Category Archives: Saving

New Year, New You

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There’s something refreshing about the start of a new calendar year and a new semester.  A lot of people make New Year’s resolutions.  But I think most people go about their resolutions in the wrong way.  And doing that makes it easier to fall off the wagon.

Possibly the most popular of all resolutions is the vow to lose weight.  I’ve made and broken this resolution multiple times.  Because it’s easy to break a promise to yourself to do something.  So this year I resolved to live like a healthy person.  Healthy people make better food choices.  Healthy people exercise.  Healthy people take the stairs instead of the elevator.  I’m not going to DO something.  I’m going to BE something.  I’m going to be a healthy person.  As a result of that behavior, I will likely lose some weight (I hope, I hope, I hope).  And if I have a bad day of living a healthy lifestyle, I won’t feel like I have failed the whole project.  I can wake up the next morning and still live like a healthy person.

Many folks also resolve to spend less money.  Or to build a budget.  Or to save more.  This is always on the top of my mind as well.  This year I’m choosing to be someone who makes smart money decisions.  I’m not going to DO.  I’m going to BE.  People who are smart with money pay themselves first.  This means I’ve got an automated savings deposit scheduled for every month….and what is left after that is the amount I have to live on.  Financially savvy people know where their money goes.  This means I am tracking my spending.  I can easily look up how much I spend each month on various budget items.  And if an area of expenditure seems to be getting out of control (as so often happens in the month of December), I know that I need to make adjustments going forward.  And most importantly, people who are smart with money don’t spend on things that are not important to them.  Live music is important to me.  My home is important to me.  My camper van (or home away from home) is important to me.  I don’t feel bad about spending money on indulging these three things.  Clothing is not important to me, so I always buy secondhand.  Cars are not important to me, so I drive a 13 year old Subaru.  Fancy coffee is not important to me, so I brew at home and carry it to work in my travel mug.  There are a lot of places in my budget that I could easily spend more money on things that are not of importance to me.  But that’s not who I want to BE.

Have you made any resolutions for the new year?  Who are you planning to be?

What is Your Goal?

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I almost never mention my first husband.  It was a short marriage that ended decades ago, so it somehow seems like part of a different lifetime.

He and I differed on one very important issue, and I think that is what ultimately drove us apart.  We had different financial goals.  Or at least a different order in which we wanted to pursue them.  All of my life I had two primary goals: earn enough money that I don’t have to be dependent on anyone else, and own my home.  When we married, I had finished my Master’s degree and was started on my career as a financial aid professional.  I had achieved goal number one.  But I was living in a rental apartment.  A year after we got married, we moved to Chicago.  I continued working as a financial aid advisor (this time at a law school—I found my niche!).  He started attending law school.  Within a year of our move to Chicago I was looking at condominiums.  I still wanted to own a home.  He didn’t agree.  He claimed he didn’t want to make that kind of commitment to Chicago.  And that was the beginning of the end.

Ultimately, we divorced.  And a year later I bought a condo in Chicago. A studio was all I could afford, but who needs a bedroom when you have a 27th floor lake view?  It was all mine. And I loved it.  My home, my mortgage, and my rules. After only three years, I sold that condo at a 25% profit.  I moved back to Pennsylvania and started working for Penn State.  And as soon as I was able, I bought a townhouse.  I’ve bought and sold my home two more times since then, and now I know that I’m in the home where I plan to stay for a very long time.  I’ll probably even manage to pay off the mortgage in full.

What I learned over the years is that when the real estate market is strong enough, you don’t have to commit to a home forever unless you want to.  It is possible to sell a home after only a few years without taking a loss on it.  Real estate is more than just a place to live…it’s an appreciating investment.

My first husband still lives in the suburbs of Chicago with his wife and kids.  Ultimately, he did make that kind of commitment to Chicago. We just didn’t have the same goal at the time when it really mattered.  Everyone has their own financial goals. And before you too far into a relationship, it’s important to be clear with your partner what your goals are, and hopefully they will match up with each other’s.

