad is going to lose her/his job and we have to prepare for that soon.
• Be reassuring – mom or dad will be getting a new job after that, and we need your help now to get there.

You could also set up the discussion and introduce some crucial concepts like this:

“In our family, we have needs and we have wants. Our needs include food for everyone (we won’t forget our pets!), a roof over our heads (explain the difference between rent and a mortgage to older kids, be more abstract with younger ones), paying for the heat, lights, phone service, child or after school care that allows parents to go to work outside the home, and transportation to get family members where they need to go. We will keep our health insurance so everyone can stay well and get their teeth cleaned.”

Wants will be different from family to family and be ready to give examples at the campfire. High-speed Internet may be a legitimate need for business purposes, but several ESPN channels are going to be in the want column, unless you’re a sportswriter. Adults and kids can make changes in different ways.

New family activity-making the dollar go further together.

As Benjamin Franklin might have said, the following three activities revolve around being healthy, wealthy and wise.  I’m adding two more intangibles: go actively towards the next destination, instead of away from what you’re doing now, and be sure to use your own roadmap.

 

Health: Know what you’re up against!  Is health insurance part of your severance agreement? Do you have severance? Tip: If your last day of work is early in the month, your group coverage usually extends through that month.  So a last day at work of May 1^st is better than April 30. Post-layoff choices could include COBRA, a group plan through your professional organization or union, a family policy from your state’s exchange (using the Affordable Care Act) or going without coverage. Going without health coverage could derail your family finances in a hurry if an emergency comes up. If a large layoff is rumored or several months out, immediately catch up on any work-related reimbursements for transportation, child care, parking or flexible spending accounts (FSA).

Tip: Make those routine appointments ASAP.

Wealth: Do you have at least nine months of income or expenses set aside? A year or even 15 months of expenses would be better, or a working spouse who can supply the income and benefits to cover you or your family as you move forward. List all loans, debts and upcoming fees and rank by amount and interest rates. Two schools of thought on retirement deferrals: Keep making the smallest contribution to get the company match—the thought being that it might be awhile before you can resume contributions; or cancel your salary deferral to boost your emergency fund or pay off debt. Paying off debt will need some serious family discussion. What makes you feel more secure—a larger rainy day fund or less debt?  Can you stop adding to any debts, and cut credit card use while you prepare? If so, move forward with that.

Tip: Automate all minimum payments so that your credit history is not harmed.

Wisdom: How well prepared are you to meet the intellectual and emotional challenges of being laid off and seeking new employment? Who will be on your kitchen cabinet, helping to advise you as you move forward? What about that LinkedIn profile? What about certifications, or continuing education? Can you use a tuition reimbursement benefit? Who will be part of your new work community? (Check out local co-working spaces for some ideas).

Tip: Create a family gratitude list, so you can keep in mind the non-material riches you already have.

Embracing the Hunt What are your strengths? Create a list of what your preferences are in a career, (often harder than the deal breakers) to leverage those in the next position. Do you have a side job that is begging to sit at the grown-ups table? A friend of mine is tired of teaching, but she is a talented quilt designer.  Perhaps that is her next career.

Tip: A good career counselor can save you lots of time.

Roadmap Draw your own! I cannot stress this enough. A map made for someone else is seductive.  But your brother-in-law’s map may not work for you.

As George Harrison sang, “If you don’t know where you are going, any road will get you there.”

Your next job has to come from what is best for you, so that when you are stuck at the side of the road, whether in Tacoma, Toronto, or Timbuktu, you have created a map to the best destination for you and your family.

Related Links

Boeing Managers say transfer of engineering jobs damaging talent and morale

 

About the ACA (2014 Here We Come)

Last week I attended a public meeting with a consultant from AON Hewitt sharing ‘Just the Facts’ about the ACA  or Health Care Reform.  There was no time to discuss ideology or politics (which was good, as we got to cover a lot of ground that way). Some things I thought would be helpful from the presentation are below.

Which Way to Go?

Remember that the ACA (Obamacare) is in Addition to today’s coverage options. Today we have government sponsored or related plans (Medicare, Medicaid and TriCare/VA), plus Individual Plans and Employer Based Coverage – includes active employees, retirees and COBRA). In 2014, we will have all of those, PLUS the marketplace (exchanges) and expanded coverage.

Think you can’t afford health coverage-even under the ACA? There are two ways that you can avoid the “shared responsibility payment”, also known informally as the penalty, or fee. Here is a sampling of the conditions that might yield a waiver or an exemption.

