Why I Love This $450/yr Credit Card

The Chase Sapphire Reserve Visa card is a fantastic choice for any millennial who travels, takes Uber, eats out, and who can also manage their finances. In this post I’ll recount my experiences leading up to, and currently as a Reserve cardholder.

Prior to Chase, I had exclusively used my American Express (Amex) Delta credit card for a number of years; and reaped some of their rewards along the way, such as free flights and free checked bags.

For all of you money geeks, you may recall the big hype around the Chase Sapphire Preferred credit card and its 50,000 bonus points. I started noticing more and more friends with that blue metal credit card and decided to give it some serious consideration.

At the time I was happy with Amex and didn’t see a reason to open another line of credit. Amex charged $95 annually for the Delta card I had, and the Chase card would also cost me $95 annually (after the free introductory year).

There was no justifying paying these two fees for credit cards, so I had to figure out an alternative. I didn’t want to simply cancel my Amex credit card because I had a long line of credit history attached to it and closing the card would ding my credit score.

Once I came up with a game plan- negotiate with Amex to eliminate my annual fee or downgrade my card to a no-fee card (shockingly they fulfilled my first wish)- I decided I would open the Chase Sapphire Preferred card. Immediately this became my full time card. (I use a credit card for every possible expense), and I collected the 50,000 sign up points and earned 2x points on all dining and travel! I was happy with my decision.

Not even a year later, Chase drops an out of this world credit card offer. They launch their Chase Sapphire Reserve card with a whopping 100,000 bonus points, 3x points on all travel and dining, elite travel benefits, and $300 annually in travel credit! Insane! So what’s the catch you ask? Well, besides requiring a really great credit score to be approved, the card has a $450 annual fee. Outrageous, right? Personally I would never pay that much for a credit card, but would I pay $150? Turns out I would. After all it was only $55 more annually than my current card but it came with a lot more perks.

If you’re confused as to how I just came up with the $150 annual fee, let me explain.  The annual fee for Chase Sapphire Reserve Visa is $450, but you receive $300 in travel reimbursements, bringing the net cost of the card to $150. So unless you never take Ubers, taxis, the subway, airplanes, trains, or stay in hotels, Airbnb, etc. then this card is not for you.

However, if you’re like many millennials and spend money on any of the aforementioned (at least $300/year), then this card’s net cost to you is $150. The travel credit is reimbursed as you go. It’s not even as if you have to wait until the end of the year to get the $300 back. If you take a $7.00 taxi this month, you will have a $7.00 credit on your statement.

I found myself with this glorious offer hanging in my face, but with the same predicament I was in not even a year ago. (Potentially having to pay two annual fees or closing a card and hurting my credit score.) Game plan time, again.

I called Chase before applying for the Reserve card and fortunately Chase was keen on my pitch to switch my Preferred card to one of their no-fee credit cards before my 1st annual fee hits (remember I hadn’t even had the Preferred for a year and therefore was still in the free introductory period). In addition, they would transfer my 50,000+ points earned on the Preferred to the new Reserve account. Great!

After getting all of my [credit] ducks in a row, I applied for the Reserve card and was approved. Today the Reserve card remains my #1 go to credit card. I have over 220,000 points, (worth over $3,300 cash) with Chase after only a brief amount of time with them and have paid a grand total of $150 in fees! I never pay a bill late or not in full, so I’ve not paid a dime more to them.

Besides the $300 reimbursement for travel, below are some of the other benefits I’ve personally taken advantage of thus far.

  1. 3x points on travel and dining. On your statement Chase lists under each transaction how many points you earned. I’m surprised by how many of my transactions earn me 3x points. I guess I like to eat and travel!

  2. Airport Lounges. This perk came in handy recently on my international honeymoon. We had a couple of layovers and accessing the lounges in Athens and Rome was a great perk! The free food, drinks, Wi-Fi, plus being out of the main hustle and bustle are fantastic. I cannot emphasize how much I enjoyed this.

  3. No foreign transaction fees. Also on my honeymoon I was happy to know every time I used my card I was not incurring any transaction fees. It’s silly to pay those fees anymore as many cards offer no foreign transaction fees, so definitely look into switching if you travel and still pay fees.

  4. Application fee credit for Global Entry or TSA Pre-Check. I’ve had Global Entry since 2011 and recently renewed it in 2016 (required every 5 years) for $100, unfortunately just before I opened this credit card. Upon my next renewal it’s nice to know I’ll be reimbursed. For all of you who do not have Global Entry, YOU NEED TO GET IT NOW. In my opinion, there is no point in applying for TSA Pre-Check alone. Global entry includes Pre-Check privilege.

