Archives for November 24, 2018

In the fall of 2017, my doctor changed my life by demanding I quit lying to myself. And over the last year, I’ve learned to be honest when I look in the mirror, better understand my priorities and hopefully discovered a valuable lesson about our financial lives.

I went to see my doctor for heartburn medication, but it turns out he had different plans.

“You don’t have a heartburn problem,” he unleashed in a flurry of irony having just diagnosed the symptoms as those consistent with heartburn. “You have a tolerance problem.”

He said my body and I were too tolerant of bad health choices. For six months, my chest had hurt after I placed anything in my mouth. It had finally persuaded me to take action.

“If I give you heartburn medication, your tolerance problem will get worse, much worse, and you’ll continue to gain weight,” he said.

“Continue to gain weight? How dare…” I interjected while clutching my imaginary pearls.

He went on to tell me I ate terribly unhealthy foods and exercised about as frequently as I changed my furnace filter.

He was right.

Which brings me to these questions: Are you too tolerant of your suboptimal financial decisions? And how do you mask your unhealthy habits?

Let me focus on one financial decision that can trip up many Americans: emergency funds.

Personal-finance experts love to debate how much of a fund people need.

Emergency fund

“I think people need 12 months worth of expenses saved, with 30 percent held in cash in a fireproof safe,” some will assert. Others are comfortable recommending people accumulate and preserve anywhere between three to nine months worth of expenses to deal with whatever life wants to throw at them.

I’ll let other folks debate it, but I think three months worth of expenses in a savings account is adequate. Use this exact goal, or use it as a placeholder for something bigger, or smaller.

Savings statistics suggest you don’t have a proper emergency fund. Therefore, by at least one definition, you lack financial stability. As it stands now, you’re tolerating that, just as I was fine having heartburn every day for six months.

Resolutions

I think people read personal-finance columns hoping to glean a slick nugget that will inconspicuously change their trajectory. But I’m fresh out of slick nuggets. Besides, I’m not one for subtlety. If you’re going to change your life, change your life.

Here’s how change worked for me. In November 2017, as my best friends pulled out of my driveway on their way home to St. Louis, I strapped on jogging shoes (to call them running shoes would be a disservice to, well, anyone who actually runs) and began to put one foot in front of the other. One hundred meters in, along with a commitment to make drastically different food choices, I resolved to work out every single day for one year.

Plant your flag

You too can stake your claim, draw your line in the sand or plant your flag. Do something absurd, impossible: Don’t spend money for a week. Don’t spend money for a month. Get a second job. Sell your car. Move. Rock your system.

Small changes are overrated. Make absurd changes.

Every single person in this world is on a financial path plotted by the math of their choices. Again, based on nearly every available stability statistic, Americans don’t need subtle financial changes. We need absurdity.

What if not having three months of expenses set aside as an emergency fund wasn’t an option? You’d behave differently, wouldn’t you? You’d wake up a 4 a.m. on days when you have a cross-country flight because you wouldn’t have any other time to exercise, and you wouldn’t want to break your streak. You’d get on the treadmill for 30 minutes – like an idiot, a committed idiot – for three days in a row, even when you had the flu. And in the end, you’d regret nothing.

At 5:30 a.m. on Nov.6, 2018, in a Portland, Oregon, fitness center, I put the icing on the proverbial cake – one that I would recently think twice about eating – and completed my 365th workout in a row. I know what’s next for me – Day 366.

Do you know what’s next for you?

The ability to save money is one of the many skills one must learn in order to become financially successful, and one of the most difficult. Moody’s Analytics analyzed different demographics and determined that savings rates increase as we age.

Sadly, according to their data, only one age group saves between ten and fifteen percent of their income, an amount many financial experts often cite as reasonable. Another age group actually carried a negative savings rate! Find out how much each age group saves to see how you compare to your peers.

Under-35s Do Not Save at All

Surprisingly, those under age 35 do not save a single penny, on average. In fact, this group actually ends up with a negative savings rate of one and a half percent. Negative savings rates are often associated with taking on debt and are often the result of people living beyond their means. The negative savings rate makes sense when you consider all of the costs this age group faces like attending college, starting their first job and starting their first household. If you want to consolidate your debt, join MoneyTips and try our free Debt Optimizer tool.

Investing your savings early in life is one of the most powerful actions you can take with your money due to the effect of compound interest. Unfortunately, the typical person under age 35 is not taking advantage of this great opportunity while time is still on their side.

35-to-44-Year-Olds Begin to Save

The 35-to-44-year-old group saves just 2.6% of their income, which is better than nothing. However, their savings rate is lower than what someone in his or her late thirties and early forties should save to become financially independent.

This age group also has many financial costs to account for, such as buying a first home and raising children. Unfortunately, many people overextend themselves during this time by buying fancy cars and larger homes than they cannot truly afford. Redirecting the money from some of these excessive purchases into investments or IRAs could help this age group reach a higher savings rate.

