Money Management

Managing Financial Stress

January 13, 2015 by Twila Van Leer

Know the difference between needs and wants.

Americans born after World War II grew up in an era of unparalleled prosperity and now it shows. Part of what built that great economy was the entrenched attitude that “I need more.”

The result was unmanageable national debt, waste of natural resources, class conflict and a frustrated populace. Now, those who are retiring may find their resources have shrunk. Those still in the workforce are facing the necessity of living lean, a lifestyle for which they aren’t prepared. It is no longer possible to rob the future to pay for fun and games in the present. Now it’s time for serious reflection on whether “wants” can be allowed to dictate personal finances.

It is possible to live frugally and build up a reserve that will create financial security. But it requires some thinking in advance. At the top of the list is the essential attitude that needs must trump wants. You NEED a roof over your head. You WANT a mansion with a backyard pool. Getting the difference engrained in your mind is the starting point for financial independence.

As a very practical exercise, consider two scenarios: If you have a home with 2,300 square feet of space, purchased for $310,000 with 20 percent down on a 30-year mortgage at 4.5 percent interest, you pay some $1,259 per month. Under the “I need more” mode, you could consider a 3,200-square-foot home with an asking price of $496,000. The 20 percent down is now $99,200, a $37,100 increase. At the same mortgage rate and term, you face a monthly payment of $2,011, an increase of $752 per month. Investing the difference between the two houses, at 6 percent average growth rate, could net you $980,000 in reserves.

The comparison does not consider taxes, insurance, utilities and upkeep expenses or the pressure to fill extra space with “things” worthy of the more expensive home.

Owning too much actually can cause mental stress, experts say. Psychiatrist Elana Miller notes that “Having too much is hazardous to a healthy way of life. The more you own, the more time and energy you use to keep track of it and the more you worry about breaking or losing what you worked so hard to get.” She recommends learning to be grateful for what you have and determined to get by with less. An attachment to physical things may force you to work beyond the usual expectations.

Many of today’s health problems are related to excess. Obesity is rampant, with two in three Americans grossly over healthy weights. This has contributed to increases in diabetes, heart disease and some cancers. Surgeries to counter weight gain have made surgeons wealthy, costing $18,000 to $35,00, with costs likely not to be reimbursed by health insurance plans. The blame for the epidemic in overweight is directly attributable to overeating and the overuse of high-calorie foods and drinks. The size of portions also has increased as Americans clamor for more. The nutritionally wise suggest half of what the standard restaurant serves.

Better yet, they say, cut down on eating out and fix more nutritious and less expensive meals at home. If you do go out, share an entrée or take half home for another meal. Cutting 500 calories a day, for many people, can lead to a one-pound-per-week weight loss. Both your wallet and your body will be happier.

Living lean can result in more savings, more security for retirement, and the sense of well-being that comes with not stressing over possessions. You may live not only longer, but better if you feel positive about yourself and your situation. You’ll have more control of your future.

Coping With Holiday Stress

December 15, 2014 by Sherry Tingley

Stressed? Depressed? Here’s How To Cope

If you’re feeling Grinch-y, Scrooge-y and a bit more than bah hum-bugged, overwhelmed by the array of demands the holidays bring, there are ways to make things better, according to a Mayo Clinic release.

Among the stressors are too many – sometimes unwelcome – guests, selecting and then paying for gifts, shopping, baking, cleaning and entertaining. And the list goes on, depending on your own circumstances. Plenty to make for a no-good, no-fun, no-happy Noel.

The trick, if possible, is to recognize the potential and stop it at the pass. Especially if you’ve had problems in the past, anticipate an emotional toll and don’t let it happen.

The Clinic’s suggestions include:

1. Acknowledge your feelings. If you’ve had particular challenges recently, don’t expect them to be less emotionally draining just because it’s the holidays. It’s all right to cry or otherwise express your feelings.

2. Reach out to others. If loneliness or isolation get too big to bear alone, seek out community, religious or other opportunities to be with others. Volunteer to help others as a way to put your troubles into perspective and broaden friendships.