    Trust me, when you step off an 11 hour flight at JFK and see the line for customs is 60 minutes long, you will realize in that moment as you simply scan your own passport and walk right out of the airport, that you would have paid $1,000 for Global Entry.  Plus, having TSA Pre-Check for all of your national flights is pretty awesome too!

  5. Insider Rewards. Though I’ve not used any of my points yet, I have done a few searches on Chase’s rewards travel platform. I found the user interface very well designed and easy to use. I’ve explored booking a hotel to see how many points it would cost, of course it always varies by date of travel and luxury level. What I liked was that you could simply slide a bar to choose how many points you’d want to pay with vs. actual dollars. Your points can be redeemed for 1.5 cents per point.

As you can see the theme here is travel. And as surveys have shown, millennials value experiences the highest when asked what’s important to us. I’m willing to bet many of you reading this easily spend $300 annually on the “travel” category. If so, look into the Chase Sapphire Reserve Visa.

Unfortunately, the 100,000 bonus points offer has been reduced to 50,000- which is still a nice bonus! As always, please spend responsibly and know what you are signing up for. NEVER pay a bill late or not in full. If you can’t follow those rules, you probably should not be using a credit card.

Happy travels!

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5 Smart Uses For Your Tax Refund

 

As tax season quickly comes to an end (deadline is April 18th), many millennials are finding themselves with a welcomed financial windfall. That good ol’ tax refund hits your bank account and a big smile hits your face.

Keep in mind though, that because you received a tax refund, you essentially overpaid and gave the U.S. government an interest-free loan. Wouldn’t you rather take home that money in your paychecks throughout the year and do with it what you wish, such as invest it and earn interest?

On the other hand, you could have found yourself in a situation where you unexpectedly owed money to the IRS.

Ideally, you withhold precisely enough taxes year round to result in a refund/liability of $0.00 come filing time.

Below is a list of some smart ways to use your tax refund.

1. Pay off your highest interest bearing debt.

Do you have credit card debt that you keep promising yourself you’ll pay off? Well if you’ve just received a refund, do yourself a favor and put that chunk of cash directly towards paying off your debt. If you have more than one source of debt, find out the interest rate for each source and put the chunk of money towards the debt with the highest interest rate rather than spreading it out. Debt free is #goals!

2. Adjust your W-4.

Remember that form you filled out for Human Resources when starting your job? Well that’s kind of an important one. Luckily you can adjust your W-4 at any time throughout the year. If you’re getting a big refund, while it seems great at the time, you could have had all of that money in your pocket already. So if you’re significantly overpaying, you should consider claiming more allowances on your W-4.  On the contrary, if you find yourself owing money year after year, adjust your W-4 to claim 0 allowances or set a specific dollar amount on the form to make sure you are covered. It’s up to you to decide how you prefer to manage your money.

3. Invest in a Roth IRA.

If you’ve read just about anything on Sparkable Finance, you’ve hopefully taken the not-so-subtle hint to OPEN A ROTH IRA. As a qualifiying millennial, you can contribute up to $5,500 per year to a Roth IRA. You do not have to contribute that much, so do not be intimidated if you think you can’t do that. You can contribute $100 here and there if that’s easier for you. Just get moving and do something. Millennial favorites Wealthfront and Betterment have seriously low entry points to accommodate any investor. They also take care of everything for you by choosing a portfolio best suited for your needs and age. Their interfaces are seamless and easy to use. Strongly consider putting even the smallest of tax refunds towards your future and have your money work for you!

4. Add to or start your emergency fund.

The advice among experts varies, but ideally you should keep at least 3 months’ worth of living expenses in a savings account. Often when life hits you, it tends to hit you all at once. Your car needs a repair at the exact same time you’re moving apartments while also shelling out for bridesmaid dresses and bachelorette parties. Ahhh! If you’re not prepared you could end up racking up credit card debt with no available cash to pay it off. If you have a safety net and don’t abuse it, then you can keep yourself in good financial health. If an emergency does come up that you need the cash for, work quickly to replenish the withdrawals and then go back to focusing on other goals. Savings accounts are by no means an investment vehicle considering that over time you actually lose money due to inflation. They are however an ok place for your emergency fund. Consider keeping your emergency fund separate from your everyday checking account and in a high-yield savings account like Ally Bank offers.

