Tag Archives: saving

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?

We Don’t Talk About Money

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We don’t talk about money.  And that kind of makes sense.  Money is one of those things that you don’t want to boast about if you have it, and you don’t want others to suspect if you don’t have it.  There’s a cultural stigma attached to talking about money. It can bring up negative emotions.  Those who have more money seem to come out on top in power dynamics.  Those who have less money can be looked down upon.  And rather than inflict that into our everyday lives, we just don’t talk about it.

Unfortunately, money isn’t a topic that can just be avoided in life.  Having money is a necessity to survive.  You have to learn about how to manage it.  How to earn it.  How to save it. How to spend it wisely. How to insure against losing it.  Perhaps things have changed since I was a kid, but this is not information I was taught in school.

My parents were always very secretive about how much money they made.  I guess they thought that would give me some sort of protection against societal stratification at school.  It really didn’t….but the thought was nice.

Luckily my parents did actually teach me some things about money.  They taught me about how loans work when I borrowed some of the money I needed to add a tiny black and white television to my bedroom.  They taught me about budgeting by giving me an allowance.  They taught me about saving by setting up a savings account for me and encouraging me to add to it regularly.  When I started my first minimum wage job at the local grocery store, they taught me how to use a checking account (and how to write a check, which is quickly becoming a lost art).  When I started my first full time job, my father taught me the importance of contributing to the retirement account (at least enough to get the employer match) right away.  And I’m sure there were many more examples over the years.

I count myself as lucky that my parents were able to teach me a bit about money.  I count myself as very lucky that I was intrigued enough by the topic to become a lifelong student and teacher of personal finance.  There is always more to learn.  But we don’t talk about money. I honestly believe that if talking about money were less taboo, more people would have a better understanding of personal finance and would become better managers of their own money.  Unfortunately, that isn’t the world we live in.

We don’t talk about money.

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!

Things We Have No Control Over

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Sometimes you have to deal with things that you have no control over. This has been more than clear this week to anyone living in the Carolinas. And it really hit home for me yesterday.

Anyone who has visited me in my office this semester had a chance to see the wrist brace that I’ve been wearing all summer.  And yesterday I finally had surgery to repair that injury.  The surgery went well and now I’m recovering at home for a couple of days. And while I’ve dealt with the aftermath of anesthesia before, this was my first experience with a nerve blocker.  The up side of the nerve block was that I had no pain for 20 hours after my surgery.  The down side was that my left arm was completely numb for that same time.  I had no control whatsoever over its movement.  It was actually fascinating to me.  My left arm was just dead weight (which was MUCH heavier than I would have expected!).  I wore a sling to support it and just had to live without my left arm for the day.  (Teeth and feet become very useful tools when you only have one arm).  I just had to find ways to work around the thing I had no control over.

Sometimes you’ll face financial challenges that you can’t control.  The unexpected auto repair.  The annual tuition increase. The rising price of gasoline.  A medical situation.  The cost of the bar exam.  Air travel for a family emergency.  Financial stress can come in any number of forms that you can’t control.  But what you can control is how you prepare for and react to these things.  A budget.  An emergency fund in savings.  Insurance.  These are all preventative measures to deal with the things you can’t control.  Loans. Credit cards. Side jobs. Selling things you don’t need.  These are all reactive measures you can take to relieve your financial stress.

We will all face things that we have no control over.  But we all have control of how we prepare for and react to these things.

Interest Rates Rising

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Last week the Federal Reserve raised its base interest rate for the first time since 2006.  The Fed rate is the rate at which banks lend money to each other.  During the financial crisis of 2007-2009, this rate quickly spiraled down to zero, where it has remained ever since.  Until last week.  With the economy strengthening the Fed finally felt secure in starting to move this rate upward by 0.25%.  Tiny moves like this are expected to continue throughout 2016 until we land at a Fed rate of 1%.  Which is still very, very low.

So what does this change in interest rates mean in real life? Savings interest has been ridiculously low since the financial crisis.  And this is not likely to change anytime soon.  It will probably be late 2016 or even 2017 before we start to see any movement there, as banks are slow to pass on interest gains to savers.  Consumers of credit, however, will see changes right away.  Mortgage rates, car loan rates, and credit card interest rates will all rise almost immediately.  If you have any variable rate debt that can be converted to fixed rate debt, it’s best to do that sooner rather than later.  Most existing student loans will not see any change, as federal student loans made in the last ten years all have fixed interest rates.  But interest rates on student loans borrowed after July 1, 2016 will likely have higher rates than loans made in the year prior.

This interest rate increase is a sign of hope to me.  Hope that we are finally returning to a more normal economy.  The reality is that a 1% Fed rate is still extraordinarily low, and while credit interest rates will be rising, it won’t be by enough to break anyone.  Normalcy in the economy has been completely absent for most of the last decade, so now we move forward and learn what our new normal in America is going to be.

