Should We Be Talking About Money More?

Let’s face it, money is on most people’s minds. If you’re in your 20’s and 30’s, there’s a good chance you’re straddled with student loan debt or credit card debt while also trying to save for a home or pay outrageous child care costs. If you have school-aged kids, you’re probably stressed about college tuition, and if you’re in your 50’s and 60’s, you might be worried about whether you’ve saved enough for retirement.

Whether we like it or not, we’re living at a time in which aquiring income is easy, but aquiring wealth is not. Yet despite its necessity in our lives, people usually refrain from talking about money. However, is this a bad thing? Could talking about money ever benefit us?

About five years ago, a friend casually mentioned to me that his 401(k) was already six figures, and because of that, he wasn’t worried about retirement. I was shocked. This was someone my age, who graduated from college at the same time I did, and yet my own 401(k) was practically nonexistant. Hearing this, it wasn’t so much a feeling of being behind as the feeling that this person was setting himself up for freedom, and I was setting myself up for well, nothing. A lifetime of working. It really made me think, and I’m glad it did.

Although the conversation was fleeting – lasting only about 10 minutes – it completely transformed my outlook on saving. I applied for a higher-paying job and immediately began maxing out my retirement contributions. Now, five years later, I’m on track to retire at 63 and hope to shave a few more years off my working life.

Yet none of this might have happened if I hadn’t had that brief, eye-opening conversation five years ago. Have you ever had a moment like this?

Has a conversation about money positively impacted your life?

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Personal Finance Shouldn’t Be Scary

Last month, I received one of the best compliments (to date) on my blog: “I love your blog. It makes money less scary, and I appreciate that.”

While this person’s comment made me feel all warm and tingly, the reality of her compliment also struck me. For the majority of us, personal finance is scary!

And it isn’t our fault. It’s 2017, and college curriculum STILL doesn’t include classes on investing, saving for retirement, taxes… the list goes on. It’s no wonder that one in three Americans has nothing saved yet for retirement, or that nearly 75% of millennials has less than $10,000 saved, according to a survey from GOBankingRates.com. It’s a big, national problem, yet it wouldn’t exist at all if colleges and/or the government would make a few simple changes (see more on how the government could help here).

Unsurprisingly, once you get to know personal finance, an interesting thing starts to happen: It becomes a lot less scary! And even liberating.

So how can we familiarize ourselves with personal finance so that it’s not as daunting? Fortunately – thanks to the internet and technology – there are a lot of free online tools and resources that can help us out.

Below are some of my personal favorites:

  1. Retirement calculators: If you’re wondering how much to save for retirement, this is a fantastic calculator. All you have to do is plug in your age, desired retirement age, the amount you’ve saved so far, your current income, and the percentage rate at which you’re saving. In just a few clicks, it does the math for you and tells you whether you’re “falling short” or “on the right track.” Keep in mind though that most online retirement calculators assume annual stock market returns of 6% or higher. In reality, the stock market may only return an average of 4% for the next 20+ years (more on that here).

2. Mortgage calculators: If you’re thinking about buying a home or investment property, online mortgage calculators can help you estimate how much you can afford. However, as the CFPB reports, many online mortgage calculators only calculate your principal and interest payment – leaving out important costs like property taxes, homeowner’s insurance, property mortgage insurance (if you’re putting less than 20% down), and condo/HOA fees (if applicable). As many of you know – particularly if you live in Illinois or another state saddled with debt – property taxes can sometimes amount to a double mortgage. For this reason, I really like the Trulia Mortgage App as it includes most of these other factors. Click “Advanced options” at the bottom of the app to play around with the property taxes and PMI.

3. Google Alerts: I can’t even tell you how much I’ve learned simply by setting up daily Google Alerts. I set one up for “down payment” about a year ago, and ever since, I’ve been able to easily monitor the latest news, trends, and developments about home down payments. If I hadn’t, I would never have known about companies offering to help people with their down payments in exchange for a stake in their property, or the idea to create tax-free savings accounts for down payments (like 529 plans for college). Although neither of these initiatives has impacted me, it’s great to know about these developments and keep an eye on them. If there’s something you want to learn more about – such as a company you’re investing in – I highly recommend setting up a Google Alert (or three).