5. Go 90/10.

If your financial life is a work in progress, but your committed to actually making any progress, try this option. Take 10% of your refund as “fun money”. Use that portion to pay for that something you’ve been dying for and have really thought about. Or use it to take an old friend out to lunch, or spend a late night out with your best friends. Put the other 90% towards something more valuable in your life and better for you in the long run. (See options 1-4.)

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Your Health Is Your Wealth

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The best advice when it comes to saving is to start early. The same applies for your health. Preventative measures can save you thousands of dollars and serious pain or illness in the future.

Mom may not be there to make your dentist and doctor appointments anymore, but that doesn’t mean you’re off the hook. Find a highly qualified doctor, dentist, or specialist in your area and make your annual appointments. Sites like ZocDoc make this process easy. It’s smart to call beforehand and have them confirm they take your insurance. You may also be able to find out how much you will owe at the time of the visit.

Here’s a quick and easy tip: when the receptionist asks if you’d like to book your next appointment, just say yes. There’s no reason not to and I doubt you have plans at 4:00 pm on a Tuesday 6 months from now. This ensures that you never skip a year of check-ups and that anything serious would not go too long before being discovered.

It’s time to make a concerted effort to put your health at the top of your priorities. What does anything else matter if you don’t have your health?

Here are a few areas to really focus on in your 20’s and onward:

Teeth

I hope I don’t actually have to remind anyone to brush, but just in case, brush your teeth! Flossing is just as important. The less than five-minute process can prevent cavities, gingivitis, and painful procedures. A root canal can cost upwards of a couple thousand dollars and sounds like a dreaded form of torture! Why subject yourself to this awfulness when it can all be prevented? Make sure to visit the dentist for a full cleaning twice a year and do your part to make sure all you need is a 30-minute cleaning! Focus on maintaining healthy teeth and gums to ensure a beautiful and strong smile well into your old age. Your mouth and your wallet will thank you.

Skin

Over and over again the best piece of beauty advice is to wear sunscreen. The sun wreaks havoc on our skin, but it’s almost impossible to avoid sunlight. This is why you have to defend yourself against the harmful effects of the sun, including deadly melanoma. Wearing SPF every day on your exposed skin should become a habit at a young age. The benefits completely outweigh the extra minute added to your morning routine. Besides skin cancer, the sun causes premature ageing and wrinkles. Make it a must-do for yourself to visit a dermatologist for a full body skin check. The doctor will then advise you based on what they see. Most people are advised to come in for a check every year or every 6 months. Ask the doctor for some more education on what changes to look for on your skin that could prompt an earlier-than-scheduled visit. Preventative care of your skin now will save you painful and expensive procedures in the future and may even save your life. Also, more beautiful and youthful skin in your later years is a superb bonus!

Bones

Ever wonder why some older people seem to deteriorate while others are sky diving at 80 years old? Besides genetics and life choices, a big factor is likely bone density. Did you know that you are building your bone density now to have for the rest of your life? Essentially it’s like putting money in the bank for later use. Talk to your doctor about what you can specifically do for your body to make sure you have high bone density later in life. Some key general tips are to make sure that you intake enough calcium and get exercise. Jump, dance, walk, play…just move! Take steps to make your life less sedentary. Starting young will help to ensure you’ve invested enough in your bones to live a long and strong life!

Mind

Mental health should never be overlooked. If your struggling with mental illness, then the rest of your physical health is very likely to be effected. We all deal with stress and pressure in different ways. Techniques that work for me may not work for you, and vice versa. Never be afraid to reach out and talk to a doctor. To get through this stressful thing called life, make sure you keep your mental health in check. Never underestimate the helpfulness of breathing techniques. Take a few moments every so often to breathe deeply and close your eyes.  Incorporating yoga and meditation into your life could reap many benefits for your physical and mental health. Many people find more high impact exercises like boxing to have positive mental effects. Bottom line is to take your mental health seriously. Do your best to find time to turn off electronics, laugh hysterically, and connect with nature.

 

 

 

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A Simpler Way to Get Fiscally Fit

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We all know there is no way to get physically fit overnight.  Unfortunately, the same applies to getting fiscally fit. Being fiscally fit is totally a thing, by the way. It’s something you have to commit to for life, set goals for, work on regularly, and not have a total melt down when you slip up.