Owning a home and being self-supporting were my goals.  My current goal is retirement at age 60.  Some people have a goal of saving a certain amount of money.  Some have a goal of being debt-free.  Others have a goal of starting their own business.  Your goal is the thing that is important to you.  And everyone’s goal will be a bit different. What is important is that you have a goal and you set your sights on working toward it.

What are your financial goals?

What’s Up With the Banks?

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The banking industry has been going through a bit of chaos lately.  During the financial crisis of 2007-08 it was several big banks that found themselves in trouble and needed a government bailout to survive. They had too much of their money invested in risky sub-prime mortgage loans that were falling into default.  This was getting them into a position where they didn’t have enough cash on hand to manage things if too many of their depositors were to come and withdraw their funds.  That’s why Congress passed the Dodd Frank Act, which required a higher level of oversight on banks.

Only two days after SVB failed, Signature Bank ran into a similar situation by having too much of their portfolio invested in the volatile crypto currency world.  Then came Credit Suisse, who lost some of their backing support for making risky investments.  Banks are failing more rapidly than I expected I would ever see again.

So what does all of this mean for you?  Probably nothing at all.  The average person in the U.S.  has much less than $250,000 deposited in any one financial institution.  Anything up to $250,000 is protected by the Federal Deposit Insurance Corporation.  And it is highly unlikely that anyone would need to take all of their money out of the bank at the same time.  That’s just not how the financial world works in the 21st century.  It’s entirely possible that more banks may fail.  It may be soon.  It may be far down the road.  But it will probably happen as long as banks are making poor investment decisions (always diversify your investments!!).  I suspect we may be in for a bit of a rocky road for the foreseeable future.  But I don’t think it will affect most average people. And right now I’m happy to be average.

 

Lessons from My Father

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I’ve been away a lot lately.  I haven’t really been in my office and I haven’t written a Moneywise Tip in quite a while.  Sometimes family responsibilities have to take priority over other things. And that has been my situation as my father arrived at the final weeks of a long illness and then passed away.

My father was a teacher by trade (German and French), and he was always teaching something to someone, whether in the classroom or not.  While he never succeeded in teaching me to speak German (much to his dismay), he did manage to teach me quite a bit about money over the years.

My dad grew up poor.  He was born during the Great Depression, and after his parents divorced he lived with his father in a one room cabin without electricity.  Because he knew what it was like not to have money, he was very careful with it once he actually had some (after 4 years in the U.S. Navy and working his way through college on the G.I. Bill).

I remember always receiving an allowance as a child.  That is how I learned about how to receive a regular paycheck and that more money didn’t come around until the next payday.  My dad was paid every two weeks, so my allowance came every two weeks.  So I had to get used to saving and budgeting.  As I grew older and took on more responsibilities in the house, my allowance grew to reflect that.  I learned that more work yields more money.

My dad helped me start a savings account when I was young.  I remember a program in my elementary school where students all started savings accounts together and brought deposits to school for regular savings.  But I didn’t participate because I already had my savings account, and it was growing whenever I had some extra allowance or some birthday or Christmas money.  Over the years I learned the value of having some extra cash stashed away in case of emergency or for a purchase that required saving ahead.  And now I still have an automatic transfer to savings set up right after every pay day.

My dad also taught me about loans.  My sister and I were desperate to have a television in the bedroom we shared.  But the 12 inch black and white TV we dreamed of was more than $40, which may as well have been a million dollars for two elementary age kids in the 1970’s.  But my dad loaned us the money.  He kept a ledger of the amount we owed, and we paid it back over time, in dribs and drabs.  I remember at one point handing my dad a small box full of pennies to pay on that account.  And he accepted that and subtracted it from my balance due.  I’m not quite sure how long we took to pay off that TV, but I’ll always remember my first loan.

