Monthly Archives: February 2017

This Top 7 Most Common Financial Mistakes

Here we’ll take a look at seven of the most common financial mistakes that often lead people to major economic hardship. Even if you’re already facing financial difficulties, steering clear of these mistakes could be the key to survival.

Mistake No. 1: Excessive/Frivolous Spending

Great fortunes are often lost one dollar at a time. It may not seem like a big deal when you pick up that double-mocha cappuccino, stop for a pack of cigarettes, have dinner out or order that pay-per-view movie, but every little item adds up. Just $25 per week spent on dining out costs you $1,300 per year, which could go toward an extra mortgage payment or a number of extra car payments. If you’re enduring financial hardship, avoiding this mistake really matters – after all, if you’re only a few dollars away from foreclosure or bankruptcy, every dollar will count more than ever.

Mistake No. 2: Never-Ending Payments

Ask yourself if you really need items that keep you paying every month, year after year. Things like cable television, subscription radio and video games, cell phones and pagers can force you to pay unceasingly but leave you owning nothing. When money is tight, or you just want to save more, creating a leaner lifestyle can go a long way to fattening your savings and cushioning your from financial hardship.

Mistake No. 3: Living on Borrowed Money

Using credit cards to buy essentials has become somewhat normal. But even if an ever-increasing number of consumers are willing to pay double-digit interest rates on gasoline, groceries and a host of other items that are gone long before the bill is paid in full, don’t be one of them. Credit card interest rates make the price of the charged items a great deal more expensive. Depending on credit also makes it more likely that you’ll spend more than you earn. (To learn more about credit cards

Mistake No. 4: Buying a New Car

Millions of new cars are sold each year, although few buyers can afford to pay for them in cash. However, the inability to pay cash for a new car means an inability to afford the car. After all, being able to afford the payment is not the same as being able to afford the car. Furthermore, by borrowing money to buy a car, the consumer pays interest on a depreciating asset, which amplifies the difference between the value of the car and the price paid for it. Worse yet, many people trade in their cars every two or three years, and lose money on every trade.

Sometimes a person has no choice but to take out a loan to buy a car, but how much does any consumer really need a large SUV? Such vehicles are expensive to buy, insure and fuel. Unless you tow a boat or trailer, or need an SUV to earn a living, is an eight-cylinder engine worth the extra cost of taking out a large loan?

If you need to buy a car and/or borrow money to do so, consider buying one that uses less gas and costs less to insure and maintain. Cars are expensive. You might need one, but if you’re buying more car than you need, you’re burning through money that could have been saved or used to pay off debt.

Mistake No. 5: Spending Too Much on Your House

When it comes to buying a house, bigger is also not necessarily better. Unless you have a large family, choosing a 6,000-square-foot home will only mean more expensive taxes, maintenance and utilities. Do you really want to put such a significant, long-term dent in your monthly budget?

Mistake No. 6: Treating Your Home Equity Like a Piggy Bank

Your home is your castle. Refinancing and taking cash out on it means giving away ownership to someone else. It also costs you thousands of dollars in interest and fees. Smart homeowners want to build equity, not make payments in perpetuity. In addition, you’ll end up paying way more for your home than it’s worth, which virtually ensures that you won’t come out on top when you decide to sell.

Mistake No. 7: Living Paycheck to Paycheck

In November 2016, the U.S. household savings rate was 5.5%, but other countries had considerably higher rates of personal savings. For example, France, Germany and Japan personal savings rates average around 10% or more, according to the latest data. Clearly it is possible to enjoy a high standard of living without financing it with debt.

The cumulative result of overspending puts people into a precarious position – one in which they need every dime they earn and one missed paycheck would be disastrous. This is not the position you want to find yourself in when an economic recession hits. If this happens, you’ll have very few options. Everyone has a choice in how they live, so it’s just a matter of making savings a priority.

How to Banks Can Notarize Your Documents for Free

If you need to get a document notarized, a simple, free solution can usually be found at the nearest branch of your bank. Getting a document notarized is typically very simple. Present the document to a notary public and sign it in her presence. After that, she officially notarizes the document using an official stamp, writes in the date, and adds her own signature. The notary usually asks to see photo ID to verify that you are indeed the person whose signature she is notarizing on the document. Having a document notarized is essentially a third-party verification of your identity as the person signing the document.

Examples of legal documents that commonly require notarization are mortgage documents, wills, trusts, power of attorney authorization and medical documents.

Banks and Other Places You Can Find a Notary Public

Nearly all U.S. banks – certainly all the major money center banks, such as JPMorgan Chase & Co., Bank of America Corporation and Wells Fargo & Company – usually have a notary public on staff in most of their branches. If the branch where you most frequently do your banking is a small one in a rural area, there may be a notary public available. If there is not, the branch manager, or even a teller or personal banker, can usually tell you about a local branch of the bank that has a notary on the premises.

Most banks provide free notary public services to their customers. If you aren’t a customer of the bank, the bank may charge you for the notary service, or decline to provide the service and suggest that you go to your own bank.