Luckily though, getting this type of fit can be done from the comfort your couch and even with a pint of Ben & Jerry’s to keep you company. In all seriousness though, I recommend using whatever methods work best for you. Use your computer to look up all of your accounts online and a pen and paper to write notes as you go. Tackle getting fiscally fit by analyzing these three stages of your life: past, present, and future.

A person’s financial life isn’t just numbers and data. It all is created by the actual life that person is living. Therefore, there are a lot of emotions and psychological factors that come into play when digging into someone’s finances. This can be a hard process for some, so I suggest taking it slow but steady. Take a week or even three weeks per phase if necessary. Try this route: during week one you come up with your comprehensive list and the second week you come up with solutions. Finally, in week three you put those solutions into place.

After three weeks you will feel really accomplished and will have had the satisfaction of checking multiple items off your to-do list. You will be much “healthier” than when you started and much more fiscally fit. With those early victories you should feel inspired to move on to the next phase and then finally onto the last.

For “target areas” that you just can’t figure out how to fix yourself, reach out and ask for help. You are going to feel so much better by the end of this process that you will want to continue to get even more fiscally fit and do everything in your power to stay fiscally fit. Below is basically a sample of this process of getting fiscally fit. Your experience should not be limited to the examples given.  Share your tips and strategies that worked for you in the comments section below!

Past

This is the time to gather a list of what you have hanging over your head from your past. What has your financial life been like up until today? Some examples of things to account for are:

  • Opened credit cards or lines of credit
  • Student loan debt
  • Late/unpaid bills of any sort
  • Debt owed to friends or family

Write down the creditor, interest rate, and amount owed on each and every thing you come up with. You should be concerned with any type of bill you are carrying a balance on. For example, if you owe $900 on your credit card, but pay it in full each month then that is ok. We are not looking at that as something that is lingering from your past. On the other hand, if you owe $900 on your credit card from 6 months ago, then yes write that information down on this list!

Next, brainstorm and research solutions. When looking at your debt, what small bills are hanging over head that you maybe just forgot about, a $30 bill from your doctor’s office? Knock those out with a payment right away.

Student loan debt is likely going to hang around for a while. Make sure you know exactly to whom, how much, and when you are making loan repayments. Look into income-driven plans where your payment is based off your income. Also sometimes refinancing is an option. Check out sites such as sofi.com. Make sure you are making regular payments and paying more towards the principal any month you can. Also I highly recommend student loan expert, Heather Jarvis, who is a wealth of information on this topic and may even be able to assist you one on one.

If you have outstanding credit card bills make the goal of paying those off a.s.a.p.! Credit cards usually have high interest rates and should never not be paid in full. Create a strategy that works for you. Pay off as much as you can each month and pay the ones with the highest interest rates first. There are strategies such as balance transfers, but you will want to research those entirely before making any decision since moving your debt around will likely hurt your credit score. 

For example, if you do a balance transfer to a credit card with zero interest for 12 months, but your debt divided by 12 months equals an extremely high payment you won’t be able to make, then this option is not realistic. After the promotional period you will just be stuck with a new high interest rate. However, if you can knock out the payment before the promotional period is up then this could be a strategy for you. Again, you’ll always want to consider are the effects to your credit score.

 If you owe debt to a person, make the commitment to pay them back. Reach out to them with a “contract” if you can’t pay them right away. Offer to set up a payment plan and pay them back, say twice a month, with a specified amount. This should help your relationship with that person and show you are committed to your obligations.

Present

Time to take an honest look and assessment of your life today. What type of lifestyle are you living? We want to make sure you are living life to the fullest but in a smart way! Some things to account for here are:

  • Fixed living expenses. Rent, monthly bills and payments, prescriptions, etc.
  • Variable living expenses. Spending on entertainment, meals, travel, clothing, anything you do for fun, luxury, etc.
  • Insurance coverage
  • Career path and salary
  • Credit score

Pull those credit card or debit card statements and find out how much you spend every month. What is spent on fixed expenses? What is spent on variable expenses? You don’t have to do a massive analysis, but write down the figures and come up with a monthly average.

Find out your credit score. Go to annualcreditreport.com for a free report. FICO scores range from 300-850 and you want to be on the higher end. The aim is to be above 750 but you should at least stay above 700. You should check your score once a year to monitor any errors or fraud. Your credit score is very important. Some employers will even check before hiring you. If something looks wrong in your report you’ll need to write to the credit reporting company to tell them what you think is inaccurate and send any documentation you may have. If your score is just low, work to rebuild it. Keep balances low, pay off debt, and don’t open new cards. Also don’t close any credit cards, just get the balance to zero and stop using it. Closing will damage your score. 