3. Be realistic. Nobody’s holidays are perfect. If things are different from last year, if your family structure has changed, traditions and rituals altered, don’t expect things to be the same. Hold onto some of your personal traditions and be open to new ones. For example, if your adult children can’t make it home, find new ways to share long-distance, through emails, pictures, chats or videos.

4. Set aside differences. Looking for the ideal in any normal family is an exercise in futility. Accept each other as is. If there are grievances, wait for a more opportune time to discuss them. If others get upset or distressed, be understanding. Avoid confrontation.

5. Stick to a budget. If your stress and depression are triggered by money matters, make them matter less. Plan a realistic holiday budget and then stick to it. Buying an avalanche of gifts that you can’t afford will only extend the pain beyond the holidays. Give homemade gifts, donate to a charity in another’s name, promote a family gift exchange.

6. Plan your time. Divide up the chores into manageable bits: a time for shopping, baking, parties and other activities. Avoid last-minute scrambling. Be sure you have the ingredients you need for cooking. Line up help for preparation and cleanup.

7. Learn to say No. If you overextend yourself, you end up feeling resentful and overwhelmed. If you can’t involve yourself in every possibility that comes your way, don’t feel the need to apologize. If you can’t avoid the added demands, for instance, if the boss says he needs you overtime, drop something else from your schedule if you can. The days during the holiday season are just 24 hours long, as usual. Don’t try to pack them too tightly.

8. Retain healthy habits. Have a snack before a party to avoid overeating. Get enough sleep. Make exercise part of every day.

9. Take a breather. Make time to relax and be by yourself. Just 15 minutes may be enough to refresh and help you handle what’s on the agenda. Take a nighttime walk. Listen to music, read a book, get a massage. Whatever it takes to relieve the tension and prepare you to jump back into the maelstrom.
Laugh out loud.

10. Get professional help if you need it. If you persistently feel sad or anxious, have recurring physical symptoms, can’t sleep, are irritable and feel hopeless and unable to face routine expectations, see a doctor or mental health professional.

One-Minute Guide To Debt-Reduction

July 24, 2014 by Twila Van Leer

Learn the differences between good debt and bad debt.

Sounds like a dream. No more debt. No sleepless nights trying to figure out how to scale the mountain of credit card debt. No painful personal contacts with collectors. Financial freedom!

The advice takes just a minute. Here we go!

Resolve to spend less than you make. No other financial wisdom has ever been better than that. Make it a habit. Embed in your mind the truism that you can never get out of debt by going into more debt.

Good Debt vs Bad Debt

Learn to distinguish between bad debt and OK debt. Don’t settle for any debt that requires more than 10 percent interest, and watch for tax advantages. Home mortgages and college debt that increase your overall worth over time are among OK debts. Auto loans are marginal, since they don’t appreciate in value. Most everything else is bad debt, such as credit cards or high interest “quick cash” loans. Avoid them like the plague.

When choosing credit cards, look for the lowest annual interest rate. Use cards for emergencies only. Get rid of cards that are not essential and simply pose a temptation to buy what you don’t really need.

Line up your bad debt accounts in a row. Add up the minimum payments and pledge to pay the minimum on each, plus whatever you can must. Choose the account with the highest interest and work on it first, and so on down the line. Resist the temptation to add to any of these accounts.

Request that the issuing institution lower the interest on your cards. Tell them you are aware that there are cards available at lower rates, but that you want to stay a loyal customer. The response may make you uncomfortable, but stick to your guns. The institutions depend on their customers to make their profit, remember? If you have any bill on which interest tops 14 percent, try to get it down to at least 11 percent.

Be aggressive in paying down debt, but don’t put yourself in a bind with other obligations.

Look for ideas (and sympathy) through discussion boards such as consumer credit/credit cards, provided by The Motley Fool. The company, through its credit center, also offers workable ways to get out of debt.

Past Idocy

When your bad debt can be filed under “past idiocy,” make good use of the money you have saved by saving it.