• The lowest-priced coverage available to you would cost more than 8% of your household income.
• You’re incarcerated, and not awaiting the disposition of charges against you.
• You don’t have to file a tax return because your income is too low (Learn about the filing limit.)
• You had medical expenses you couldn’t pay in the last 24 months.

Among the new essential health benefits with no annual or lifetime dollar limit are behavioral health treatment (includes counseling and psychotherapy), plus depression screening for adults. New preventive care benefits are offered at no cost (aka free). And yes, if you are over 50 your colorectal screening is free when offered by a network provider on a plan purchased in the exchange (aka marketplace).

Cost sharing limits have changed and will be indexed according to the ‘premium adjustment percentage’ after 2014. In 2014, the out-of-pocket maximum cannot exceed $6,350 for self-only coverage and $12,700 for family coverage.

Reviewing health insurance/coverage takes a lot of time each fall now, from open enrollment at work, or checking out the latest Medicare Advantage plans. Now we have an ACA marketplace vs. alternatives analysis. You could do it yourself or use an insurance broker.  In Washington State, you can contact the Washington Health Foundation for help.

Searching for health insurance is more of an online activity now…

My Personal Conclusion

Yes, it could be more complicated and yet possibly simpler at the same time. There will be fewer questions about your health insurance past due to the elimination of the pre-existing condition policy. As with anything new, it will take time to learn about all the features. In the meantime, I know several families that will be now able to get insurance for 2014.

 

Related articles

• Will My Prescriptions Be Cheaper Under the Affordable Care Act? (ttlc.intuit.com)
• Applying for Health Care Now-Simpler or Not?

Obamacare and You: Subsidies

A special section on the ACA (Obamacare) was published in my local newspaper on September 22nd and has valuable information for Washingtonians and others.

For the moment, let’s set aside the economics debate about whether subsidies create disincentives or not. That is not my concern now, nor does it need to be yours. This post is aimed at people who have waited for Obamacare so they can use it! (not discuss it in a theoretical fashion) 

English: Barack Obama the Patient Protection and Affordable Care Act at the White House (Photo credit: Wikipedia)

This post wants to share the facts and then you can make an     informed decision, get health  coverage, and maybe save some money along the way.

One valuable section of the ACA allows for subsidies:

If you make up to $45,950 ($94,200 for a family of four) you may get a subsidy that will decrease your premiums, or even allow you to trade up for better coverage while using the subsidy.

Some of us will just be happy to save a few bucks per month to apply to our increased deductibles. I’m not blaming the ACA for that change -the $250 annual deductible (as recently as 5 years ago and fondly recalled by me) is insurance history. Good news: there is dental coverage for children under 19. Bad news:  adult dental coverage was excluded  from the ACA, so those of us with previously bundled dental coverage will have to shop outside the exchange for dental (will it be more expensive?)

However, people who earn less than a modified adjusted gross income (MAGI)  of $45,950 per year may very well immediately reallocate any savings  to other parts of their budget. Deductibles, groceries, retirement savings.  This could be good for our collective economy.
Here is one link to a subsidy calculator that anyone from across the country can use. The calculator shows prices for a ‘Silver’ plan, there are also Bronze, Gold and Platinum plans. I didn’t see a Platinum plan for my state yet, but that may change.

If you receive a subsidy how will you use the money you save? Will you trade up in coverage? Will you be getting coverage for the first time?
Please tell us in the comments.

Related articles

• Insurance Department releases plans for Obamacare marketplace (arktimes.com)
• Kaiser Health News: Q and A on How to Apply for Subsidies
• Some Consumers to Receive Assistance with Deductibles and Co-Pays
• Dismantling the Safety Net

Payroll Tax Holiday to end in 2013

I read that line about the “payroll tax holiday” last year  in my hometown newspaper. Holidays have to end, after all.

Why do people like to complain about Social Security and the payroll tax?  Some of them are free-market purists, Libertarians, lobbyists, and others who believe that everyone in America can succeed without any government support whatsoever. If you believe that all taxes are ‘confiscatory”, please read no further.

However, I haven’t met any people over 65 yet in the last 25 years who are not claiming their Social Security benefits. Well, there is that one family member who believes that people make rational decisions, all the time. But I digress.

The sub-headline could also have read:

Americans to resume full contributions to Social Security accounts in 2013.

Most of the people I speak to professionally are very appreciative of a lifetime annuity plan, with a cost of living increase, where they don’t have the worry of investment management. (Yes, Virginia, Social Security is that). For many older baby boomers, it will be the only plan like that they ever have. 

