Archives for October 17, 2018

Everyone has bad habits. It’s just a part of being human. I try to squash a bad habit as soon as I recognize one, and I’m sure you’re in the same boat. It’s easy to develop bad money habits early on in life, and it can be difficult to kick them even once you recognize them.

In a time where many people are living paycheck to paycheck, bad financial habits can potentially cost you thousands of dollars – money you could be investing for retirement or saving for a down payment on that dream home. Which of these bad habits are you guilty of? And how can you stop them?

1. Spending more than you can afford with credit cards

Most credit card interest rates are well over 15% (and that’s on the low side), which is bad news for cardholders who carry balances month to month. These high interest rates mean you’re paying more in interest and that your debt is adding up quicker. Worse yet, many people get stuck in a cycle of credit card debt – a habit that just seems to never go away.

Many consumers make what they consider to be “educated guesses” as to whether they can afford putting new expenses on their credit card because they just have to have that new Apple Watch, or just one more chai latte at Starbucks SBUX, -0.36% to get them through that afternoon slump. The problem is that people think they will be able to pay off those extra expenses at the end of the month, but they can’t really calculate their future expenses. Maybe there was a medical emergency that left them strapped for cash at the end of the month, leaving them unable to pay off the extra expenses they put on their credit card.

What can be even more challenging is if you’re living paycheck to paycheck, small emergency expenses can cause enough of an impact to make you late on your credit card payments. If you’re late once, then you can easily develop the habit of being late over and over again, until your credit score and amount of debt start hurting. Late payments negatively impact your credit score, and if your score drops low enough, then it can mean higher interest rates for you in the future.

Unless you’re entirely sure you can pay off your credit cards in full every month, you may want to seriously consider not using them. If you already have a high balance, and the temptation is too great to use them, then you can try leaving them at home, so that you can’t spend more on them while you focus on paying down the balances.

I’m sure you’ve been at a store making a purchase when the cashier asks if you’d like to sign up for their store credit card to get an additional 10% off your purchase. Or you’re browsing the web late at night and you see a travel rewards credit card that offers 50,000 points, which will pay for your next round-trip if you spend $3,000 in the next three months. Plus, you’ll get 2% cash back on all your purchases…but there’s also an annual fee.

In a lot of cases, credit cards offer huge sign up bonuses that will hook you, but the spending thresholds are high, and you might not be able to pay off the balances, or pay the annual fee, so aside from the sign-up bonus, the card may not be worth it.

Not only that, but opening up new lines of credit causes hard inquiries. The more accounts you try to open, the more this will negatively impact your credit. Eventually you’ll reach a point where you’ll start being denied because applying for many accounts raises red flags. If a sign-up bonus seems too good to pass up, take a moment and really consider whether you’ll actually use the credit card, whether the sign-up bonus and rewards are worth it, and if you’ll be able to pay the balance in full each month.

2. Not using a budget

One of the best habits you can develop with your personal finances is tracking your transactions so that you can very clearly see where you’re spending your money. Not using a budget sets you up for failure. The second you look at your zero (or negative) balance in your bank account, you’ll ask yourself “where did all my money go?” Tracking your expenses will help you understand where you’re spending your money, and how much you’re spending.

Try tracking your expenses for a month – you can use a spreadsheet, or one of many free budgeting programs that are available online. When the month is over, categorize and add up your expenses. There are common categories that people tend to overspend on, including:

• groceries
• entertainment
• eating out

Once you’re able to figure out where you’re overspending, try making a few goals. Try lowering how much you’re allowed to spend in your problem categories incrementally month by month. It’s OK to allow yourself money to play, but make sure you can afford to do so.

Once you’ve been tracking your expenses and paying attention to your spending habits, you’ll be able to allocate your money wisely, which can save you thousands of dollars.

3. Impulse buying

Have you ever heard you should never go grocery shopping on an empty stomach? That’s because you’re more likely to buy things that you don’t really need. When you go to the store, it’s always a good idea to bring a list with you. Stores are laid out to get you to spend more money – from grocery stores to clothing and furniture stores. Unfortunately, this leads to buyer’s remorse. I’m sure we’ve all felt it at one point.