Commenting on Motley Fools good advice, a woman said that she and her husband had almost maxed our their 401k and planned to use tax income and savings over the next year to pay off debt. Then life happened, with two hospital admissions, operations, hail storm damage and co-pays. Then the husband was laid off. “We spent every penny paying on debt on one credit card and a car. Then the credit card issuer, pursuant to the state laws where they lived, raised their maximum interest to 31 percent. Help! “We did not hesitate. We took our money out of our IRA and paid off every penny we owed. You wouldn’t believe how much free money we now have. We still have insurances, utilities, groceries and gas, but we have enough money that we don’t have to use the credit card. We kept one card, which we pay off monthly. (Our experience shows you should) pay off the credit card first, if you can.”

That’s good advice. And if it took more than a minute, you can count it time well spent.

How to Save Money Even If You Aren’t a Saver

July 14, 2014 by Kevin Mercadante

It can sometimes seem as if some people are natural, born savers, while others simply aren’t. If you’re not one of them, it’s possible to become one by changing a few tactics and by committing to making it happen.

How can you start saving money even if you’ve never been a saver in the past?

Make Use of Payroll Direct Deposit – Start Small and Work Your Way Up

Payroll direct deposits are a non-savers best friend. You can have money direct deposited from your paycheck into your savings account without you ever knowing it’s happening. Most people are well aware of this tactic in regard to depositing money into checking accounts. But you can have money direct deposited into as many accounts as your employer will allow. Some have no limit on the number of accounts at all while others may cap it at, say, three. If they do, make sure that one of the three is a savings account.

You don’t have to go crazy here, and risk leaving yourself short money to pay your regular bills. Start with a small amount, like $10 per pay period, that way you don’t notice it. Wait a couple of months, then increase it to $20.

One of the best tactics for increasing your payroll deposits into savings is by directing the amount of your annual pay increase into your savings account. Let’s say that you earn $3,500 per month, and your employer gives you a 2% raise on your next review. This will result in a pay increase of $70 per month.

Allowing that something around 30% of it will go for income taxes, that will leave you with about $50 of additional net income each month. Instead of having the money deposited in your checking account, have it direct deposited into your savings.

If you are already depositing $20 per month in your savings account, and you now increase that by the net amount of your pay increase, you will then be up to $70 per month. On an annual basis, that means you’ll be putting $840 into your savings account each year.

If you repeat that strategy with each annual raise, after a few years you will have accumulated thousands of dollars in your savings account – while you’ll hardly know that it’s happening.

Direct Deposit Your Income Tax Refund Into Savings

According to the IRS, the average amount of a federal income tax refund is roughly $3,000. If you currently have no money, depositing your refund into savings will add a chunk of money that will fast-forward your savings efforts.

Sometimes the best use of a cash windfall is simply to keep it in the bank earning interest. Though you won’t be using it to buy something you might enjoy, the peace you’ll feel from having money in the bank will almost certainly be worth more than anything you can buy with the refund.

Just as is the case with direct deposits out of your paycheck, it’s best to have your tax refund direct deposited into your savings account from the IRS. You can do this simply by providing the bank routing number and your savings account number at the bottom of page 2 of IRS Form 1040 – just above your signature. Complete that information, and the money will go directly into your savings account, removing the temptation to spend it on something else.

Set Up a Cash Cookie Jar

While this sounds incredibly old school, it can nonetheless be highly effective. The idea is that you have some sort of container somewhere in your house where you can drop extra cash when it’s available. It could be a glass bowl, a cardboard box, or yes, even a cookie jar. But if you drop $10 or $20 in cash into the container a couple of times a week, you’ll be amazed at how quickly it builds up.

The key to the strategy is that you’re using small amounts of money, that won’t have a material effect of your monthly budget. And for some people, the visual aspect of being able to see money accumulate helps to motivate them to save even more.

Try and see if it will work for you.

Sell Your Stuff Periodically

Most of us have stuff in our homes collecting dust because we’re sure that no one else will buy it. Don’t be so sure! As the saying goes, one man’s junk is another man’s treasure.