What insurance coverage do you have? We all should have health and dental, most should have renter’s or homeowner’s insurance as well as auto. Write down the coverage you have and the costs per month.

Looking at that note pad with your life today written out on it, what makes you the happiest? What do you value most out of that whole piece of paper? What do you value the least? Your spending should align with your values. If they are out of whack, then make a change! For example, I value traveling and experiences more than shopping and clothing. I could drop $300 on a shopping spree or I could buy a flight to visit friends. It’s a no brainer for me. For others though the complete opposite could be true! If you are spending on what you value, then go for it. Keep in mind that I am always talking about spending money you have not spending money you don’t have! Big difference.

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Now what about your career? Do you enjoy your job or like the path you are on? If not, then take this time to brainstorm solutions. If you are thinking about changing career paths, figure out how you get from point A to point B. Maybe you have to sign up for some classes to learn a new skill, or amp up your networking. If you enjoy your job and company but feel underappreciated or think you are underpaid, then you probably need to schedule a meeting with your boss. Stop being afraid to ask for a raise, but always come to the table with support as to why you deserve one.

A pretty boring and confusing topic, but very important, is insurance. Did you realize during this process that you don’t have the proper insurance coverage? I’m sure that will happen to a lot of you. It’s important to be covered, but no need to be over-covered and paying for something you don’t need. Health and dental insurance should be a priority.  Renter’s insurance is usually very cheap and can save your butt in the case of a fire or flooding. It doesn’t really matter how healthy you are, you have no control over accidents or, God forbid, an illness or disease. Protect yourself and protect your assets!

A type of insurance you may be wasting money on is life insurance. If you are a single, childless, 20-something then what is the point of paying for a life insurance policy? The recommendation would be to take on a policy once children are involved in your life.

Future

This part is fun! Time to imagine how you want your life to be. The future is basically a giant question mark, but I know we all dream about a certain life for ourselves. Write that dream life down. What are the goals you have for yourself? Make a list of what you envision, and make a few points with worst case scenarios so you can make sure to plan a way to protect yourself (and your loved ones). Some things to cover here are:

  • Having a day come when you no longer have to work
  • Getting to travel multiple times per year
  • Having an emergency fund
  • Buying a home
  • Getting married
  • Never having any debt

This is your life to live. Try to be a specific as possible. Do you want to move to California this year? Maybe you want to propose and get married to the love of your life. Or maybe you want to ditch your job and travel the world. All of these sound pretty great, but unfortunately they all cost money. Fortunately, though, by setting a goal you are in total control of achieving the goal and creating the life you want.

Strategies and solutions for building the future you want are endless. Having an emergency fund is something everyone needs. Before any crazy adventures can happen you really should have this money set aside. This emergency fund should be kept in a savings account and have 3-6 months of living expenses in it. Work on building this up by setting up regular auto transfers to this specific savings account. Do not touch it! Seriously just forget about, but have the peace of mind knowing you have a safety net if ever needed.

If you want to travel every year come up with an annual budget. Then divide this budget out by pay periods (usually 12, 24, or 26). Make a plan to transfer X amount to your “vacation account” every pay check. If it’s easier for you to visualize, open a savings account specifically for this goal. Try an online-only one that pays a higher interest rate such as Ally Bank. For example, if I bring my lunch 4 times per week for one year, I could have about $1,800 to spend on something else! Trust me, I’d rather take that $1,800 and spend it on an unforgettable trip (or two or three) rather than an overpriced midtown salad. I’d hardly call this a sacrifice; it’s just being conscious of what I value.

To make your money grow, and become a millionaire, you’ll likely have to invest it. If you have your emergency fund taken care of then you should look into ways to invest. I’ve written about investing in previous posts, but again it is not as complicated as it seems. And as a millennial you really should be using time to your advantage and watch the wonder of compounding let your money make more money. The easiest way to start is by investing in any employer-sponsored retirement plan offering a match. Next your goal should be to also invest in a Roth or Traditional IRA. Additional types of investing can occur in a brokerage account or something less liquid, such as real-estate.

Bottom line is that your money should match your goals. If your sheet of paper with your future goals on it does not match your finances, then make the adjustments and changes to get in shape!

