Financial Gains Tips

Most personal finance advice misses a crucial point.

Lost amongst all the calls to cut coupons and skip your morning coffee is the fact that cutting costs isn’t the only way to get ahead.

In many cases, a raise can be far more powerful in helping you reach your biggest financial goals. And it may not be as hard to get as you think.

The Power of a Raise

Let’s say you currently make $60,000 per year and you’re able to negotiate a 10% raise (more on how to do this below).

Assuming that 25% of that new income goes to taxes, that means you now have an extra $4,500 to save each year, which is almost enough to fully fund an IRA.

Looking at it another way, that extra $4,500 represents a 7.5% return on investment, which is right in the range of what experts expect from the stock market.

So by negotiating a raise, you’ve given yourself a stock market-like 7.5% return. And unlike the stock market, that 7.5% return will be consistent year after year.

And if you’re investing that $4,500 each year, you’ll earn additional returns on top of your contribution. Assuming a 7% annual return, that investment will grow to $197,393 after 20 years and $454,828 after 30 years.

Plus the increased salary sets a higher baseline for future raises and for your salary at future jobs, making it more likely that your income will increase even further over time.

And all of that comes with pretty much no risk. As long as you present your case respectfully, the worst that happens is you get a no. And even then you’ll have planted the seed, which may make it more likely that you’ll get a raise in the future.

How to Get a Raise

Of course, the trick here is knowing how to negotiate so that you actually get the raise you deserve.

This can be intimidating for a lot of people, myself included! But the good news is that there are some simple strategies you can follow to strengthen your position and even increase your value in the eyes of your employer through the negotiation process.

My favorite resource on this topic is Ramit Sethi’s Ultimate Guide to Getting a Raise & Boosting Your Salary. Yes, the title is a little hyperbolic, but the advice is practical and solid.

And remember, as long as you present your case well, the worst that happens is you get a no. There’s little risk in giving it a shot.

Side Hustle for Extra Income

Getting a raise isn’t the only way to increase your income. People are increasingly turning to side hustles as a way to make some extra money on top of their day job.

There are lots of ways to do this, from dog walking to freelance writing to website design. It doesn’t have to take a ton of time, and even a little extra income can go a long way.

J. Money at Budgets Are Sexy has chronicled over 60 different side hustles real people have used to earn extra money. You can also check out the websites Fizzle and Side Hustle Nationfor ideas, inspiration, and practical advice on how to get started.

Prepare for Emergencies

Last week Kristen and Julia, our rising high-school senior, visited McGill University in Montreal, Canada.  By all accounts it was a hugely successful trip. Julia is thrilled at the prospect of furthering her education and expanding her horizons. She will be 18-years old soon and “on her own” as a freshman, hopefully, at a college of her choice.

Students may be worried about making new friends, studying, and adjusting to college life. Parents or guardians may share these concerns too, but they should not neglect legal and financial matters. Our 18 year-olds are now adults who can enter into contracts, make their own health care decisions, and are afforded levels of privacy to which we may not be accustomed. Who will make medical decisions on behalf of your child if he or she is unable to do so? What will you do if you need to get medical information in a time of an emergency? Will you be able to have access or make decisions on financial/tuition matters with the bursar’s office? Is it important to have access to your child’s academic record? Consider these items allowing parents/guardians to assist their adult children before they leave for college:


Health care proxy
: This document allows your child to name someone they know and trust to make medical decisions on their behalf, if for any reason, they are unable to make the decision or communicate their wishes. While standard forms may be available on-line through state medical societies, your estate planning attorney can draft this document.


HIPPA release:
 The Health Insurance Portability and Accountability Act (HIPPA), a federal law, protects your child’s privacy even from parents. The act prohibits a health care provider from releasing any health care information unless your child provides the health care provider with a HIPPA release form naming you as an authorized recipient.


Durable power of attorney:
 This document allows your child to appoint an agent in order to manage his/ her financial matters. While parents may be paying the tuition bills, this does not grant authority to discuss or resolve their child’s financial issues with the college’s student accounts office or bursar’s office.


FERPA waiver:
 The Family Educational Rights and Privacy Act (FERPA) governs privacy of educational records and prohibits an institution from discussing a student’s record with anyone unless the student has granted authorization. Colleges may allow students to grant access to one or more individuals via an on-line wavier form. However, remember your children are gaining independence and responsibility. Simply engaging your student may prove an equally, if not a more effective means of communication about how they are doing in school.