America Saves Week Begins February 25th

“WE ARE SAVING THROUGH PAYROLL SAVINGS” – NARA – 516067 (Photo credit: Wikipedia)

In Washington state, there are multiple activities this week to help citizens “Build Wealth, Not Debt”.

From our Governor’s Office:

“Understanding that having emergency savings, retirement funds and being able to manage one’s debt are crucial to Washington residents’ personal financial security, Governor Jay Inslee has proclaimed Feb. 25-March 2, 2013 Washington Saves Week.” www.dfi.wa.gov/financial-education/wa-saves/pdf/2013-proclamation.pdf

“The campaign theme “Set a Goal. Make a Plan. Save Automatically.” is aimed at reminding consumers to utilize the automatic payroll deduction options at their place of employment to begin building an emergency fund, create a retirement fund or develop a targeted savings fund for their future.”

This ties in with my business philosophy, and using the automatic options available to you is a refrain my clients hear often. We all need a little boost to get the money in the right place, whether you call it a jar, an envelope or a savings or retirement account. In the past, many people were encouraged to use payroll savings to buy US Savings or War bonds.

Right now, your choices can include:

• your savings account linked to a checking account,
• a savings account at the  “First National Bank of Inconvenience” * [location varies],
• a stock mutual fund
• or even a charitable destination.

One well-known financial writer [and former wealth manager] David Bach trademarked the phrase “The Automatic Millionaire”.

Here is one way to begin: Set up an automatic transfer to from your paycheck to an account. It can be a savings account and the transfer can begin at $5 per paycheck. The habit is the first priority. After you have saved some emergency funds (everyone’s number is different), from $100 to $500 to a minimum of three months expenses, then you can set a new goal.

You might be surprised at how accommodating your HR department can be. One company that I work with will send funds to as many as ten different destinations on your behalf.

America Saves has programs on homeownership, surviving a financial crisis, and free tax assistance offered this week in our state. For an event near you, check this calendar.

*No disrespect for banks here, just a label created for keeping your funds in the bank or credit union.

Related articles

• A 50-Something’s Guide to Starting to Save for Retirement (community.ally.com)
• America Saves Week (unionstatebank.wordpress.com)

Clean One Refrigerator Shelf at A Time

Maybe you can see the connection now. There are a couple of ways to look at the personal finance “refrigerator”, if you will.

Is your fridge full of beer, mustard and party leftovers [from last month]? (Lots of party, no emergency fund)

Is it full of impulse buys like pizza (short-term pleasure) , four types of sauce for chicken (too concentrated), or very few vegetables (not enough diversification), or just not enough real food to make a meal?

Refrigerator (Photo credit: nickfarr)

Or are you the fussy parent who makes sure that the fridge only has healthy, organic, locavore stuff in it?

Enough with the food analogies-let’s get to work.

Empty Personal Finance Plan? 5 things to do immediately

Check your credit at www.annualcreditreport.com

Get Social Security questions answered here:  http://bit.ly/tTkcoK

Check the status of your emergency fund-how many months of income/expenses are in there?

Add up your debts (yes, all of them) Need a worksheet-check here .

What’s in your retirement plan? How much do you need?

Is your Personal Finance Plan too cluttered, too complex?

Find your old, left behind, retirement plans-assemble statements and account numbers to prepare for transfers

Rebalance portfolio asset classes and match up to your remaining years of work (aggressive, moderate, or conservative funds?)

Time to break up with some financial institutions? http://sm.wsj.com/QD4MwE    or   http://bit.ly/nbNn1W

(Be a financial locavore)

Check your beneficiaries, account titles and make sure that someone else knows where your records are http://bit.ly/tTkcoK

As it said in the blog post that inspired this one:

“Clean off one refrigerator shelf each week so you don’t have to do it all at once.”

Related articles

• Clean Out Your Refrigerator Day is today (lunaticoutpost.com)

New College Grads: Money to Invest?

This post is about investing long-term funds if you are just beginning the post college journey and  are not too worried about debt to income ratios.  Here’s one way to begin.

Do a little reading. I like to recommend several books. None of these are boring (you’re here aren’t you?) , they are all well written, and feel free to read small portions.

Your Money or Your Life – 9 Steps to Transforming Your Relationship with Money (first published in 1992, a NYT  best seller and recently revised)

The Wealthy Barber [The first 50 pages or so of The Wealthy Barber are a great introduction to mutual funds in general. I got my copy from the library.]