Going through your financials by way of phases of your life, past, present, and future, gives you
a simple way to make sure you’ve covered everything. At the end of this exercise, which may take you 9 weeks, I hope you feel fantastically fiscally fit. I hope your eyes have been opened to your own life and that you feel much more in control. Remember this is a work in progress and staying fit is a lifelong commitment. You will feel and live so much better!

 

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How Auto-Saving in a 401(k) Could Leave You Looking Like a Football Player Who Celebrated a Touchdown Too Early

Major football fans over here @ Sparakable so this post felt right for the start of a new season! Now that summer is unofficially over, it’s also a good time to take a look at your finances and get things in order before the end of the year. Hopefully this silly analogy will help get our point accross.

First off I’d like to say that that if you have set up auto-contributions to an account like a 401(k) or IRA, congratulations! You have taken a great step towards financial freedom and are setting yourself up for success. You’ve caught the pass and are beginning to pick up yards as you make your way down the field.

Soon you begin to see your account balance grow each quarter and you start to feel pretty great. You speed past the other players on the field and can see nothing but green in front of you.

You assume that you’re in the clear and if you just keep on keepin’ on, you’ll reach your goal of saving enough for retirement. You start to get a little cocky, raise your hands in the air in celebration of the presumptive touchdown when, seemingly out of nowhere, you are tackled by a 300-pound defensive line man on the 10-yard line.

 

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(Sorry Bills fans)

The name on his jersey? Allocation.

You forgot to finish through.

While contributing to a 401(k) (or any retirement plan) is a great move, a big mistake you could be making is not paying attention to how that 401(k) is allocated. Let’s look at this common scenario.

Imagine you begin working full-time at the young age of 22 and right away start investing in an employer sponsored 401(k). You know the right thing to do is sign up for the plan so you elect to defer 5% of your salary. Easy so far.

Then comes time to pick the actual investments in the account. You might be thinking WTF when looking at your options. The part you do figure out is that you need your investment selections to total 100%.  Other than recognizing a few terms in the fund titles, like “bond” or “stock” it might as well all be written in Latin. So you decide to just spread out 25% here, 10% there, and so on until you hit 100%. Boom, done.

Well years later you’ve learned a bit more about money and investing and now you’re in your 30s. You take a look at your 401(k), which has grown steadily thanks to your regular contributions and interest, and you finally understand exactly what type of funds you picked 8 years ago. All this time you’ve been heavily invested in bonds and even a money market fund. *Face palm!*

You know now that no investment-sane person would allocate a 22 year-old’s retirement portfolio to be heavily based in bonds.  You have just lost almost 10 years of aggressive compounding growth! Seriously what a waste! Your money could have been working for you all of these years. Instead, while yes you did indeed at least save up a nice sum, you missed out on a really big game-changing opportunity that was just within reach if you only stayed focused for a few more steps. You settled for 3 points instead of 6.

Bottom line is don’t just check “save in 401(k)” off your list without making sure you are truly all set. Granted the hardest and most important part is to just save in the first place. I applaud anyone who has taken responsibility for their financial lives and future and has begun to save and invest. Once you decide to do that, take the final step and finish it off! Allocate properly! Don’t know how to allocate? Don’t stress, just keep it simple. Follow some of these #sparksofwisdom below.

Choose a Target-Date Fund

This is basically a set it and forget it type situation. A Target-Date Fund usually has a year in the title. For example, Target-Date Fund 2055. This means that between now and year 2055 the fund will change its allocation in preparation for the owner’s retirement. Assuming a retirement age of 65, a 2055 fund would be good for someone born around the year 1990. (1990+65 = 2055). The fund will be more heavily weighted in equites (stocks) and then grow more conservative (bonds, etc.) as the year 2055 approaches. The fund company takes care of all of the allocation changes and rebalancing for you.

Something I hear often is “but I don’t know what year I will retire in” or “what if I need the money before year 20xx?” The year of the fund doesn’t actually have any rules associated with it. You can essentially use a target-date fund for non-retirement investments.

For example, a target-date fund 2020 to save for a new car purchase in 5 years. Since the assumption is the investor will begin to use the funds in year 2020, the allocation should be rather conservative. And if you are planning on buying a car in the near future with this money, you’re not going to want to risk it all in the stock market. So a 2020 fund could prove a suitable place to park this “car-fund” for someone looking for more risk (and hopefully returns) than a savings account. (*Note: Returns are never guaranteed no matter what past-performance shows.*)

In terms of a retirement account (401(k), IRA etc.), the date in the title of the fund does not set forth any rules or regulations. Any rules are set by the IRS and are based on the type of account you are holding investments in. You should always be aware of penalties for early withdrawals.