It is important to keep signed forms available as you may need them if your child is traveling, and remember that authorizations can be modified or updated as their circumstances change.

Retirement Planning

I think it’s safe to say that we all have the goal of one day reaching financial independence. That is, the point at which we have enough money in savings and investments to support ourselves for the rest of our lives. So, how much money is enough?

Most of the time that question is answered with a single big number. And it’s true that in the end you’re working towards a single total amount of savings and investments. But that total number is composed of many smaller numbers representing the savings you need to support each individual expense.

What if you looked at it that way? What if you broke it down by how much money you’ll need to support each expense, each habit, and each indulgence for the rest of your life without ever working again?

How Much Does That Gym Membership Really Cost?

Let’s look at a single expense. Say your gym membership. And let’s say that costs you $40 per month. How much money do you need in order to support that expense for the rest of your life?

Using the 4% rule, which says that you can withdraw 4% of your savings each year with minimal risk of ever running out of money, it becomes a simple math problem. Take the monthly cost, multiply it by 300, and you get your answer.

In this case, $40 multiplied by 300 equals $12,000. That is, you need $12,000 in savings to support that monthly gym membership for the rest of your life.

Values-Based Decision Making

Looking at it this way can help you make more informed values-based decisions when it comes to spending and saving.

For example, how long will it take you to save the $12,000 needed for your gym membership? And which do you value more? That habit or the ability to be financially independent a little sooner without it? What about a $500 per month car payment? That will require $150,000 in savings. Is that an expense you’d like to support?

There are no right or wrong answers here. The goal is simply to understand how each expense affects your savings need and to make decisions based on what you value.

How to Plan Differently

Next time you look at your budget, I would encourage you to do a few things differently. Consider the options related to each expense. For example, you could have a $500 per month car payment or a $200 per month car payment or take the bus, let’s say that is $50 per month or walk, $0 per month.

Then, for each category, multiply your monthly budget by 300 to see how much money you’ll need in order to support that expense for the rest of your life.

Finally, step back, look at the numbers, and think about how they align with what you truly want out of life. You may find that you want to cut back on certain things. Or you may find that you want to save more in order to support important expenses.

Either way, you’ll have a better understanding of what it takes to reach financial independence and put your money toward what is most meaningful to you.

Budget When Planning a Wedding

I’m in the middle of wedding planning right now, and it has opened my eyes to just how incredibly expensive this whole thing can be!

I’m a frugal person at heart so the idea of spending a ton of money on one day seems a little silly to me. But it’s hard not to get caught up in all of it, and I’m finding that the costs are adding up quickly.

So, how do you have a wedding you love without spending more than you can afford? I’ve been thinking about this as I plan my own wedding. I’m fortunate that my parents have been very generous, and here are a few things I’ve learned along the way.

Plan Ahead

Yeah, I know. Big surprise that the financial planner is encouraging you to plan ahead. But there are two reasons why it’s helpful to make a plan before making any final decisions.

First, it’s amazing how quickly even the little costs add up. There are so many different pieces to a wedding that you can make a lot of seemingly reasonable choices and still end up with a big total bill. By planning ahead, you can see that happen before you’ve actually committed to anything and make decisions accordingly.

Second, it’s easier to get good deals when you’re on top of things early. Venues get booked, DJs aren’t available, and prices go up. The longer you wait, the less likely it is you’ll get your first choice and the more likely it is you’ll have to pay extra.

The Knot has a fantastic wedding budget calculator that can help you allocate funds across all wedding expense categories.

Get Creative

Your wedding doesn’t have to be like every other wedding. It can not only be cheaper to do things your way, but it can make for a fun and unique experience.

A friend of mine had a fall wedding and served pies instead of a wedding cake. This option was delicious and at least half as expensive; with pie at $2 per slice and wedding cake at $4 or more. Another one enlisted the help of her friends to make their own floral arrangements. I’m making small ornaments for wedding favors, out of paper (not expensive) and supplies I already had on hand.

Music, in particular a live band, is another expense that can be reduced, involve friends who have musical talents or crowd source a playlist from all your guests. There are an infinite number of ways you can get creative, save money, and make the wedding yours in the process.

Consider Your Guests’ Budgets Too

Your friends and family want to come celebrate with you, but for many of them it’s a big financial commitment. Doing what you can to make it easier for them will be much appreciated.