It’s also easy to rationalize buying something you don’t really need when there’s a sale, because maybe, you’ll use it eventually. And then it just gathers dust and you spent good money for no reason. There are things that we want but we should make sure that there is room in our budget for these things, and we want to make sure too that we’ll be putting them to good use.

Impulse buying is something that can cost lots of money. If there’s not room in our budget for something that we don’t really need and we buy it, then that means there isn’t enough money to cover what we actually need. Or worse yet, we charge it to a credit card and can’t pay it at the end of the month.

One way to curb impulse buying is to carry only cash when you go out so that you only buy the things that you need. It’s also a good idea to take a step back and ask yourself two important questions: 1) “do I really have to buy this now?” and 2) “can I really afford this?” Once you’re able to stop making those impulse buys you’ll see your savings add up and that it’s easier to manage your finances. Then, when there is actually something that you want, you’ll be able to better afford it.

4. Withdrawing from retirement accounts

When a financial emergency comes up, some people raid their investment accounts. Sometimes, it can even become habitual. If you don’t have good credit, it can be difficult to get approved for a loan, and that 401(k) may be the only source you can turn to take care of your emergency. The tax penalties on withdrawing from retirement accounts can be high, and doing so loses you potential earning power.

As an alternative, you can open a high-yield savings account to be your emergency fund and not touch it unless there’s a true emergency. Some emergencies that can crop up when you least expect it are medical bills, job loss, car repairs, and etc.

One good habit you can get into instead is taking extra money you’ve earned every month and putting it away in your emergency fund. The recommended amount is three to six months-worth of expenses, but if that’s not manageable, set a goal, like $1,000, or even $500. If you manage to cut down on your spending, or pay off all your credit cards, you can take the extra money you’re saving and put it away in your emergency fund. Any bonuses you get at work can also be contributed. Also, if you have a direct deposit set up on your bank account, have a certain amount each paycheck allocated to your savings account so that you don’t even miss the money.

Say hello to more money

Bad financial habits aren’t always easy to correct. It requires a shift in the way that you think about money. You might have some bad financial habits right now that you can start working on. Pick one and work on it for a month. If you stay focused, you might find that it’s easier to break than it seems. The rewards? More money in your savings and less financial stress. Do it. It’s worth it.

We’re often wired to believe that getting promoted is great for our careers. But in some cases, that’s far from true.

Imagine you’re offered a promotion that comes with a minimal salary boost and a ton more work. Suddenly, you’re clocking in consistently longer hours and having less time to yourself, and all for the benefit of a slightly more impressive job title to stick on your resume.

Of course, this isn’t to say that getting promoted is always a bad thing. Much of the time, it isn’t. But if you don’t think it’s the right move for you, you’ll need to find a way to decline when you’re offered that upward step. Here’s how to go about it.

1. Express your gratitude

Chances are, the promotion you were offered is a role that many of your colleagues were vying for. Before you turn down that opportunity, be sure to thank your manager, or whoever’s presenting the offer, for having faith in your abilities and choosing you among the many qualified candidates. This is a good way not only to soften the blow when you say no but also to show that you do indeed acknowledge and respect the importance of that new role.

2. Review your concerns

A simple “no, thank you” just won’t cut it when you’re presented with a promotion you choose to decline. Therefore, be prepared to share your reasoning for rejecting that offer.

Maybe you’re concerned that taking on that added responsibility will negatively impact your work–life balance, and you don’t want to take that chance. Maybe moving up a level means spending more time on managerial tasks when you’d rather focus on more creative work. Or maybe you’re convinced that you don’t actually have the skills needed to excel in that role and that you’d rather hold off on taking that step until you’re able to improve in key areas. No matter what it is that’s driving your decision, disclosing it will most likely help you avoid backlash.

3. Be firm

At first, the people who offer you a promotion might be skeptical when you say no. They might, in fact, chalk your response up to jitters or a lack of self-confidence and bring up the topic again several days after the fact. To prevent this, be firm in your language. Instead of saying, “I don’t know…it just doesn’t seem like the right move for me,” try something like, “I appreciate the offer but must respectfully decline.”