45-to-54-Year-Olds Save More

Those aged 45 to 54 years old save 5.7% of their income. While that improves over the younger groups’ savings rates, this demographic still does not save enough by any stretch of the imagination.

Many expensive life events, such as raising older children or even paying for college, prohibit many from saving as much as they would like. Parents should not expect to pay for higher education with savings rates this low, as they likely have not yet saved enough for their retirement up to this point. After all, you can get a loan for college, but no one gives out loans for money to live on in retirement.

55-and-Older Group Saves the Most

People aged 55 years or older save the most money, with a savings rate of thirteen percent. This group saves as much as some financial experts cite, but unfortunately, they hit that savings rate way too late in life. This group can likely save more due to fewer large costs, as mortgages are paid off, kids have moved out and job-related costs slow down as retirement draws near.

Comparing savings rates to your peers will show you whether you are saving more than those in your age group are, but comparing does not measure how well you are doing financially, as it is based on others that might not be meeting their own goals. Instead, come up with a plan to reach your financial objectives and calculate the appropriate amount you need to save to achieve them. Only then can you truly know how successfully you manage your finances. There’s a tip you can save at any age.

Let the free Retirement Planner by MoneyTips help you calculate when you can retire without jeopardizing your lifestyle.

It’s the holiday shopping season, when many Region residents often find themselves reaching for the plastic at malls and shopping centers.

Northwest Indiana residents are carrying between $2,100 and $2,900 in credit card debt on average, a new study by the personal finance startup SmartAsset found.

Residents in Lake County carry $2,468 in credit card debt per capita, which is about 9.7 percent of their income and 9.5 percent of their wealth, the study found. Porter County residents are even deeper in debt with about $2,881 in credit card debt per capita, accounting for 9.4 percent of their income and 7.7 percent of their average wealth. And Jasper County residents owe about $2,900 per capita.

People in Lake, Porter and Jasper counties have higher credit card debt loads than the rest of Indiana, where residents have an average credit card debt of $2,351 per capita, according to the SmartAsset study.

In LaPorte County, the per capita credit card debt is just $2,125, which is about 8.7 percent of average income and 6.9 percent of wealth per capita.

Suburban Indianapolis counties like Hendricks, Hancock, Boone and Hamilton were saddled with some of the highest credit card debt in the state of Indiana, with Hamilton County residents, for instance, owing more than $4,500 per capita.

Social Security is one of the most important factors in older people’s financial lives. Yet the available information on the system is often contradictory or incorrect.

Even the Social Security Administration, the government agency that administers the benefit, can mislead people, experts say.

“Half of the answers Social Security is giving people are wrong or misleading,” said Laurence Kotlikoff, professor of economics at Boston University.

A recent report from the agency’s Office of the Inspector General found that bad Social Security advice cost claimants$131 million.

In response to a request for comment, a spokesman for the Social Security Administration said their website is the most comprehensive source for information on the benefit. He added that some 40 million Americans have made an account on their website.

Where to turn for guidance

If you’re wondering where to turn, here are some other sources to help you make the best Social Security moves:

• AARP: Retiree and senior interest group AARP recently launched a Social Security Resource Center, where you can find information about when you should collect your benefits. You’ll also find all kind of answers to tax and work-related questions.

• Social Security Works: The advocacy organization Social Security Works answers a list of frequently asked questions, such as, “Is Social Security going bankrupt?” and “How much will I need to retire?”

The group also has a report on the benefit in each state and several fact sheets.

• Books: There are also a number of books that explain the program and its benefits, including “Social Security Made Simple” by Mike Piper, author of the Oblivious Investor blog, and “Get What’s Yours: The Secrets to Maxing Out Your Social Security” by Kotlikoff.

• Calculators: A number of online or software-based calculators can help you figure out when you should claim.

Piper’s calculator, Open Social Security, is free but doesn’t account for child benefits. (When you file for the checks, some people in your family might also qualify for benefits.)

Kotlikoff’s software company has its own calculator, called Maximize My Social Security, which costs $40 a year. The tool will tell you which claiming strategy will result in the highest lifetime benefits. Kotlikoff estimates that up to 70 percent of people should wait until 70 to file, although less than 5 percent of people do.

“You want answers from economists,” he said.

• Social Security Administration: The SSA itself remains the best place to receive information about Social Security, said Nancy Altman, president of Social Security Works.

“In addition to having a nationwide system of local offices where people can make appointments and a [toll-free] number with trained workers, SSA also has online calculators and a lot of relatively easy to understand fact sheets explaining the various rules and options,” Altman said.

Once you’ve done your own research and settled on a claiming strategy, then consult with the Social Security Administration, said Ed Slott, an expert on retirement saving.

“Many of the options you choose may be irrevocable,” he said. “You basically have one chance to get it right.”