I have a friend who had a camping option, as one of the accommodations for her wedding. Not only was the price right, but it was a memorable experience. Suggesting accommodation options to guests with a range of prices is always appreciated.

For our wedding, we’re trying to make sure that people know how to enjoy themselves during the weekend without having to spend a ton of extra money, so we’re giving them a map of our favorite hiking trails in the area. Little things like that won’t make all the costs go away, but every little bit helps.

Be True to You

In the end, there’s no right way to do a wedding. You don’t have to be as fancy and extravagant as all the wedding magazines. But you don’t have to cut costs to the bone either.

What is important is finding a balance between making it meaningful for you and your fiancé and sticking to a budget you can afford. I’m trying to strike the right balance myself!

The Benefit of Social Security

Social Security Survivors benefits are paid to widows, children, parents and ex-spouses of covered workers.

The Social Security program actually consists of three benefit programs that make payments for various reasons. They are:

  1. Retirement benefits,
  2. Disability benefits,
  3. Survivors benefits.

This post covers number 3, Survivors benefits. These are not the same as the benefits commonly referred to as spousal benefits.

If a worker, who is covered by Social Security, dies and leaves family members behind, they are the “survivors” and are covered under the Survivors benefits program. Social Security will use the deceased worker’s record to calculate payments for his / her family.

There are four eligible parties that may receive payments after the worker’s death. They are the widow (or widower if the wife dies first), children, parent, and ex-spouse. Each has detailed rules for eligibility.

A widow(er) will get benefit payments if:

  • They are age 60+, or
  • Age 50+ and disabled, or
  • Any age and caring for a worker’s child under 16 or disabled and entitled to benefits on worker’s record.

A child will get benefit payments if:

  • They are under age 18, or
  • Between 18 and 19 and still in secondary school, or
  • Over age 18 and severely disabled before age 22.

A parent will get benefit payments if:

  • They are dependent on the deceased worker for greater than 50% of their support

An ex-spouse will get benefit payments if:

  • They fit one of the three requirements for widow(er) above and were married to covered worker for 10 or more years, and
  • They are not entitled to a larger benefit based on their own record, and
  • Not currently married unless marriage was after they turned 60 or 50 and are disabled.

Find the best of finance consultant

On my blog, one of the topics I like to cover is explaining how the personal financial advice industry works. Most people get financial advice from someone who is a salesman of insurance, annuities, mutual funds, and other products. You can also get help from someone whose main profession is something related like a CPA or lawyer who offer advice as a side business. The best way to get advice however, is from someone who functions as a consultant.

There are financial advisors out there that charge by the hour for financial advice. They often call themselves financial planners to distinguish themselves from financial advisors. You can find these financial planners through industry associations like the Garrett Planning Network and NAPFA.org.

I say it’s best to work with a consultant style of advisor because the consultant works only for you. Ask yourself what someone’s motivation is. A financial advisor employed by an insurance company or investment company (like Merrill Lynch, Morgan Stanley, Fidelity, Vanguard, etc.) has sales managers above them making sure they sell a certain number of contracts every month. You don’t want to be one of those sales targets. It may work out for you, and there are representatives who do look out for their clients, but ask yourself what their motivation is before signing anything.

By hiring a financial planner that charges fees only and no commissions, you are going to get an advisor who puts your best interest ahead of their own. Ask the advisor to sign the fiduciary oath. Advisors out to meet sales performance targets won’t put their fiduciary duty in writing. By going with a consultant style of advisor, not only will you get sound financial advice, you won’t wonder if the advisor recommended a product because his sales manager told him to.

Tips to Make a Plan For Your Finance

As I meet with clients to present their financial plan, it is common to sense a figurative (and often literal) sigh of relief at the meeting’s end. Admittedly, some may just be glad to have survived the long presentation, but I’m fairly certain that most are relieved to have a path forward.

A recent article on Govexec.com (“From Voting to Writing a Will: The Power of Making a Plan”) struck a chord with me and added a little bit of science to my observation. In this piece, Todd Rogers and Adan Acevedo apply behavioral science to show how having a plan can reduce the “intention-to-action gap” that so many of us can relate to.