My dad was quite the master of budgeting as well.  He didn’t have spreadsheets, but he worked out his budget extraordinarily well using the envelope system (which I understand made a recent comeback thanks to TikTok). Every payday he would go to the bank and get a certain amount of cash to fill the envelopes.  He had a list of exactly how many of each denomination bill he needed.  Then he would lay it all out on his desk like a Monopoly banker and would fill each envelope with the budgeted amount.  Each regular expense had its own envelope.  Then when the bill came due, he would go to that envelope and get the money to pay that bill.  If the amount in the envelope wasn’t enough, he would rework the budget and would have to figure out which category could spare a little to cover the difference that month.  It seemed incredibly complicated at the time.  But it was amazingly effective.

My dad taught me so many things I am grateful for.  The lessons weren’t always easy at the time.  (Especially the time he taught me how to stop going up hill without drifting backward in a manual transmission car.  That lesson came with a LOT of tears.)  But I will forever be grateful for the many things he taught me.  I hope I am able to have anywhere close to that kind of a positive impact on other people’s lives.  Thank you, Pops!

Protection from the Unexpected Left Turn

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Sometimes life takes a left turn.  Your perfectly well-laid plans go off the rails. Something that you weren’t at all prepared for happens when least expected.  This can be a good left turn, or a bad left turn.  It can be big or it can be small.  My favorite small, good left turn is when you reach into the pocket of a jacket you haven’t worn in a while and you find a twenty dollar bill.  A small, bad left turn happened to me last week when a mercifully mild case of Covid derailed my plan to return to the office after the holidays.  I’ve had every vaccine and booster available.  I had avoided Covid successfully for nearly three years.  But my number finally came up and I took my turn with the virus that continues to have its grip on the world.

It’s truly impossible to prepare for every eventuality.  Life is going to happen and you never know how it’s going to play out.  But you can do some things to make sure you are ready for those left turns.  For the small things the best thing you can do for yourself is to have an emergency fund—a savings account that you don’t normally touch so you have a place to turn in case of the unexpected.  This is the place to turn in case of the unexpected car repair, the surprise medical bill, or the emergency trip home to see a sick relative.  This is NOT the place to turn when the new iPhone becomes available, or you want to travel for spring break.  In a perfect world everyone would have an emergency fund with three to six months of living expenses.  But this world is not perfect and money doesn’t grow on trees, so slowly building your way up to a $1,000 emergency fund is a solid way to start.

But what about those bigger surprises?  That’s what insurance is all about.  At a very minimum everyone should insurance on their home and their person.  But if you own something that would cost more than your emergency fund to replace, it’s likely worth insuring.  Let’s start with the obvious one.  Healthcare in the United States is of outstanding quality.  But it is also ridiculously expensive.  Health insurance makes that more manageable.  Rather than paying full price every time you have a medical expense, you pay a regular premium to the insurance company, then in return the insurance pays most of your medical bills (minus a designated co-pay/co-insurance amount).  Nobody ever plans to have a major injury or illness.  But trying to get through one without the assistance of health insurance could be financially disastrous.

And now that you have your person insured, it’s important to cover your belongings as well.  If you own a home it’s fairly obvious that you should insure the property to protect it from fire, falling trees, and other unexpected life events.  But renters also should make sure they carry insurance.  A fire can hit an apartment building as easily as a house, and if you don’t have renter’s insurance, you may find that you don’t have any way to replace your belongings if they are destroyed.  Homeowner’s insurance covers the building and belongings.  Renter’s insurance covers only the belongings.  Some students may find that they are covered by their parents’ homeowner policies.  But if you don’t have other coverage, it’s worth finding a renter’s policy to make sure you don’t unexpectedly need to come up with enough money to replace everything you own.

The insurance conversation could go on and on.  Cars, vacations, concert tickets, jewelry, RVs, computers.  If you can buy it, you can likely insure it.  And if you own it and can’t afford to replace it, you likely need to insure it.

Are you as protected as you need to be?  You never know when life is going to take a left turn.

