5 Simple Tips to Kick Your Finances Into Shape Before The New Year

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This article was written as contribution to Stash Wealth in November 2016. Check out the original publication here.

Believe it or not, 2016 is quickly (or finally) coming to a close. The end of the year is usually filled with lots of excitement around holiday parties, shopping, good food, and family. Throughout all of this it can be difficult to find time for yourself. However, the end of the year serves as a perfect time to take a comprehensive look at your financial well-being. Below is a list of tips to get your finances in shape before the New Year.

1. Put Extra Cash To Work

Beyond saving for an emergency, it serves little purpose to keep excess cash sitting in a checking or savings account. Instead, put that cash to work for you. Pay down any high-interest credit card debt, pay off outstanding bills, max out an IRA ($5,500), or open a brokerage account to invest for a specific goal. All of these options provide higher value than leaving cash sitting in an online bank account earning less than 1%.

Bonus Tip: Is your Emergency Fund still sitting in a brick + mortar bank savings account?? Move the cash to an online bank (like CapitalOne360 or Ally) to earn a higher interest rate a.k.a. make your money work harder for you.

2. Open A Roth IRA

If you haven’t done so yet, consider opening a Roth IRA if you still qualify. Contributions are made after tax today, but your later withdrawals are completely tax-free. If you earn more than the income limits for a Roth IRA, open a Traditional IRA. You may or may not be eligible for a tax break depending on whether you (or your spouse) is covered by an employer plan. If you aren’t covered by an employer-sponsored plan, you will likely get a tax break on your contributions today, but pay later when you begin to withdraw. The limit for both the Roth IRA and Traditional IRA is $5,500 a year. There’s still time to contribute for 2016, the deadline is April 17, 2017. While you’re at it, set up recurring automatic transfers from your bank account to your IRA to make sure it gets funded every year going forward. To fully fund your Roth IRA, contribute approx. $458/month.

3. Increase Your Retirement Contributions by 1%.

Log in to your 401(k) or any other employer-sponsored plan and increase your contributions by (at least) 1%. Commit to repeating this step every year and you’ll be making a smart money decision without noticing effects in your day to day life. You should however already be contributing enough to get your employer’s match. Not taking advantage of a match is essentially leaving free money on the table.

4. Check Your Credit Score

Your credit report tells potential lenders, landlords, or employers just how responsible you have been with credit in your past. Basically, how much of a risk are you? You can request a free copy of your credit report once a year at annualcreditreport.com. Once you receive your report, you should check for inconsistencies and fraud. Aim to build up a credit score of at least 700 or higher, but ideally above 750. A poor credit score can cost you thousands of dollars in the long run by preventing you from qualifying for a lower interest rate when purchasing a home or auto.

5. Take Care Of Your Health

Open enrollment has begun for HealthCare.gov and many employer-based insurance plans. This enrollment period allows you to enroll for the first time if you need coverage, re-enroll, or make changes to your insurance coverage. Take the time to make sure you have appropriate coverage for your needs before the New Year. Do you have unused money in a Flexible Spending Account (FSA)? If so, it’s time to make those doctor appointments you’ve been putting off and refill any prescriptions you need. Pay for these qualified expenses with the money in your FSA before you lose it.

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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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10 Tips for Transitioning from College to Real Life