4. Make it clear that you’re open to future opportunities

Clearly, you have your reasons for not wanting a promotion right now — but that doesn’t mean you won’t want one in the future. Before closing out that conversation, make it clear to your manager that you’re open to different opportunities as they arise. This is especially crucial if you want a promotion in general but not the specific one you were offered.

Declining a promotion isn’t easy, but if you feel the role is wrong for you, it’s something that must be done. And if you go about it the right way, you’ll survive that conversation with your solid reputation still intact.

When it comes to your money life, the opportunities to make mistakes can come fast and furious. If they are not corrected, they could lead to a compounding effect that can be devastating to achieving the goals you value most.

Money Mistake #1: Not taking ownership of your financial life. This common error, for many, begins early in life with the absence of solid financial knowledge. And let’s be clear: most of the time, this ignorance is not our fault as it happens during childhood. If, as a youngster, your parents or guardians didn’t provide a sound foundation for money management through money lessons, you come into adulthood without the benefit of confidence in making good money decisions.

The formative developmental years are the prime time to learn how to defer gratification, learn to save, and make choices that are wise and satisfying. By learning simple money lessons when you’re younger, you are able to take these skills into real situations and decisions in adulthood. Your younger years are also the times to make mistakes and learn what not to do, typically without life-altering consequences.

If, as an adult, your lack of financial knowledge and comfort causes you to avoid making decisions and taking ownership of your situation, you could find yourself mired in debt or at the very least, living hand to mouth.

Taking ownership means understanding your numbers: what you earn, spend, save, owe. It means setting goals and actively working towards achieving those goals. If you’ve made mistakes in the past, recognize them, own them, learn from them, and move on in a positive direction.

Money Mistake #2: Not asking for help. Asking for help is vitally important. Making financial decisions doesn’t include a step-by-step guide. Financial matters are subjective because they are based on how you see the world, what you want out of life, what you value, what you fear, etc. All things that are shaded by your own personal belief system.

Asking for help can be challenging because of a variety of factors, including who you ask and their level of knowledge and understanding. But most of all, everyone should feel that the person they are working with is THE BEST.

A good place to start is with NAPFA (National Association of Personal Financial Advisors). You can look for a Fee-only advisor in your area. It’s a place to start your investigation, but you need to learn a lot more before you hire the person or firm to help you.

Money Mistake #3: Ignoring Life Transitions. Life transitions happen; some expected, some not. Everything from getting married to creating an end of life plan; from expecting a child to divorce; from death of a spouse to paying for college; from a job loss to caring for an elderly parent or special needs child. Without appropriate consideration and planning, life transitions can destroy your financial life and put your stability in jeopardy.

While the spotlight remains on the daily movement of the stock markets, people ignore aspects of planning that they can be aware of and prepare for, to some degree. It requires a mindset that provides for open discussions of all possibilities and transitions that are likely given all available information. The conversation needs to occur on a regular basis, at least annually.

Take for example, your work life. Have you considered whether your industry, company, or position are in danger of being changed, moved, or eliminated? Do you have a wide enough view of your skill sets and relationships in light of your job? The days of guaranteed employment or that companies that will “be around forever” have proven to be a fiction.

Know what you can control and what you cannot and work with your planner to attend to those issues with determined focus. Chances are, you might not be able to satisfy all the issues to the degree you would like, but understanding the issues and making rational decisions can put you in the best position possible.

If you can avoid these three big money mistakes, you increase the possibility of living within your means, with purpose, and centered on your values. Navigating life can be difficult; and adding money challenges can only make it more so. Take ownership, ask for help, and be mindful of life transitions. It’s a great way to set the stage for the best life possible.

The Crushing Effects Of Medical Debt

How pervasive is America’s medical debt problem? According to 2017 data from the credit bureau Experian, unpaid medical debt in America topped $127 billion. New data from Consumer Reports shows that almost 30% of insured Americans had unpaid medical debt turned over to collection agencies in the past two years. A 2013 analysis by NerdWallet Health found that unpaid medical bills were the number one cause of bankruptcies, surpassing unpaid mortgages or credit card debts.