And that really is true. That item that you think is nothing more than a piece of junk could be exactly what someone else is looking for, and willing to pay for.

If you have large items, like furniture or appliances, that you’d like to get rid of, put an ad on Craigslist. There’s no charge for placing such ads, and you can just write a simple ad and attach one or two photos. I’m guessing that you will sell at least half the stuff you put up for sale on the site.

Another good way to convert your junk into cash is by having a garage sale a couple of times each year. We do that in my family, and pick up an extra $150 on average for each garage sale. If you do this twice each year, that’s $300 of found money that you can put into savings.

Earn Some Extra Money When and Where You Can

This isn’t nearly as complicated as most people think it is. You’ll have to use your imagination here, to develop some possibilities that will suit your abilities and preferences, but here’s a list to help you get started:

Cutting a lawn or two in your neighborhood
Babysitting
Helping someone clean out their garage
Helping someone straighten out their budget
Taking advantage of a customer referral fee at work
Taking advantage of a new employee referral fee at work
Offering to help a small, local business with a task that you are qualified to do (cleaning up the back office files, customer follow-up, inventory, etc)
Tutoring a student in a subject where you are knowledgeable

Figure out one or two jobs you would be willing to perform, and plan on doing it once or twice each month. If you can pick up $50 each time you do, doing it twice each month will bring in an extra $100. In a years’ time, that will be $1,200 going into your savings account.

Use two or three of these strategies to help you get started saving money. Once you get into the habit, it will eventually start to become easier for you, and even natural. And as the money begins to build up in your savings account, you’ll start to get really motivated.

But the first, most difficult step, is always getting started – do you think you can do it?

Many Opting To Become Landlords Rather Than Selling

June 25, 2014 by Sherry Tingley

Renting your property can increase your net worth.

Over the past few years, historically low mortgage interest rates, coupled with surging rents, has convinced some homeowners to hold onto the properties they bought, rather than selling them. Instead of becoming sellers, they become landlords. That is having an effect on the housing market, according to mortgage experts. The homes that become rental properties take a whack out of the homes available for sale. Low inventories and limited sales growth are being reported across the country.

In a CNN Money article, Glenn Kelman, CEO of the brokerage Redfin, reported that he gets the same story from people that might be expected to sell their homes, but are not going to based on the low interest and high rents. Some 19 percent of current homeowners bought or refinanced homes during the period from 2011 to 2013, when interest fell to below 3.4 percent. That represents a significant part of the potential pool of today’s home-sellers. Kelmlan interviewed several and got similar stories from them. The figures tell the tale in each instance.

Susan Young of Lawrence, Kansas, said she refinanced in 2013, obtaining a 3.25 interest rate on a 30-year fixed loan. She has since bought another home, but retains the first as a rental property. The $1,100 monthly rent she receives is several hundred dollars over expenses. She applies the profit to her mortgage.

“If the interest rate were high, I’d sell,” she said. ” But this is such a perfect loan package, I just can’t bring myself to give it up.”

The Chris Cannons of Mt. Lebanon, Pa., said they are looking at a move and anticipating starting a family. But they’re expecting to rent the Mt. Lebanon property to take advantage of the great deal they got when they bought it in November 2012. Interest was 3.4 percent on a 30-year loan and they paid a couple of points to reduce the interest further – to just 3 percent. They believe they can rent their home for $1,400 to $1,500 per month, which will meet their monthly mortgage and taxes, which amount to $1,100, with money left over.

The factor that is providing such favorable circumstances for landlords is the average 20 percent rise in rents nationwide since 2006. Even homeowners who found themselves underwater when the housing market went wacky may benefit from renting rather than selling at a loss.

On the other side of the scale is the fact that not everyone enjoys being a landlord. You are responsible for repairs to your property and must deal with sometimes-difficult tenants. You take a chance on the renters taking the same care of your property that you would yourself.

But for many, it is an attractive option if the numbers can be worked to their advantage.