Other financial services firms, such as credit unions, thrifts, real estate firms or insurance company offices also commonly have notaries public available. As with banks, such firms usually provide you with the notary public’s service at no charge, provided that you are a client or customer of the firm. If you are not a client, then it may either charge a small fee or it may not be willing to notarize a document for you. If this is the case, it may suggest that you go to a similar firm where you are a client.

Public offices where you can find a notary public include the local clerk of court’s office and sometimes a public library.

Law offices commonly have a notary on staff. If you need a power of attorney form notarized, you can generally have it done for free at the office of the attorney who prepared the document for you.

Notarized documents are sometimes shipped overnight, so some UPS or FedEx stores have a notary public available. The local American Automobile Association (AAA) office is another place that may offer free notary services, if you are an AAA member. Travel agencies also may have notaries on staff. Pharmacies or doctor’s offices may offer notary services, since medical records are one type of document that may require notarization.

Even if you aren’t able to obtain free notarization, the typical fee is minimal, usually no more than a dollar or two. However, even if the notary public doesn’t charge you anything, it’s nice to tip her a couple of dollars; she has, after all, provided you with a service.

The Importance of the Notary Witnessing Your Signature

When you get a document notarized, what you’re actually having officially notarized is the fact that you, the appropriate legal party, are the person whose signature appears on the document. Therefore, the notary has to witness you signing the document. Do not sign it before seeing the notary. Notaries take a legal oath that they will not notarize any document unless they have indeed witnessed it being signed by the appropriate party.

If you have made the mistake of signing the document prior to seeking out a notary public to notarize it, the situation isn’t irreparable. The notary will probably ask you to come back with an unsigned copy of the document. After witnessing you sign the copy, she will compare the signature to the one you made on the original. As long as the signatures appear to match, she will notarize the original document for you. If you don’t actually have to have the original document itself notarized – that is, if a notarized copy will suffice, she can simply notarize the copy. The safest procedure is to ask the notary public to notarize both documents. That shouldn’t usually present a problem, as long as you have proper identification and the signatures on both documents are obviously identical.

Tips to Create an Effective Budget For You

Do you think budgets are a concept only for penny pinchers? If you have a high salary, you may not see the necessity of tracking every dollar you spend. But creating an effective budget can still be highly beneficial to your wallet—no matter how big or small.

Wealthy people are anomalies compared to most of the world. Unlike most of us, they have plenty of savings and no debt. A budget will help keep things that way. Remember this universal truth: the earlier you start budgeting and saving, the harder your money will work for you. Frivolous shopping purchases, regular restaurants visits, and frequently giving to family and friends all add up quickly.

I’m not saying you shouldn’t indulge in these things from time to time, but being mindful of your spending habits allows you to save and invest a larger chunk of your paycheck each month. That way, instead of your money mysteriously disappearing, it will multiply.

“Planning and controlling consumption are key factors underlying wealth accumulation,” wrote Thomas Stanley and William Danko in The Millionaire Next Door. “Operating a household without a budget is akin to operating a business without a plan, without goals, and without direction.”

If You’re Spending Less, You Can Invest More

By maintaining an effective budget, you’ll know exactly how much money you’re saving, and in turn, you can give your savings a chance to work for you. Maintaining a monthly budget and investing for the future will also provide you with a sense of security. As you probably already know, there are considerable tax advantages to putting extra funds in your 401(k) retirement account, IRA, or health savings account (HSA). There many other investment opportunities available, from guaranteed products like annuities and CDs, to different mutual fund or stock portfolios.

Your extra savings from budgeting could also be used to buy real estate or invest in other business ventures. Obviously, these options come with different levels of risk and should be carefully assessed before taking the plunge. But once you create a budget, you’ll see there is a myriad of things you can do with your extra funds.

With this in mind, let’s examine the best way to create a monthly budget so you can ensure your money is always working in your favor.

Getting Started On a Budget

Creating an effective budget can accomplish another beautiful thing: it will cause you to pay attention to the things on which you are spending your hard-earned money. By focusing on your individual expenditures each week or month with a budget calculator or budget planner, you’ll probably make better decisions about how you spend, save and invest.

  • Track your expenses. Go through your bank statements and write out every bill and monthly expense. You may have to average some of them, but that’s okay. This includes all your utility bills, your mortgage, car payment, home, car, and life insurance, child support, child care, student loans, cell phone, gym membership, credit card payments, prescriptions and other outstanding loan payments. It’s best to write these out in a budget planner spreadsheet so you can have everything in front of you.
  • Record other expenses you encounter throughout the year (excluding monthly expenses) and divide by 12. This includes things like property taxes, car repairs and oil changes, vet bills, glasses or contacts, tax preparation fees, medical expenses, charitable giving, vacation expenses and also camps and lessons for your children if you have them. Dividing the total amount you spend on these items annually by 12 will give you an average of what you need to set aside per month.
  • Add up how much you spend in various categories per month. Go through your bank statement again and write out approximately how much you spend each month on essentials. These include groceries, gas, clothing. Don’t forget extras like restaurants, parking fees, hair salon fees, gifts, traveling and entertainment. Analyze these amounts. Are you happy with how much you’re spending in each area? If not, set a budget or limit of what you believe is reasonable and attainable.
  • Record your total monthly income after taxes and subtract all of the above expenses. How does your bank account look now? Are you spending more than you make or is there a considerable amount left over to save? If not, it’s time to make some adjustments in your budget planner in order to create a more sensible plan.
  • Stay on track. After you create your budget, start regularly tracking your expenses and checking your bank account to see if you’re staying on track. This is the hardest part. You can either do this with your own spreadsheet or use a website that does it for you like Mint.com. Once you enter your credit and/or debit card information, Mint tracks all of your expenses in various categories and sends you alerts if you have overspent in certain areas.