4. Twitter lists: Since time is money, in addition to Google Alerts, Twitter lists are a great way to quickly and easily monitor personal finance news and tips (although it does require you to have a Twitter account). Twitter lists allow you to declutter Twitter’s massive newsfeed so that you only see Tweets from the people in your list. I have personal finance and homebuying lists consisting of organizations like Fidelity Investments (@Fidelity), LearnVest (@LearnVest), and Zillow (@Zillow).

5. Investing apps: For those who want to learn how to invest beyond their 401(k) and Roth IRA, apps like Clink allow you to invest with as little as a dollar a day. In addition, they only charge you a dollar per month to manage your account (until you hit $5,000, after which they’ll charge you 0.25% of your annual balance). This is a great way to learn the ropes without suffering any serious financial consequences. (Full disclosure though: I haven’t tried this app yet, so if you give it a shot, let me know what you think!).

What other tools and resources do you find helpful? Is there anything else that you would add to this list?

P.S. All of the recommendations above are my own. I don’t get paid to recommend any products or services, and I’ve made zero dollars from this blog 🙂

P.P.S. Cheap Wine and Coffee now has a Facebook, Twitter, Instagram, and Pinterest page. For anyone wanting more conversation than the blog allows, I post on Facebook and Twitter daily and hope you’ll join me! 🙂

It’s Time to Change the Way We Think About Retirement

Last week, the Washington Post published something so depressing that I couldn’t WAIT to get my hands on some wine: Millennials may need to double how much they save for retirement.

The story comes on the heels of an article in MONEY saying much the same thing in December: “Millennials will need to save 25% of pay for 40 years to get the same result that was available to boomers saving half that much.”

Although I’ve known these numbers for a while now, seeing them finally reported in the media drives home the fact that my generation – excuse my French – is fucked.

Why? Because according to asset managers, investment groups and Wall Street analysts, the stock market isn’t expected to return much more than 4% in 2017 – and potentially for the next 20 years.

Meanwhile, the price of everything around us (i.e. housing, child care, healthcare, college tuition) skyrockets.

It’s enough to drive a personal finance gal like me crazy! In fact, if you have any good news, please send it my way asap, as I probably need it 😉

But in all seriousness, what is our generation to do? MONEY reports that most young workers are only saving 6% of their salaries for retirement. Jacking that up to 20 or 25% – even with the employer match – would be difficult (if not impossible) for many millennials. Far too many must choose between paying off student loans, saving for retirement, saving for a home, or paying for child care. On top of it, I know several people working for companies that don’t even offer 401k matching. How are they supposed to save a quarter of their salaries?

Compared to millennials, our parents’ generation had it quite good. In addition to the stock market (of which they enjoyed 6-8% returns), they could also rely on pensions, social security, and significant jumps in home equities to retire. Us? We can only count on the market, and barely.

In order for us to retire comfortably, we need to sink serious cash into our 401ks or find more creative ways to save, like starting a business, making smart investments, or investing in rental properties (hint: think college towns). In other words, we need to rely on our intellect and luck, and the odds are stacked against us.

Sorry y’all. I’m not telling you this so you can be depressed like me (although blogging does help me cope). I’m telling you so that no matter how much or how little you make, now more than ever, you’re paying yourself first. It’s the foundation of any good/sound financial plan, and I can’t emphasize enough how important it is.

A More Optimistic Future

Earlier in this article, I said that our generation is fucked. However, I don’t reeeeally believe that. (Unless you’re 30 and have literally nothing saved yet for retirement. Then you should be worried). While we certainly have our work cut out for us, most of us are still young enough to improve our 401k contributions or figure something else out.

In addition, I have a lot of faith in our country’s ability to improve and innovate. Although the creators of the 401k model have expressed regrets about the way it turned out, their hearts were in the right place. They assumed people would begin contributing in their early 20’s and see 7% annual returns. They never intended for 401ks to replace company pensions. Or charge fees that can eat away at people’s savings.

To help solve these problems, one idea being tossed around – which I fully support – is automatic 401k enrollment. This would mean that a certain percentage of your salary is automatically set aside for your retirement, starting in your 20’s. Backers recommend automatic employee contributions of 6%; however I believe it should be more like 10.

Another idea (and I’m not sure if this is being tossed around yet) is for the government to mandate that companies make a minimum employer match. That way, it would be illegal for companies to match anything less than, say, 6%, although they could certainly offer higher matching to attract talent and stay competitive.