The Little Book of Common Sense Investing by John Bogle is good for a beginner. It has the story of index funds from the pioneer in the field.

I also enjoyed reading All Your Worth, by Professor Elizabeth Warren and her daughter Amelia Warren Tyagi. Here’s a review from The Simple Dollar blog.

Identify your investable funds.

Here’s what funds are not investable-just to review-funds allocated for short-term goals, such as a laptop upgrade, a used  car, a bicycle, or a trip overseas. Those funds need to be kept in a savings or money market account, or a short-term Certificate of Deposit, to shelter them from stock market ups and downs.

What are your investment goals and how far out are they?

1. short-term (less than one year)
2. medium-term (1-5 years)
3. long-term (5 or more years)

For the long-term funds: choose a taxable investment account or consider funding your first Roth IRA.   The Roth allows you to save on a tax-free basis, up to a $5000 annual limit (or the amount of your earned income, which ever is less).

For 20-somethings that have earned income either from a small business or employee wages (and you are already getting the match from your employer 401(k) plan) you can deposit your investable funds inside the tax-free structure of a Roth IRA. That way-when you remove funds later-there will be no taxes due on the income. (Please do take part in your employer’s retirement plan if they offer one.)

Roth IRA (Photo credit: Philip Taylor PT)

• Here is a good blog post on Roth IRA’s from the Get Rich Slowly blog
• Be sure to check with your tax advisor or the IRS on any deduction limits for higher earners
• Choose asset classes to invest in. (Stocks, bonds, and their sub classes-socially responsible stocks, dividend paying or smaller companies, global funds, corporate bond funds etc.)
• What will keep you awake? Check this link so you can see how different combinations of stocks and bonds have done since 1926. Source: Vanguard

How to begin – lump sum and add to the fund monthly (a great habit to get into), or select a couple of funds (there are usually minimum investment requirements) to begin with and invest $1000 in each one, for example.

Educate, Allocate, and Accumulate, that’s my motto!

Related articles

• Investing: Young? Working? Start a Roth IRA. Here’s how (usatoday.com)
• 5 Reasons to Consider a Roth IRA (money.usnews.com)
• Nine Compelling Reason to have a Roth IRA

Personal Budget or Plan? Words Matter

Words matter.

A picture is worth one thousand words.

It has been said that it takes from 4-7 positive comments to overcome 1 negative one.

How can we use these three statements to improve our spending habits?

If you made a visual spending plan and tried out new self-talk each month, would that make a difference? Might that keep you from derailing yourself? I challenge you to make it so.

For example, you could find a photo of your financial goal and place it in a prominent position-where you can see it every day.

• Try a sign that says $500 savings balance/emergency fund. (save this in one year<$10/week!)
• Take a photo of your full refrigerator-for someone trying to cut down on eating out.
• Post an image of your public library card-so you have the visual trigger for downloading music, book reading or borrowing a movie from the library instead of purchasing  any of those items online. Or send yourself a text message to that effect!

I have three points here that go beyond the usual budgeting tips.

1. How you talk to yourself about your spending matters
2. Use visuals as well as words to make the point to yourself (and your family, if need be)
3. Use affirming language, praise and encouragement to support your behaviors.

Instead of, “I wish I could pay my bills on time”, say to yourself, “When I pay my bills on time, I feel good and I will have more money to spend, because I won’t be paying late fees.

Instead of, ” I must have that new song from iTunes right away”, remind yourself of your online music spending plan, and figure out if you have the funds this week. When you match up your plan with your spending, it is a powerful feeling and you can reinforce it. Oh-“I don’t have more money in that bucket this week, I’ll place this song on the top of the list next week”.

iTunes (Photo credit: ʇhamin – free lancer)

Instead of saying to yourself, “I’ll add to my emergency savings account at the end of the month, or at the next pay period”, say,”I will send a sum each pay period to my emergency fund via direct deposit, so that I am able to meet small unexpected expenses without using my credit card”. Doesn’t that feel more powerful?

Save Money (Photo credit: 401(K) 2012)

When you do something right, affirm that behavior in your head and heart to reward yourself. It is important to acknowledge these smaller steps as you build new habits.

Say, “Wow, I did that”; or “It will be so cool to see my savings account grow”; or even, “I didn’t know that homemade sweet potato fries would be so tasty”.

Related articles

• Free Music From The Public Library To Your iTunes Library (denver.cbslocal.com)
• Little Known Ways to Stop Busting Your Budget (enoughtimemoms.com)