Your employer plan may offer funds from Vanguard, Fidelity, and an array of other financial institutions. Always make sure to check the fees and ask questions if you are unsure. Also just because most of the heavy lifting in your account is done for you doesn’t mean you shouldn’t check in every once in a while. Take a peak at a funds of different dates than yours to see what you can expect over the years in terms of portfolio allocation. Remember: the further the date out is, the more heavily invested in stocks. The closer the date, the more heavily invested in bonds. It should be red flag if this shift isn’t occurring over time.

Though there are arguments against Target-Date Funds they really are a useful tool for an investor who is just starting out and for one who really doesn’t have the time or interest to research individual funds and reallocate every few quarters. Always continue to read and ask questions.

Keep in mind the NEW Rule of Thumb

You may have heard the old rule of thumb before. This was to subtract your age from 100 and you get the percentage of your portfolio that should be invested in stocks. For example, 100-27 = 73%. Personally I find that far too conservative and it sounds like many financial planners agree. We are living longer and therefore need our money to last longer.

Try using the new rule of thumb. This time use 120 and subtract your age to get the percentage of your portfolio that should be invested in stocks. Using the same example, 120-27 = 93%. This is a much more realistic number if you are investing for the long term (25+ years) and want to be as reasonably aggressive as possible to take advantage of time and compounding.

You can use this rule of thumb to build your own portfolio by selecting individual funds at the percentage you’d like to allocate to each. You could take this route as opposed to using target-date funds to have more control over your investment selections. It will require just a bit more activity on your part though. So continuing with the above example, you would select an array of equity funds to total 93% and an array of fixed income funds (bonds) to total 7% with a grand total of 100%.

You are also responsible for re-balancing your portfolio and shifting the allocation as you get older and your risk tolerance changes. No-one is going to do it for you.

*Note: There are many different types of investments besides just stocks and bonds. This article is focusing on the idea of equity vs. fixed income with the purpose of making it easier to understand and therefore take action.*

Finally, something I like to reiterate, is to always keep in mind fees. Please check what you will be charged as high fees can eat away at a portfolio over the years. Companies like Vanguard are known for their extremely low fees. Some funds charge only 5 basis points (.05%) which is one of the lowest figures you’ll see! Another favorite is Betterment. They charge a bit more than Vanguard, but are really tech-centered, and user friendly; especially for beginners and millennials. Still their fees are much lower than traditional brokerage firms.

Also keep in mind your own personal risk tolerance. If you honestly cannot handle swings in the market then maybe a 93% equity portfolio isn’t right for you. The idea for investing in a retirement account (401(k), IRA, etc.) is that it is for the long-term! You should not be logging in every day placing trades and making rash decisions any time the market goes up or down.

Remember, not allocating properly, whether that be too conservative as a 20-something or too risky as a 50-something, can cost you. For millennials, take advantage of being young and commit to save from an early age. Just make sure that before you really start to celebrate, you allocate.

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Common Financial Mistakes and How to Avoid Them

business-money-pink-coinsIgnoring medical bills

I’m a nut about going to the doctor. I’m on top of it because what does anything else matter if you don’t have your health?! Therefore, I’ve learned to expect a little piece of mail a few weeks following an appointment. Depending on your health insurance, your deductible, and services rendered, your bills will vary. But when my first medical bills started to roll in I panicked, especially when one topped $400. I had two options: toss the bill in the trash and pretend I never saw it, or take a deep breath and begin by researching my options. The thing is, not paying your bills is not an option. You’ll continue to receive the bill in the mail each month until they warn you that it is your last notice and last chance to pay the billing company directly. After that your bill and information will be turned over to a collections agency and down goes your credit score.

The solution: Take it seriously. Start by calling the number on the statement and make sure that your insurance was already billed. Once you have verified that the amount owed is accurate, it’s time to figure out how to pay up. Did you know that you can often pay down a medical bill in installments each month? You can do this by again calling the number on the statement and asking to arrange a payment plan. I’ve come across a few scenarios in my experience. One time I had to pay down a lump sum to start and then paid about $45 a month every month until the bill was paid off. Another time, I did not have to pay a lump sum but I agreed to pay a higher amount each month. Always make sure to confirm that no penalties or interest charges can occur. These arrangements with hospitals and doctor’s offices are very common, but you just need to ask! Then make sure to keep up with the monthly payments. Set a calendar reminder or make sure to keep an eye out for an updated billing statement in the mail. If you have a Health Savings Account (HSA) you can utilize it instead of paying out of pocket. The HSA usually has it’s own Visa/MasterCard which can be used for qualified medical expenses. (Yay for employee benefits!)

