GOAL SETTING AND SAVING

Many of the topics that we have been discussing play a major role in helping us shape our finances by taking action. However, goal setting and savings are synonymous for various reasons. What we are saving should gel with our financial needs and goals. Goals help set priorities, because most of us don’t know what we are saving for, or how money fits into our life goals.   “Are we trying to build a college fund?” or “Do we want to buy a home?” or “Is planning for our retirement the most important thing?” If we have a sense of what we want to accomplish by saving our money, it helps to focus on what investment ideas can fit with that need (longer term growth or shorter term needs), our time horizons, and how much we need to put away.  Many people may feel that saving money has some value as it relates to happiness. We’ve discussed plenty of examples where having money didn’t equate to happiness.  Balancing priorities, financial goals, savings needs, and life desires, are key ingredients to personal wellbeing. Your life shouldn’t be consumed by the almighty dollar, or lamenting about how things would be better with a higher paying job, or having more money to spend.  One of the acronyms to goal setting involves taking a S-M-A-R-T approach to financial or personal needs.
By setting goals we have focus and a direction– without them we would wander aimlessly.  Imagine trying to throw a dart without a dart board, or building a house without a blueprint.  Some of the many benefits of setting goals include:
1.   Allowing us to stay focused rather than wasting time. 2.  Helping us to measure our progress while we push towards our objective. 3.  Converting dreams and wishes into something that is real. 4.Goals help us to stay motivated; we are excited to accomplish our objective.

CREDIT CARD DEBT

It’s very easy to rely heavily on credit, but remember that the more you charge, the more you owe.  You have to live within your means, and make sure that you are only charging what you can afford to pay back.  Unlike a home mortgage or a car payment, credit cards don’t have a fixed monthly payment that we can plan around.  If you are having to pay a lot of your monthly income to your credit cards, then that should be a warning sign.  Also, the more you charge, the more potential interest you are incurring.  As a rule of thumb, don’t allow your credit card to take up more than 10% of your monthly income.  Additionally, keeping your credit limit low, limiting the number of cards that you have, or using cards that make you pay off the balance every month, like American Express, can help to keep your credit card debt manageable.
Credit scores and credit history are also very important when it comes to debt management.  Our ability to buy a house, get a car loan, qualify for student loans, personal loans, and credit cards are just a few of the many things impacted by credit scores.  The interest rates charged on many things depends on our credit score; the lower the score, the higher the rates.  How we handle our debt has a huge influence on our credit score, so it’s important that we try to follow a few tips:
1. Carrying a lot of debt, especially high credit card debt, hurts our score.  Our level of debt is 30% of our score, so paying the balances quickly or reducing them can help. 2. Late or missed payments hurt your credit scores.  Payment history is 35% of your credit score. 3. Try to keep the revolving debt (credit card, retails cards, gas cards, etc.) below 10% of your total available credit. 4. Taking out loans or keeping credit balances DOES NOT help build credit score. 5. Understand any “enticement” offers, such as charge $5,000 in first 60 days, and we will give you 25,000 reward points.  These cards could be loaded with lots of other costs, such as much higher interest rates, fees for late payments, or rate hikes for over-charging.  Remember, you need to charge to get the offer! 6. Having too many cards creates more temptations to charge more debt, and can become very unmanageable.

DEBT MANAGEMENT

In a Pew Charitable Trust report, roughly 80% of Americans are in debt from mortgages, student loans, car loans, and credit cards.  As a matter of fact, credit card debt is second only to mortgage.  As many as 40% of us have credit card debt, and 65% carry a balance every month (revolving debt).25  The average credit card’s interest rate is 15%, according to CreditCards.com.  Consider this example:  If we had a credit card with an Annual Percentage Rate (APR) of 18%, and a $5,000 outstanding balance,  the minimum payment requirement is around 2.5%, or $125.  You think that this means $125 x 40 payments = $5,000, which means in about 4 years the debt will be paid off.
This is the real shocker: keeping on the minimum payment schedule, that $ 5,000 actually would take 273 payments…over 22 years!
Credit card companies keep the minimum payment schedules low, so that they can collect on that interest for as long as possible.  And as the balance is coming down, the minimum payment becomes even less.  It’s one of the major ways that lenders make money.  Also, by hoping that many of us will only make the minimum payment, it helps people rationalize the debt: “This $5,000 charge is only going to cost $125 per month, so we can afford that!”  Ironically, that $125 payment only reduced the balance by $50, because the other $75 went to paying interest fees.  This means that over the long term, 60 cents of every dollar goes towards interest! We would pay more in interest than what we had originally charged. Consider that the same $5,000 credit card balance, making only the 1.5% minimum payment every month at 14% interest, would take almost 61 years to pay off because the interest would add almost $16,000 more to the debt over that time.
Regardless of the interest rate, we would save a significant amount of money by paying off our debt. Americans should be sprinting to the finish line to get out of debt  We’re trying, we’re pushing, and we’re paying–but it seems like we’re going nowhere.  What’s even more frustrating is that we are doing the right thing by paying down our balances on time, but we aren’t seeing any meaningful results.  The potential problems can only intensify, because many of the credit card companies award us with increased credit limits rather than keeping us at a limit we can afford to pay off.  By increasing our credit limit from $5,000 to $6000 or maybe $6,500 they hope we will charge more.   It’s a psychological boost because we think, “they feel so good about me, that they gave me more credit.”
Unfortunately, according to Time.com, many people will spend this credit increase immediately, adding 10% to our existing credit card debt on average. It’s important to remember that whether it’s a credit limit increase, a pre-approved card in the mail, or some incentive to charge more, we control our credit decisions.  We can ask that our credit limit isn’t increased, rip up those cards and applications that come in the mail, and don’t need to take advantage of any special offer. “NO” can be a great way to stay out of trouble.
Credit cards can be a great convenience, and provide some great perks, but they should be properly managed.  It’s important to remember that card providers are actively looking for customers, because we are a revenue source.  However, you should know some of these key points when using credit cards.
1. Know your credit score. The better your credit score, the better card deals you can get. 2. Using the web to help search for credit cards that fit your needs can be very useful, such as creditkarma.com or creditcards.com.  However, applying for a lot of cards can also hurt your credit score. 3. Beware of annual fees, hidden charges, or additional costs for being late or missing a payment, and cards that offer rewards–the later can be more expensive. 4. If you have trouble making payments on time, steer clear of card offers that give you a low introductory rate, but skyrocket if you make a late payment. 5. Don’t max out your accounts, as using too much credit can be a negative. 6. Cancelling cards that you no longer use can actually hurt your credit score if closed too soon. 7. Avoiding credit altogether doesn’t allow card companies to view your credit history. 8. Don’t lie on applications, Not only is it illegal, but also qualifying for a larger credit limit than you can handle could cause additional problems. 9. Co-signing credit cards or loans for someone else can hurt you.  In 2016 CreditCards.com reported that 4 in 10 co-signers ended up losing money, or it hurt their credit.