Retirement: Invest Early and Often

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I’ve had my mind on retirement planning lately.  Ok….really I just went to an RV show, but a few years living full-time in an RV is part of my retirement dream.  So it sort of counts.  But I did actually have a conversation last week with a young Penn State Law alumna who is starting her first full-time job post-graduation.  She asked me about whether she should start putting money in her 401(k) right away, or if she should work on paying down other debts first.  This question is one that a lot of people grapple with when they are first starting out.  And my advice is always the same:  as soon as you are eligible, contribute to your retirement plan at least as much as is required to receive any employer match.  My father gave me this advice when I started my first job, and I have never regretted following it.

One advantage of starting as soon as possible is that the money starts coming out of your paycheck before you get used to getting paid.  It’s impossible to miss money that you’ve never received.  The money comes out of your salary pre-tax, so it’s not as big a hit to your bottom line as you might think.  It’s just one more thing that disappears before you see it—income tax withholding, Social Security withholding, health insurance payments, retirement contributions—it’s all money that you’ve earned but you never receive.  So you don’t count on it and you don’t really think about it, because the process for you is passive.

It is important, however, to contribute enough to get any employer match.  Usually it is something like you contributing 7% of your income and your employer pitches in another 5%.  The percentages will vary, but the concept is the same.  If you give enough, your employer gives you more.  They actually pay you to participate in the retirement plan.  Just for investing in your own retirement.  If you don’t contribute enough to get the match, you are literally throwing away free money that you could have received.

But the most important reason to contribute early and consistently is the power of compounding interest.  The earlier you start saving for retirement, the longer your investments have to grow.  As an example of this, when I was in grad school in 1991 to 1993 (yep….I’m old) I had $150 per semester withheld from my assistantship funds and it went to the Ohio State Employees Retirement System.  I remember being really mad about it at the time.  Those were lean years, and that $600 would have made a big difference in my life at that point.  But I had no control, so there was nothing I could do about it.  After I started working full time, I rolled that $600 into an IRA.  I never added another penny to it. And due to the power of compounding interest, by the end of 2021 that $600 had grown into $8,600.  That’s more than 14 times the original investment.  And all I had to do was leave it alone for 30 years.  Now imagine how much growth would come from 12% of your starting salary, rather than just a few hundred dollars.  And keep increasing it as your salary grows.  Slow and steady wins the race when it comes to retirement savings.

It’s true, however, that the stock market has its ups and downs.  That $8,600 I had at the end of last year is currently only worth $7,300.  The stock market has not been in a great place recently.  But you should never let that deter you from putting money into your retirement fund.  I look at bear markets like I look at shopping the sales.  When the price is low, you get more for your money.  So right now my regular retirement investment is buying more shares than it was at the end of 2021.  My retirement investment is on sale!  Slow and steady.  The market will eventually turn around again, and the painfully large drop I have seen in my total account balance this year will bounce back, likely with a euphorically large gain (and so it will continue, up and down like a roller coaster for the rest of my life).

Even with the volatility in the stock market, because I’ve been consistent about contributing to my retirement fund over the last 30 years, I know that I’ll be able to retire comfortably to the RV of my dreams in only five to seven more years.  It seemed like an eternity away when I started my first job in financial aid in 1993.  But time has a way of passing more quickly than you expect it to.

When it’s time for you to select your benefits for that first big job, take my father’s advice and prioritize your retirement contributions.  You won’t regret it.

Crypto: Enter at Your Own Risk

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I watched the Super Bowl on Sunday.  I’m not normally a pro football fan (though I do faithfully watch Penn State football games).  But there’s something about the Super Bowl that I really enjoy.  It’s a purely American event.  I sit on the couch with my husband and eat pork rinds and pizza and chicken wings as we watch the game.  And when the game doesn’t hold my attention, the commercials generally do.  My personal favorite this year was the Doritos-loving Sloth.  But the thing that kept popping up in the ads this year was cryptocurrency.  I was stunned by the number of ads for both crypto and for places to store your crypto.  And it made me realize just how little I know about the topic.