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  1. Create a perfect resume. By perfect I mean absolutely zero spelling or grammatical errors. Print a draft out and have someone else read it. Mark it up on paper and then edit on your computer. Repeat this process multiple times. Make sure to tell something interesting about yourself, I include an “Activities & Interests” section at the bottom. Bullet point your duties and accomplishments in each role rather than writing them out paragraph style. By no means should your resume exceed one page. Make a nice, clean layout that is easy to read.
  2. Don’t waste away your graduation money. Collect some cash gifts? Awesome! Before you spend it all on alcohol and Chipotle, take a second to think what else you can do with all of that cash flow. Can you pay off any high-interest debt you’re carrying? How about opening and funding a Roth IRA? Pull out 10% now to treat yourself and take the other 90% to do something that is actually more valuable and can help life some weight off of your shoulders. If you’re going to totally disregard the aforementioned advice, I ask of you this: at least spend the money on an experience, not stuff!
  3. Send thank-you notes. This goes for all of those who write you recommendation letters, give you graduation gifts, and especially for employers who you interview with. For interviews, usually a thank-you e-mail within 24 hours will suffice. For gifts and favors you receive (at any point in life) you should send a simple hand written thank you. Buy some custom fun stationary that makes you excited to write. Thank-you notes are 100% noticed and appreciated.
  4. Interview prep. Take the time to prepare for an interview. In fact, treat an interview like a final exam and really study for it. Be ready with at least one page full of questions to ask (as specific as possible). Know what the company does and even have one or two suggestions ready, but only give if solicited. Know what your interviewer’s position is. Be ready for the possibility of an assignment which you may be asked to complete overnight or in person. (Trust me, it has happened to me multiple times and I totally blew it once.) Have your outfit cleaned, ironed, and ready to go a few days beforehand. Have a ton of fresh copies of your resume printed out, never expect the interviewer to have one with them. Most importantly just practice answering questions out loud and I promise you’ll feel so much more confident during the real interview. Learn something from each one. Don’t be afraid to ask for feedback if you receive a rejection.
  5. Negotiate. I know you may be scared to when you just need a job no matter what, but it cannot hurt to ask. (While that’s not a guarantee, you will likely know if it’s one of those situations where you’ve received a firm final offer.) Demand what you deserve. Come to the table with backup support of what you can do for the company and what your specific skills are. Men seem to be better at this naturally, which is great! But ladies, speak up! Write down your “speech” first, stand tall, and get what you deserve! Use sites like Glassdoor to research salary ranges for your role. Have someone coach you and prep with you. Losing out on money you deserve now can set you back for your entire career.
  6. Don’t leave money on the table. Contribute to any employer sponsored plan at least enough to get the employer match! On day one sign up for your employer sponsored plan, a.k.a 401(k), 403(b), TSP, etc. Don’t say you’ll do it later because guess what? A year will go by within the blink of an eye and you’ll just end up a whole year behind. Start off where you can but again, at least elect enough to get the employer match! Then use the rule of 1%. Every year (if not more often) increase your contributions by 1%. You will hardly notice the difference and it will be well worth it if done every year. In addition, I’d take this so far as to say take those vacation days you’ve earned! Don’t leave those PTO days on the table. A healthy work-life balance is so important.
  7. Figure out a budget. Ok you’ve landed a job offer and know what your salary will be. Now time to calculate your lifestyle. This can get complicated if you already have debt from student loans or credit cards so working with a professional to set up a plan is worth it. It may seem like you can’t do anything on an entry level salary, but that does not have to be true. The goal is to continue to increase your earnings while limiting lifestyle inflation. By doing this you can pay off debt, invest money that will work while you sleep, and even potentially retire early. I use a simple budget. I auto save first, then I pay my fixed expenses and bills, and finally I am free to spend the remaining down to $0. So many people try to do it in reverse, which to me is completely nonsensical and will lead to damaging your credit, financial life, and causing you a ton of stress. Can you actually afford the lifestyle you are living? If not make a change and actually start to grow your wealth. Don’t try to keep up with or try to impress other people. Often times those who seem to have it all are just people with “big hats and no cattle.” (See: The Millionaire Next Door)
  8. Contribute to Roth retirement accounts. Some may disagree and you can analyze and debate Roth vs. Traditional to death. While no-one knows the future, I’m going to bet that taxes will be higher in 40 years than they are now. I am also willing to bet that my accounts will have high earnings 40 years from now. A Roth IRA or 401(k) invests your money after tax today. Meaning you won’t get any tax savings in the current year. Bummer right? Not entirely. There’s a potentially huge upside in that when you start to withdraw from these accounts in 40+ years you will not pay any taxes. That means all of the money you earn in a Roth account will be growing and compounding over the years and end up being completely tax free earnings. Pretty great right? The alternative to Roth is to invest in Traditional plans where the money is contributed before tax and your taxes are lower today (in the year you contribute). The downside is that all that growth in the 40 years will not be tax free. When you start to withdraw you will owe taxes. You will most likely be in a higher tax bracket later in life than you are right now, which is another reason to just pay the taxes now. This all may sound a bit complicated and granted this is only a short explanation here, but I highly recommend electing Roth retirement plans if you are in your 20’s.
  9. Make specific goals. You don’t have to decide them all on the morning after graduation or on your first day at work, but come up with a few short term and long term goals when starting your adult life. Continue to revise them over time and don’t be afraid of change. Maybe you set an ambitious goal of retiring at 40. It’s completely doable and possible the earlier you set the goal. Or maybe you set the goal of paying off your student loan debt in three years. That’s great! With a specific goal you can take specific steps. I find this the only way to accomplish something. Ask people who know more than you and always continue to learn and adjust accordingly.
  10. Take it easy. If you are lucky enough to attend college I hope you enjoy it, explore, and branch out. I also strongly encourage you to learn practical things. Learn how to build a website, master Microsoft Office Suite, and intern at multiple companies. I never went into the field I studied, but I found a better path for me. It doesn’t always matter so much. Try different routes until you are happy, but give your best no matter what. As cheesy as it sounds, it’s all a journey. Move to different cities and try new things. Your 20’s are likely your last time you can put yourself at number one priority. Take care of yourself by having fun while laying a great foundation for your life. Make sure your older self will thank you one day. Relax, be smart, and be kind!
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