Ideally, we should have a plan in place before a crisis hits and we need to act. This is a central theme in all aspects of financial planning – do you have a Will, is your emergency fund sufficient, is your home adequately insured, are you saving enough for retirement? Thinking about these questions and then building a plan to address them can decrease some of the stress and anxiety in our lives.

During the recent Metro Washington Financial Planning Day, one of the presentations addressed the value of running a “financial fire drill.” As children we were taught to “stop, drop, and roll” during fire safety awareness events. As adults, a financial fire drill can help us assess whether we are prepared to address adversity in our financial lives.

An effective plan defines the desired end goal as well as the necessary steps to achieve that goal. We may need to adjust our initial path as “life happens,” but the planning process is iterative and can help keep us on track. I borrowed a bit of wisdom from my colleagues and now use it at the conclusion of each financial plan I write: “Financial planning is an ongoing process as opposed to a single event and your plan will need to change as your life changes.“ Do you have a plan to push beyond life’s challenges and reach your goals?

 

Financial Mistakes If You Are A Beginners

There’s a lot of financial advice out there. Enough that your head starts to spin when you try to take it all in, understand it, and figure out which pieces are relevant to you.

I’d like to make it a little easier for you by pointing out some things NOT to do.

Here are five of the biggest mistakes I see people making when they first start trying to improve their financial situation.

1. Obsess Over Investment Strategy

There’s often this feeling that if you can just find the perfect investment strategy, your financial success will be guaranteed.

So you read articles, listen to the experts on TV, and tinker with your investments, all with the hope of finding an edge that puts you over the top.

But here’s the truth: the returns you earn, good or bad, have almost no impact on your bottom line until you’re a decade into the process.

What does matter, a lot, is your savings rate. It may not be sexy, but simply saving enough money is far more important than any other investment decision you can make.

2. Forget About Irregular Expenses

If you’ve tried budgeting before and it hasn’t worked, chances are you’ve been undone by all the unexpected expenses that keep popping up.

Your car needs a new tire. Your daughter has to go to the doctor. Your friend gets married in another state.

Here’s the thing: a good budget knows that these kinds of expenses aren’t unexpected. You may not know when they’re coming, but you do know they’re coming.

And you can make them a part of your regular budget simply by saving ahead for them each month. That way the money will already be there when you need it.

3. View Cutting Back as the Only Option

Cutting spending is often the quickest and easiest way to free up room in your budget for the big financial goals you’d like to achieve. Which is why it’s usually a great first step.

But it’s not the only option.

In fact, the biggest long-term results often come from finding ways to increase your income. So don’t be shy about asking for a raise or starting a side hustle. Those are powerful tools that can expand your world of financial opportunities.

4. Think That Credit Card Debt Is Normal

According to NerdWallet, the average American had $15,310 in credit card debt as of 2015. So I guess debt is normal in the sense that a lot of people have it.

But if you want to be financially healthy, you need to accept that credit card debt cannot be part of your life. It’s actually the biggest obstacle that’s keeping you from reaching your goals.

If you have credit card debt, getting rid of it is almost always a top financial priority. That may mean that other financial goals have to wait, but the sooner you get rid of your debt, the sooner you’ll be able to make real progress towards the things you care about most.

5. Look for Easy Fixes

Unfortunately, there is no easy button when it comes to your finances. The solutions are often fairly simple, but they take time, dedication, and hard work before they truly pay off.

For example, creating an account with mint.com and linking all your bank accounts is a great start to the budgeting process. But the app itself won’t solve all your problems.

You’ll still need to take the time to categorize your expenses, both up front and on a regular ongoing basis. And you’ll need to use that information to take action and make changes in how you use your money.

No single app or tactic is going to fix everything for you. You have to take ownership of your situation and do the hard work to make it better.

 

Financial Advisors Online

When you’ve realized it’s time to get some professional help from the financial services industry, you’ll probably start with a Google search. You might enter phrases like “financial planner,” “financial advisor,” “investment advisor” or “wealth manager,” plus the name of your city, in hopes of finding the right person to guide your financial life.

Unfortunately, these terms can be used by a long list of people offering many different services, including mortgage brokers, credit “fix-it” agencies, stockbrokers and insurance salesmen. There’s no guarantee that the people showing up in your search results are qualified, under what regulatory authority they operate, what legal protections you have if you work with them, and how they’re compensated.

When evaluating professional financial advisors, consider these three main categories: certification, compensation structure, and registrations or licensure.