I started in on research and was quickly in over my head.  The things I did gather is that there is the cryptocurrency itself (Bitcoin, Dogecoin, etc.) and the crypto wallets (Coinbase, Mycelium, etc.).  The currency that doesn’t physically exist is then stored in these wallets that don’t physically exist.  The whole thing is a bit unsettling to me.  There have been so many news stories about how crypto has been extraordinarily volatile.  So this is less like a savings account and more like an investment in the stock market.  Except even more volatile.  I’m normally not terribly conservative with my investment strategies, but crypto is not where I want my retirement funds to be invested.  I think if I were to venture into this world, I would not invest anything that I wasn’t prepared to lose altogether.  And that’s the same strategy I use for gambling (I like the nickel slots on rare occasion, as well as raffle and lottery tickets).  I go in prepared to lose.  It’s a form of entertainment rather than an investment.

I think the reason the crypto commercials left me feeling unsettled is because of the sheer number of those ads.  The last time I remember that many similarly-based Super Bowl ads was in 2000, for Super Bowl XXXIV.  Fourteen different tech companies (most of them no longer in existence) advertised during that Super Bowl, which is why it is still referred to as the Dot Com Super Bowl.  What makes this so unsettling for me is what happened just a few months later.  That is when the Dot Com Bubble burst.  A lot of people lost a LOT of money in the stock market that year.  A lot of tech companies lost significant value, and even more shuttered altogether. (Personally I breathed a huge sigh of relief that I had sold most of my investments in 1999 to put a down payment on a condo).

Cryptocurrency might be the way of the future.  Or it might not.  But right now, I’m looking at it more as a gamble than as an investment.

Life Happens. Roll With It.

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I feel like I’ve been playing life by ear a lot lately.  Sometimes things just don’t go according to plan and you just have to roll with it and do the best you can.  I’ve been away from the office quite a lot lately helping my elderly parents manage a medical situation.  Because of that I’ve found myself working from my parents’ living room at weird hours and using all the technologies that I learned during the peak of the pandemic.  I’m just rolling with it and making life happen.  I did a Zoom presentation for prospective students last week and experienced some technical difficulty that stopped me from being able to share my PowerPoint slides.  And I just went with it to make it a less visual and more verbal presentation.  I credit my experience in community theater with making me able to think on my feet and continue on as if everything is normal.  It’s a good skill for everyone to have.

But there is one area of life where I never want to play it by ear.  That’s with managing my money.  It’s always best to have a plan when it comes to money.  Know how much is coming in.  Know how much is going out.  Know what you are spending it on.  Build a spending plan.  Build a savings plan.  Build an emergency fund.  Save toward specific goals.  Have a plan for paying down debt.  Know what dates your bills are due so they can always be paid on time.  Know what credit card to use at what store to earn the best rewards.  It feels like I have a million plans that are all tied to my money!

Does all of this planning mean I’m never caught off-guard?  Nope.  Everybody experiences money surprises.  The unexpected car repair.  The computer replacement that comes ahead of schedule.  The January heating bill.  Even the skyrocketing prices of gasoline and groceries.  Life is full of money surprises.  The key to being able to handle them is to have a contingency plan for money surprises.  For some that means an emergency fund.  For others that means leaning on a credit card.  For some it means calling the Bank of Mom and Dad.  Some may need to increase a student loan.  Some folks may need to sell some belongings to raise funds.  It may be some combination of these and other things.  The important thing is to know what your contingency plan is….before you need it.

Life happens.  Sometimes you have to roll with it.  Do you know what your money contingency plan is?  If not, it’s time to think about it.

Putting your Money on Autopilot

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Routines are a good thing.  When something is routine for you it almost runs on automatic pilot.  You don’t have to expend the energy to remember it.  It just happens.  I brush my teeth before bed.  I feed my cats first thing when I get up in the morning.  I set up the coffeemaker for the next day right after I wash the dinner dishes.  I don’t think about these things.  I just do it because it’s routine.