Meanwhile, state governments are exploring solutions too. According to the Wall Street Journal, eight states (including Illinois) have plans to set up retirement savings plans for those who don’t already have them. The plans will “offer guaranteed returns” as well as “provide incentives for small businesses to create accounts for people who don’t have them.”

But for now, until real change and progress is made, the best thing any of us can do is to pay ourselves first. As the old saying goes, “it takes money to make money,” and you can’t make any money (i.e. maximize the power of compound interest) if you’re not saving.

So go ahead, increase your retirement contribution. Your future self will thank you.

–P.S. Cheap Wine and Coffee now has a Facebook, Twitter, Instagram, and Pinterest page. For anyone wanting more conversation than the blog allows, I post on Facebook and Twitter daily and hope you’ll join me! 🙂

The Easiest Retirement Calculator Ever.

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I’m going to be completely transparent here: I did not do the best job saving for retirement in my 20’s. Or even a good job, for that matter. I did an okay job when I was 24/25, but then took like a 4-year hiatus. (My brother-in-law, an actuary, is probably reading this and dying).

Although some of my reasons are legitimate, others are excuses. Yes, I was broke, struggling, and battling credit card debt. But I could’ve done better. Lived below my means. Saved more.

I’m not going to be too hard on myself though. I’ve mentioned it before, but I think it’s crazy that society expects 20-something year-old’s to be so self-disciplined while figuring out their careers, life, love. I certainly don’t judge anyone for the financial decisions they made or didn’t make in their 20’s.

But, for anyone who needs to “make up” for lost time or who just wants to do a retirement “check-up”, the CNN Retirement Calculator is the best of the best. Forget about plugging in a whole bunch of information that just ends up confusing you more. All this calculator asks is your current age, your desired retirement age, the amount you’ve saved so far, your current income, and the percentage rate at which you’re saving. In just a few wonderful clicks, the calculator does the math for you and tells you whether you’re “falling short” or “on the right track.”

For me, as you’ve probably guessed, it was “falling short.” Worse, according to the calculator, I need to consistently save 18% of my salary beginning now until I retire. 18 percent! I was shocked when I found this out, but I’ve since recovered and accepted it.

Remember, since retirement contributions are pre-tax, saving for retirement really isn’t as hard on your paycheck as you might think.

CNN Retirement Calculator

So go ahead, give it a try! Play around with the “Savings Rate” slide at the bottom to see where you’re at, retirement-wise. Then, make adjustments. That’s the most important part: make the adjustments.

Yes, there are a lot of factors involved: The calculator assumes you’ll live to age 92 (you could live longer) and that you’ll live comfortably off 85% of your pre-retirement income. But if you’re like me and math gives you a headache, this is a great, simple way to track your progress.

And who doesn’t love more simplicity when it comes to finance?!

 

Count Your Blessings

During my commute home today, I decided to start a personal finance blog. I was inspired by the sudden realization that something about our system, our way of life, is broken. I’m not sure what – exactly – is broken, but in bumper-to-bumper traffic, I penned the following about how I felt in that moment:

Dear imaginary financial adviser:

You’re saying I have to pay $250 a month, for 18-20 years, just to pay for my yet-to-exist child’s college tuition? One child? For a public, in-state university?

You’re saying I have to save 18% of my salary now through age 67? 

After paying for my two unborn children’s college tuition and my senior-citizen self, what about my present self? Can I afford a vacation? A down payment for a home? An emergency fund? Don’t even get me started on a new wardrobe. New clothes… what’s that?

We live in a world that expects people in their early 20’s to have the foresight and self-discipline to pay for retirement and their future kids years in advance. At the same time, they’re also expected to figure out their careers and save up for weddings and mortgages. If you don’t think that’s broken, you’re either in the one percent or extremely financially savvy. (If you started saving for your kids’ college tuition 10 years before they were born like this author recommends, I applaud you. That’s terrific. But I haven’t. Most of us haven’t).

But after I got home, I realized I was being way too hard on myself. Yes, it’s important to prepare for the future. But it’s also important to live in the present. To enjoy cheap wine and coffee. To count your blessings. I realize I’m one of the lucky ones: both blessed and grateful to even think about retirement, saving for my future kids’ colleges, and emergencies, when so many others cannot.

In reality, life is too short to spend time worrying about money. If you do, take a step back and do yourself and the people around you a favor by indulging in the little things. Nothing matters more than the present and the people you surround yourself with. And nature.