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?

Advertisements

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! 🙂

Re-Learning Personal Finance

Every now and then I come across something really inspiring. The other day, it was an article titled “My Millennial Manifesto,” which published on the Huffington Post.

In the article, Matt – the founder of Distilled Dollar and a licensed CPA – talks about how, after World War II, people started working for major corporations and worrying a lot less about their finances. After all, why worry about your finances when you can get a steady paycheck and pension from the company you work for?

But after a while, Matt writes, something very bad happened: “we lost sight of who we were.” Older generations stopped passing down valuable information to their kids about how to start a business, how to manage their money, and how to best plan for their financial future.

He writes:

“It wasn’t [that] long ago [that] people used to build their own businesses. Not because they were driven by a sense to be self-employed, but because it was necessary not only to survive, but to thrive. Every day patrons used to know about personal finance because everyone had to be entrepreneurial. They could not rely on corporations to make decisions for them. There were no large government safety nets.”

However over time, that started changing, and people forgot how to manage their finances. They focused instead on accumulating material possessions and wealth, and they lost their sense of purpose.

The result is an entire generation of people (myself included!) that knows very little about how to start a business, how to invest, or how to best prepare for their financial future.

But thankfully, all is not lost. After many (many) years, this is finally starting to change, and it’s changing with us.

Contrary to being “entitled” and “whiney,” Matt points out that millennials are empowering a new generation by “re-learning what prior generations [already] knew.”

And he’s right! Everywhere around me, I see it.

Motivated by credit card debt, student loans, and a lack of savings (including emergency and retirement), millennials are driving change by starting conversations about money/transparency, challenging their purpose, and questioning society’s endless need for consumption.

We have realized that companies don’t have our backs the way they used to. Pensions are small or nonexistent. 401k company matches either prevent employees from being eligible immediately, or they have long vesting schedules. And wages have become stagnant.

We have also realized that there’s more to life than the 9-5 desk job. That we’re wasting precious time and energy working for corporations and earning salaries that can’t guarantee our retirement, let alone give us work that we love or time away with our families.

But most importantly, we have realized that we can take back control. That we can re-learn personal finance and embrace a renewed sense of purpose in order to build the life we really want to have.

I see this through:

  • The Minimalist Movement, which inspires people to live a more meaningful life by ridding themselves of life’s “excess” in order to focus on what’s really important – like happiness, fulfillment and freedom. (I highly recommend their podcast or documentary if you’re interested).
  • The Tiny House Movement, which gives people an opportunity to escape the vicious cycle of debt by saying no to six-figure mortgages and embracing a life of more time and freedom.
  • The “Start Your Own Business” movement: Okay, I made up the name. But it exists. Fortune published an article earlier this year saying that millennials have launched twice as many businesses as baby boomers, and they’re launching them at a younger age (20-30 vs 30-40). Although technology has certainly played a role, experts have pointed that with the average college-loan debt hovering around $26,000, many millennials have had no choice but to strike out on their own.

Taking Back Control

Many journalists and financial execs have claimed that there is no hope for our generation. That we’re doomed to become the most taxed, the most indebted, the most overworked, underpaid….never able to retire… blah, blah, blah. However, I disagree.

With all of this chirping in our ears, I think more millennials than ever are saying “Hey, wait a minute! I want to build my life and my career on MY terms. So what do I need to do to get there?” For many of us, the answer isn’t in longer hours and more pay. It’s in taking charge of our money earlier so that we can control it instead of letting it control us.

By embracing personal finance and learning everything we can about it now, we can regain control of our lives, keep ourselves out of debt, spend less than we make, and live a more meaningful life.

The choice is yours.

–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! 🙂

Financial New Year’s Resolutions

Champagne glasses against holiday lights

I know, I know… not another NYE article! This time of year, it seems like every marketing department that ever existed has found a way to turn their products and services into New Year’s resolutions. Some of the especially dry ones include resolutions for medication management, vehicle maintenance, and lawn care. (And for those feeling overwhelmed, don’t worry, there are apps to help you keep your New Year’s resolutions too!)

But on a more serious note, I believe there are three areas everyone can and should be continually working on:

  • Your Relationships (with family, friends, co-workers, etc.)
  • Health (through nutrition and exercise)
  • Your Finances (by paying yourself first)

Even if you’re already pretty good at these areas, there are probably still ways to improve.  To make New Year’s resolutions that stick (and to achieve them), consider the following criteria:

  1. They should be specific (I will pay off $100 of debt monthly versus I will get out of debt)
  2. They should be realistic (I will eat 1-3 servings of fruits/vegetables daily versus I will quit eating meat, dairy, and processed foods)

Overall, I think the best New Year’s resolutions are ones that build upon the things you’ve already been working on, instead of going from zero to hero. Let’s say, worst case scenario, you have ample credit card debt and student loans and nothing in retirement or emergency savings. Instead of tackling all of these in one year – which would overwhelm anyone – try tackling just one of them. “In 2015, I will begin contributing 11% of my paychecks to my 401k” or “In 2015, I will put aside $300 monthly into emergency savings.” Then in 2016, build upon the progress you made by further increasing your retirement contribution, saving for another goal, or aggressively tackling student loans.

I personally have five financial goals for 2015, although I don’t expect anyone to create that many! Two of mine are below:

  • I will increase my 401k contribution to 12% in March
  • I will increase my 401k contribution to 18% for my 30th birthday (quite the gift, I know)

Whatever yours may be, feel free to share them and party with me next December when we’ve accomplished them!

 

The Easiest Retirement Calculator Ever.

fullsizerender-37

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?!