This semester I’ve found myself needing to establish new routines.  And that’s not always easy. I have to remember to grab a mask before I leave the house.  I have a new travel mug that I’m using for my morning coffee (because it allows me to use a straw I can slip under my mask) and I haven’t adjusted to exactly how much to fill it so it doesn’t splash over when I put the lid on.  I’m getting used to being back in the office after working from home for an extended period which is good (my computer monitors are so BIG!) and bad (traffic in State College isn’t horrible, but it’s much worse than the commute from my living room to my guest room) and good (I get to see STUDENTS!!!) and bad (with the combination of my glasses, my mask, and my headphones for Zooming, I feel like I’m wearing a motorcycle helmet all day).

Experts say that it takes 66 days to develop a habit.  That’s the magic point at which your routine goes on autopilot.  Which explains why I’m struggling with returning to the office after working at home for 17 months.  My work from home routine was on autopilot.  And it’s not easy to build new routines.  You need to focus on doing the same thing at the same time on a regular basis (whether that’s daily or weekly or monthly).

You are likely also working on establishing new routines.  A new class schedule.  A new commute.  And quite possibly a new way of managing your money.  All of these things are much easier to manage once they are routine.  So how do you make managing your money routine?  Last week we talked about putting your “monthly paycheck” on auto-transfer.  That’s the first step.  But you can also set up a lot of your bills for auto-transfer.  And any bills that are not on auto-transfer you should establish a routine for when you pay them.  I always sit down with a pile of bills at the start of every month, right after I get paid.  I schedule all the payments with my bank’s online bill paying system, and then I’m done for the month.  Autopilot.  And I do the same with savings.  I have auto-transfers set up to move money into my emergency fund and my long-term investment account at the beginning of the month.  And my retirement savings comes right out of my paycheck before I even see the money—it doesn’t get more automatic than that!  And my final money routine is to check my recent transactions every morning when I sit down at the computer.  I subscribe to a service that imports all of the transactions on my different accounts into a Google spreadsheet, which allows me to better track where my money is going.  The daily sorting and categorizing of these transactions helps me to manage my budget and alerts me to anything that may be out of the ordinary (hopefully “What did my husband buy at the music store now?” rather than “My credit card has been hacked!”).

While you are working on establishing your new routines, make the extra effort to put your money on autopilot too.  It really can remove a great deal of stress from your life not to need to think about it!

 

This Is Why I Don’t Work In Finance

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I was trying hard to find a way to write an explanation of the crazy stock market thing that happened with Game Stop and hedge funds and Reddit.  But the reality is I don’t really understand how it worked.  Corporate Finance was a class I hated when I took it.  It’s really complicated and somehow the Reddit people caused the hedge fund people to lose a lot of money.  The hedge fund people were trying to make money by betting on the failure of Game Stop.  And the Reddit people ganged up on the hedge fund people and drove the price of the stock up by buying a lot of it, which made the hedge fund people lose a lot of money because Game Stop stock went up instead of down.  I don’t really understand the details of it beyond that.  But it seems like the hedge fund people were mean to Game Stop because they were rooting for the stock to fail.  And the Reddit people were mean to the hedge fund people because they orchestrated this attack to cause the hedge funds to fail.  Who wins?  Only the 10 year old kid who sold his shares of Game Stock when the price was really high.

The whole story makes me worry a little bit.  My retirement savings is mostly in stock investments.  It’s frightening that this sort of planned attack can work.  Are my savings (and the savings of nearly all Americans saving for retirement) at risk?  Will something like this happen again?  Why are investors betting on failure?  Why can’t we all just get along?

As the weird year that is 2021 continues, I guess we just have to buckle our seatbelts and hope for the best.  I wonder what February will bring?  Yes….it’s really only early February….