Saving in Your 20s

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I recently learned about a viral blog post entitled, “If You Have Savings in Your 20s, You’re Doing Something Wrong,” written by millennial writer Lauren Martin.  To Ms. Martin, I have only this to say:  HORSE MANURE!!!

Ms. Martin says that the need to save money was ingrained in her by her parents (who I believe are wise people), but that she now disagrees with that philosophy.  I am going to go step by step through Ms. Martin’s theories on saving in your 20s and explain why she is incorrect.

“Refusing to give yourself the luxury of enjoying your money negates the whole point of making it.”  Not entirely incorrect.  But Ms. Martin is saying to forego retirement savings in your 20s in favor of more fully experiencing life.   And while experiencing life while you are young enough to enjoy it is absolutely important, doing it at the expense of building a retirement nest egg during the early years is just foolish.  The earlier you start socking money away in a retirement fund, the more time it has to grow and multiply.  Early savers are more likely to be able to retire younger, and less likely to have to work during retirement to be able to meet their expenses.  At the very least, folks in their 20s should be investing enough money into their retirement as it takes to earn an employer match (for those who are not self-employed).  Not earning that match is equivalent to throwing away free money.  And if there is not enough money left over after that investment for an occasional night out, then Ms. Martin has likely made some bad decisions about how much she has chosen to spend on some basics, like housing, clothing, and food.

“When you’re saving for yourself, you’re refusing to bet on yourself.”  Ms. Martin purports that saving while you’re young is tantamount to predicting that you won’t earn enough money to play “catch-up” later on, thus predicting your own future failure.  But why would anyone want to have to play “catch-up” when they have the opportunity to be in a comfortable position from the beginning?  Anyone who has ever watched their favorite sports team trying to come back from behind knows that this is the more stressful situation.  Why choose the more stressful option?

“When you have something to bank on, you have nothing to reach for.”  Ms. Martin seems to think that success comes from need, and that folks with a financial cushion have nothing to strive for.  Having a financial cushion actually just makes that strive a bit easier.  She could strive toward owning a home, having a family, or traveling the world.  All things that are much easier to do if you are financially secure.

Ms. Martin asks, “What memorable experience does money in the bank give you?”  None. But it also helps you avoid such memorable experiences as “that time I couldn’t pay my rent and got evicted,” “that time I had a medical emergency and took on $20,000 in debt,” or “that time I had to work until I was 75 years old because I didn’t start saving for retirement until my kids finished college.”

“When you die, you can’t take your money with you.”  True.  But most people look at their savings as a bell curve.  You save for retirement and watch the savings balance grow throughout the working years.  But then you retire and start living on those savings, and watch that same balance decline.  No…you can’t take it with you.  But it sure is nice to have it there if you’re planning to live PAST your 20s.

treat-yoself

“When you deprive yourself, you don’t learn how to TREAT YO SELF.”  And if you never deprive yourself, you will have no appreciation of what is actually a treat, and it will eventually take greater and greater treats to stimulate your sense of luxury.

“When you’re 40, you’re not going to look back on your 20s and be grateful for the few thousand you saved. You’re going to be full of regret.”  Ms. Martin, as someone who knows what it is like to be 40 (and older), all I can say is that you are wrong.  When I look at my retirement savings statements for the accounts from my early years…my 20s…I am VERY grateful for the little bit of money that I saved then…and I’m amazed by the size it has grown to.

I remember my 20s being lean years in my early career.  And I’m grateful that my parents, like Ms. Martin’s, instilled in me the need to save money even at that time.  I don’t feel like life has passed me by or that I have not treated myself.  I feel wise.  And I hope that Ms. Martin wises up before it is too late for her to realize just how wrong she has been.

The Power of Compound Interest

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The power of compound interest never ceases to amaze me.

I’ve read countless articles about how important it is to contribute to retirement funds beginning with day one of employment.  They say the funds will grow and grow, so the earlier you contribute, the better.  But I didn’t really get it until I recently took a look at my own retirement account statement.

When I was in graduate school I received a small stipend from my graduate assistantship as an academic advisor.  During those two years, a percentage was held out of my pay and went into the Ohio Public Employees Retirement System.  I remember being annoyed at the time because the $300 per year that was held out of my pay was a significant amount of money to me at that point.  But there was nothing I could do about it.

A few years later, when it became clear that my career was not going to be in the Ohio public university system, I rolled that small retirement fund into an IRA.  It was still a really small amount at that time.  Maybe $700…which is still larger than the $600 I had contributed.

Now fast forward 20 years to 2015.  That IRA that I started with just a few hundred dollars is currently worth over $3,600.  I never contributed another dime to that account.  Just the initial $600.  But it has grown to six times its original size.  And it still has many years to grow before I retire.  This is the power of compound interest.

When you leave law school and venture into full time employment, you should start saving for retirement as soon as possible.  It may seem like a better choice to wait until you’ve made a dent in your student loan obligations.  But it’s not.  The earlier you start saving for retirement, the more time your money will have to grow.  Contribute early.  Contribute often.  Retirement savings is never something that should wait until later.