How Having an Addiction to Stuff Could Affect the Bottom Line of Your Finances

The word addiction when it comes to finances is not used to often. But when related to your buying habits and the problems that persist because of it there is a time to reflect on your needs vs. wants when it comes to stuff. When you analyze your finances and a disproportionate percent of your income goes towards floating your lifestyle instead of providing the necessities of everyday living and forming a solid retirement and college savings plan than you should consider deeper reflection on what is important to you when it comes to money and spending it.

Problems:

  • Stuff needs to be stored, and as your pile of stuff grows, you will need an ever larger space to store it. That will likely see you looking to buy a bigger house every few years, with all of the expenses that come with it1
  • Stuff is a capital trap – it ties up your money, but generally provides no financial benefit1
  • Any money that goes into stuff, is money that is not going into productive investments1
  • While stuff can make you more comfortable, only income producing or growth oriented investments can improve your station in life1
  • During times of financial turmoil, you may become obsessed with protecting and maintaining your stuff, which is not at all what you need to focus on1
  • Stuff has a way of eating up time, so that you have less of it to spend on more productive activities1

Sources:

1 – (7) End Any Addiction to Stuff That You May Have

https://www.goodfinancialcents.com/good-financial-goals/

WHY YOU SHOULD WORK IN COLLEGE

The costs of going to college is rising, so much as 8.3% last year or about $5,200 more. States have cut funding for higher education by almost 11% last year, as well as, parental contributions have decreased by 10% covering on average, 27% of their child’s tuition. This is due to in part because of the 2008 financial crisis, but it also does not help that overall the cost of college has increased by almost six-times since the 1980s. By these statistics alone and the fact that the average student is coming out of school $38,000 in debt means that you should consider everything you can while in school to keep that down, considering that on average a college graduate is landing a job that pay’s $50,000 a year, which could keep your student debt looming for years.

There are many experiences to be had while in college, but one of them that students seem to put off until junior or senior year is getting a job. But there are many benefits to getting a job while in school that will pay off in the long run. As discussed above it will help you pay off your debt quicker, or if it is a minimum wage job it could help reduce the stress of monthly family contributions to pay for living expenses, or save up for summer trips, or a car. As well, working while in school provides valuable job experiences. Why wait until senior year to start knocking off the 1,000 Starbucks runs, or creating spread sheets, start your experience now and look for a company you can grow with to not only experience real world situations, but also build up your role over four years of school.

While school can sometimes be enough to fill up your plate when it comes to your free time, college is structured much differently than high school, in such a way where you have a lot more flexibility with your schedule and can set it up in a way where you can still work a few days a week or certain hours every day. There are many companies out there that are looking for young talent to handle social media, technology, design and an array of skills that millennials are inherently well versed in, so approach a company with a desire to give them a disproportionate amount of value and you will receive a great experience and grow your career at the same time. Having that job and managing your schedule properly will create great management skills that will benefit you throughout your career.

Many students find that in taking on a part-time job while in school your grades rise, because just like high school, when you had your schedule filled with sports, and clubs you only had a set time to accomplish school work, as well as, kept to a higher standard and already in the mindset to get work done. Finally, when working full-time many companies will offer benefits such as a 401k plan, health insurance, and tuition assistance while attending college. There are many reasons to consider working while in school, but the best thing to do is start early and work hard, define your future do not wait for college to be over to say – hey, should probably throw together a resume – the entire purpose of school is to prepare yourself for your future so why wait?

 

 

Sources:

http://time.com/money/collection-post/3829776/heres-what-the-average-grad-makes-right-out-of-college/

https://thinkprogress.org/nearly-80-percent-of-students-work-while-in-school-2f44edacd275

https://www.thebalance.com/can-i-work-and-go-to-college-2386212