The 50/30/20 Rule and Emergency Fund

First, I recommend creating an easy-access emergency fund savings account that contains at least six months of your monthly income. Next, I would implement the 50/30/20 rule—reserving 50% of your income for essentials like housing and food, 30% for lifestyle choices, and 20% toward financial priorities such as debt payments, retirement contributions, and savings.

As you get more comfortable with your monthly spending habits, this 50/30/20 ratio will change, eventually skewing toward saving more. Please remember, budgeting is often very trial-and-error. You may need to adjust it on a monthly basis until you get in a groove.

The Bottom Line: Don’t Give Up

One major advantage of creating an effective budget is the way it helps you discuss money and goals with your spouse or family. It also ensures everyone involved in the discussion is on the same page and understands the underlying plan. Statistics reveal money is the most common topic that couples argue about. But it doesn’t have to be that way. When you learn how to make a budget together and re-evaluate it each month, you’ll have a more positive outlook on your future together.

A budget can also set a positive example for your children or other family members. If you don’t want your loved ones to squander their money and opportunities, lead by example and create a budget. Let’s not sugarcoat it—sticking to a budget can be difficult. But it’s usually the difference between living a stressful retirement versus the retirement of your dreams. Much like a diet, you have to be dedicated in order to see results. Good luck and happy budgeting!

Tips to Create a Budget (Even if You Hate Budgets)

Many older clients I talk to have never had a budget and don’t want one. But at the same time, they are worried they won’t have enough money to retire. This is where some tough love comes in. Whether you like it or not, following a basic budget is the best way to live comfortably in retirement.

It’s very easy to talk about budgets and the importance of a budget, yet many clients have worked for 40 years and have been able to save, so whatever budget they had worked for them. And I understand that clients want to be enjoying their money in retirement––not stressing out over what they can afford. In fact, the worrying is the advisor’s job––that’s what the client is paying for. But it makes life so much easier for an advisor if they know what their clients’ spending habits are like.

I don’t mean that you necessarily have to log each and every dollar you spend either. Most people are guilty of not having a perfect budget––and it’s okay. Work out a compromise between having a full-blown budget and having none. And at the very least, create a budget that breaks out fixed costs including property tax, insurance, medical and basics (car, food, shelter). In fact, every budget should break expenses in two columns:

Fixed and Required Expenses

These include things you must pay for in order to survive:

  • Housing
  • Food
  • Clothing
  • Insurance
  • Medications

This category is only for non-optional expenses–– everything else needs to go into the second category. No exceptions.

Everything Else in Your Budget

Anything that is not integral to living and surviving goes into this second column–– and everything in this column instantly becomes optional. Yes, that includes travel. As much as most people look forward to traveling in retirement, it’s important to be realistic with your savings. If you simply don’t have the funds to do it, you need to pay for food instead.

Put another way, no matter what your current financial situation is, it’s important to remember that just because you have the option to spend money on something, that does not necessarily mean it’s a good idea.

If you feel the need to track every last dollar as part of your budgeting efforts, you should go back three months and look at what you spent. If some expenses are paid only once a year, you can factor those in later. Most budgeting books encourage you to start keeping track of your spending starting today, tomorrow, or at the start of the next month. Those methods simply don’t work.

Looking at behavioral reasons alone, you’ll be careful about what you spend going forward because you want the spreadsheet of your expenses to look good–– only to be upset later because you feel restricted from spending your own money.

By looking into your past spending, however, you’ll be able to identify your impulse buys and reflect on whether or not they were really worth it. Through that, you’ll develop better clarity about your financial habits and realize where you need or want to improve.

For example, I once met with a couple who was struggling to save enough and wanted to know what they could do to improve their situation. After looking back at their past three months of spending, they realized that they had spent an average of $1,000 a month on eating out. Once they realized that this wasn’t how they wanted to spend their money going forward and that the experience wasn’t worth it to them, it was easier for them to increase their grocery bill and still save $800 per month for other goals.

By breaking spending into two categories––the absolute necessities and the wish list items will separate––it means you won’t jeopardize your financial future for the wish list. This actually makes it less stressful, too, when your advisor points out you don’t have enough saved up. It doesn’t mean you’ll be poor; it just means that you have to approach wish list more strategically.

Creating and sticking to an appropriate budget––even a broad one––is a great game plan for Baby Boomers and beyond.