Even if you aren’t driven into bankruptcy, unpaid medical debt will eventually show up on your credit report – resulting in a lower credit score that further degrades your financial health. The Consumer Reports survey found that nearly one in five Americans has suffered a credit score drop related to unpaid medical bills. You can check your credit score and read your credit report for free within minutes by joining MoneyTips.

Medical bills are particularly tricky because of the confusing billing and insurance systems. Errors and miscommunication are common. Of the 30% with unpaid medical bills in the Consumer Reports survey, 24% didn’t understand that they owed any money and 13% never received the bill at all. Another 10% had an already-paid bill sent to collections by mistake.

It Could Work Out

If your insurance won’t cover an unpaid medical bill and you have to pay it yourself, it’s possible that your credit score may not suffer. Newer versions of both the FICO and VantageScore systems lessen the penalty for medical debt. Unfortunately, most lenders still use older credit scoring versions.

Ask a potential creditor what scoring system they use. If you have options, vendors using the FICO 9 or VantageScore 4.0 models are a better choice.

Regardless of the scoring system used, medical debt in collections will stay on your credit report for up to seven years. You’ll have to work even harder to lessen the effect by never missing a payment and keeping your credit usage and overall debt load under control.

New Regulations May Help

At least you have more time to address problems. Thanks to an agreement between the three major credit bureaus (Experian, Equifax and TransUnion) and a group of state attorneys general, the credit bureaus must wait 180 days before adding your unpaid medical bill to your credit report. New regulations also require that medical bills eventually paid by your insurance company must be taken off your credit report.

Even if you have sufficient insurance coverage, you may need that 180-day period. If the insurance company is late with their payment, the provider’s bill could be in collections before you know how much your insurance will cover.

The key document is the explanation of benefits (EOB) – a statement from the insurance companies that explains what medical treatments have been covered by insurance and clarifies the balance you must pay. Providers may send bills before insurance companies have time to process them and send the EOB.

Wait for the EOB before making payments to avoid overpaying for medical care – but if the EOB runs late, contact your health insurance provider. Even with the 180-day period, you may have trouble resolving disputes or errors in time.

Meanwhile, ask for an itemized bill from the provider. It can help you spot errors and can be useful if you have to negotiate payment with providers or insurers.

Know Your Plan, Know Your Doctors

Studying insurance coverage is nobody’s idea of a good time – but neither is a massive medical bill that takes you by surprise. Know your plan’s coverage limits and which providers are in your network. Insurance plans reimburse far less – or nothing – for out-of-network providers.

Since plans change frequently, call the doctor’s office beforehand to make sure they’re in your provider network and they have your most recent medical information. For hospital admissions, only agree to see in-network providers – it’s possible to acquire bills from out-of-network specialists within the same hospital system. If asked to sign a document of financial responsibility, write in that you’ll only accept in-network providers.

Don’t Accept Errors

What happens when you end up with an unpaid medical bill on your credit report by mistake, such as a paid bill being sent to collections, failure to remove a bill that insurance has paid, or posting a bill before the 180-day waiting period? Nothing – if you don’t challenge the error.

Gather all your evidence and file a dispute with any credit bureau that reports the error. Thanks to the Fair Credit Reporting Act, the credit bureaus are required to follow up on all disputes. Be persistent. Keep copies of all documents and take notes on all communications.

Be similarly persistent with your insurance company and provider. Follow up to make sure that the provider has filed the insurance claim and that the insurer actually makes the payments on bills they agreed to cover.

The Takeaway

Medical procedures can be traumatic enough without the added trauma of an unpaid bill dragging down your credit. Be proactive where possible by understanding your coverage, staying with in-network providers, reviewing all bills and EOBs, and addressing any problems as quickly as possible.

Did you receive a medical bill you don’t recognize? Don’t ignore it. Follow up to ensure that nobody has committed fraud by receiving medical care in your name. Challenge any fraudulent charges or recording errors with the appropriate credit bureau(s).

Stay vigilant to avoid unpleasant medical bill surprises that can damage your credit score as well as your wallet.