Certifications

Some professions are pretty clear about who’s who. When you see the letters “M.D.” after a name, you know that person is a medical doctor. Someone with a Ph.D. has a doctorate in philosophy. In the financial services industry, however, there are more than 200 designations that can follow a person’s name.

The following are some of the most prominent certifications associated with the financial planning industry:

CFP (certified financial planner): This is considered the best certification in the field of financial planning or advising. It’s the only one that requires a test at the completion of the core study and the only one that’s acknowledged by the National Commission for Certifying Agencies.

CFA (chartered financial analyst): This is the best designation for those who offer investment analysis, rather than more wide-ranging financial planning.

ChFC (chartered financial consultant): This designation is used most often by insurance industry representatives.

PFS (personal financial specialist): This designation is for certified public accountants who focus on taxes and take additional training in personal finance.

It takes years of study to earn these certifications or designations. Other designations may be less meaningful; some can be obtained with a simple correspondence course or a weekend seminar.

Compensation structure

It’s also important to understand how financial services professionals are paid. Fee structures can determine the type of advice you get. Here are the most common compensation arrangements:

Fee-only: This structure is also called “fee-for-service.” In it, the client pays the advisor for a specific service provided. Payment can be by the hour or based on a fixed price, retainer, percentage of assets managed, or a combination thereof. Fee-only or fee-for-service advisors tend to uphold the “fiduciary standard,” which means they must recommend the product that’s best for the client. And because they’re not paid by commission, they’re not motivated to give you advice that results in more-expensive financial products.

Commission-based: In this fee structure, the advisor receives a percentage of the sale or premium from financial services companies after selling one of their products. These individuals often call themselves “broker-dealers.” Many financial authorities, professional associations and academics believe this arrangement can lead to conflicts of interest, because the professional has an incentive to sell the product with the largest commission.

Fee-based: This approach is a combination of commission and fee-for-service models — but it can be confusing, because consumers often don’t understand which part of the advice they’re getting is “fee-only” and which part is subject to commissions. Advisors who receive a commission are subject not to the fiduciary standard but to the “suitability standard,” which holds that financial advice must merely be “suitable” for the consumer — and thus, more likely to result in the salesperson doing what’s best for him or his firm, rather than what is best for you.

Advisors with the certifications or designations mentioned earlier can be paid by either commissions or fees. That’s why it’s important to clarify not only your advisor’s designation, but also how he or she makes money.

Sense to Buck the Traditional Financial

Let’s say that you’re 30 and you inherit $500,000. What should you do with the money?

Traditional financial planning advice might look something like this:

  1. Establish an emergency fund
  2. Pay off debt
  3. Get yourself on track for retirement

That’s all nice and prudent, but is prudent always the right move?

I say no. Sometimes it pays to buck the traditional advice and be a little daring.

What Do You WANT?

No one lies on their deathbed feeling fulfilled because they made all the “right” decisions. No one is ever truly satisfied by checking off all the boxes someone else laid out for them.

True happiness comes from doing the things that matter to YOU. The things that scare you a little bit, excite you a lot, and just feel downright important.

Going back to the example above, assuming you suddenly and unexpectedly had a large amount of money, what if you asked yourself the following questions before making any decisions about what to do with it:

  • When you’re 80, what will you regret not having done?
  • When are you happiest in your life right now?
  • Is there anything you’ve been wanting to try but felt like it was too big a financial risk?

Maybe you’ve been wanting to quit your job so you could go back to school. Or maybe you’d like to take some time off to volunteer in another country while you learn a new language.

Those things don’t fit into the traditional financial planning paradigm but they’re the things that make your life worth living

And isn’t that the entire point?

Finding a Balance

Of course, traditional financial planning advice exists for a reason. Building an emergency fund, paying off debt, and investing give you the security and the freedom to enjoy yourself both today and in the future.

They just shouldn’t be the only things you consider. You should absolutely make room for the things that excite you too, and you don’t need to receive a big inheritance to do it.

Here are some thoughts on how you can balance the practical with the aspirational today, no matter what your financial situation looks like:

  1. Make a list of all the practical financial goals you know you should be working towards.
  2. Make a list of all the life goals you’d like to experience.
  3. Pick one from each list and put a dollar amount and timeline on each. How much will each cost and when would you like to achieve it?
  4. Divide the dollar amount for each by the number of months between now and your target completion date.