*Tip* Keep good records. Utilize a spreadsheet on Google Drive or even paper notes to keep track of your medical expenses. I keep a tab for each calendar year. Note the date of service, provider, and amount paid. You may need to refer to your notes down the line and having things organized can save you time, money, and a whole lot of frustration.

 

Not properly cancelling your gym membership

So many millennials find themselves in this situation. You basically got screwed by a gym you joined and can’t find a way out. They either make the cancellation process near impossible or say you owe a massive amount of money. The mistake is (besides joining in the first place), failing to 100% cancel your membership and resolve all financial discrepancies. A common mistake is just cancelling your credit/debit card and thinking you’re all set since you can no longer be charged. Wrong. The gym can and probably will turn your information over to a collections agency. This agency has one job, to find you, and make you pay. In turn, your credit score will drop and therefore cause you problems for years to come.

The solution: Don’t sign up in the first place. If you really feel the need to join a gym, at least do your research. Read the website’s information, call, read Yelp. Find out in writing exactly what their cancellation policy is. Do not sign up for anything you don’t want or cannot pay for. Know the rules to join and the rules to cancel. If you do want to cancel please follow the procedures and get written confirmation of a final cancellation. Again, keep solid records of names, dates, and information when speaking with a representative.

 

Thinking saving more later is better than saving what you can now

I know so many millennials have said “I’ll start saving when I make more money” or something more along the lines of “YOLO.” Girl please. Saving early outweighs saving more later. Compounding is seriously the 8th wonder of the world (Einstein supposedly said that). If you are a 20-something who does not understand compounding well keep following along because I will harp on it constantly. Here is an example from Business Insider’s Andy Kiersz.

saving-at-25-vs-saving-at-35-continued-saving-prettier-1Emily saves the same amount as Dave but begins 10 years earlier, at 25 vs. 35 years old. She saves ~33% more but ends up with ~twice the amount of money as Dave does at retirement. That 10-year delay cost Dave huge sum of money!

The Solution:

If you need any further motivation, play with a time value of money calculator. Seeing how your money could compound when invested will make you think twice about all the stupid crap you waste your money on today. Give it a try on this simple calculator from Bankrate.

Start by saving in any employer sponsored plan such as a 401(k). Pick a stock heavy fund, such as one that mirrors the S&P 500. If you’re asking what percentage to save, elect at least enough to get your employer match. From that point, increase your savings by 1% each year. This money is taken out of your paycheck automatically and invested for you. It’s relatively untouchable and will grow and compound for years to come. I like to be as aggressive as possible. Every bonus and every pay raise is essentially ignored and my savings are pumped up. I love watching my money make money. Don’t forget that the markets are cyclical and as a 20-something you’re in it for the long-term. Outside of your employer’s plan, I recommend working with institutions like Vanguard or the super millennial friendly, Betterment to open an account today.

 

Racking up consumer debt

FYI credit cards are not free money. In fact, they are super expensive money if not paid in full and on time. That dress on sale is not such a good idea when you’re paying 19% interest on it. As mentioned above, compound interest is the 8th wonder of the world. So can you imagine a “wonder of the world” against you? This is what happens when you accrue debt. The interest compounds and grows and grows until it seems like you can never get out from under it. All while your credit score plunges. Frankly it’s just stupid to use credit if you don’t understand how to. On the other hand, it’s stupid not to build credit when you are a responsible adult.

The Solution:

Quite simply, live within your means. Don’t buy crap you can’t afford. Don’t open store-brand credit cards. It is completely FALSE that carrying a balance on your credit card is good for your credit score. But also don’t just start cutting up your plastic cards and thinking you’re in the clear. You still have to pay off what you owe. Make a firm decision to pay off your debt. Work with financial coach who can analyze your specific situation and guide you. There are multiple strategies and options when it comes to paying down debt. Why not choose one that works best for you?

For those of you who have messed up just once, like missing a due date and incurring a late fee, give a call to the credit card company. Whether it be a Macy’s card or an Amex, pick up the phone and be nice. When you tell them you made a mistake and offer immediate payment for the full bill, they are often likely to forgive you and the charges the first time. It never hurts to ask.

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