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Debt Can be Easier to Pay Off if You Rename Your Financial accounts

portrait of a young beautiful man surprised face expressionAt least one financial expert says that the names we give our financial accounts can make a huge difference in our relationship with money. If you rename your financial accounts she argues it won’t change the reality of your finances but it can change your attitude about them. And a change in attitude will ultimately make a big difference in everything.

You will need software

Of course, you can’t call your bank and ask it to change that long number that identifies your account to something like Harry’s Special Household Account. You will need to get personal financial software such as Quicken, You Need A Budget or Ace Money in order to change the names of your accounts. You won’t need to rename all of them. What you will need to do is go over your chart of accounts to see if there are some where you have a troubled relationship. If so, then changing their names could help change your attitude about them.

The power of a name

For the sake of an example, let’s suppose you have two checking accounts, a savings account, three credit cards, a mortgage, a personal line of credit and a home equity line of credit. You could consider renaming one of those checking accounts to something that would remind you why you have it. If it’s a joint account and you use it to pay household expenses why not rename it to something fun like “Bob and Tammy’s Domestic Bliss Account”. Every time you write checks on that account its name would remind you of why you have it.

If you hate making payments on your mortgage you might rename the account, you use to make your payments “20 Years to Mortgage Freedom”. That way, instead of thinking of the payment as a drain on your finances, you could think of it as another step towards having it paid off.

Why did you take out that home equity line of credit? It was probably for a good cause. So why not rename that account to something that would remind you of why you borrowed the money. For example, one person renamed his homeowner equity line of credit to “Our Lifesaving Medical Miracle.” So now instead of thinking of the loan as something he struggles to pay off, its name reminds him that the money was used to pay for a life-saving operation his son needed.

Do you have a traditional or Roth IRA? You might find it easier to put money into it if you were to rename it to “Our Retirement Beach Home” or ” Palm Springs Retirement”. That alone could take the sting out of putting money into the account by reminding you that each time you make a deposit, you’re getting just that much closer to realizing your goal.

Three guidelines

Once you’ve identified those accounts where you believe a name change would be a good idea here are some guidelines for changing their names.

  • Try to be creative
  • Choose a name that has meaning to you
  • Take a name that will force you to view the account from a different perspective

A name really does matter

In the play Romeo and Juliet Shakespeare has Juliet say, “What’s in a name?  That which we call a rose, by any other name would smell as sweet.” But when it comes to financial accounts we take the opposing view that names can make a big difference in our relationship with money. A retirement account named “Palm Springs Here We Come” would be a lot easier for most people to fund than just a plain vanilla “Roth IRA”. A fun, creative name like this would not only remind you of why you’re saving money but that each month you’re getting that much closer to achieving your goal.

A painless way to save money

Some people – and you may be one of them – like want to have a “fun” savings account or one where you save money for something extra such as a weekend getaway, a special night on the town or tickets to a sports event. The problem is how to fund it, what with all of your other financial obligations. Fortunately, there is a painless way to do this. It’s the app Digit. It can make saving money for fun stuff practically painless and here’s how. Every few days the app checks your spending habits and then if you can afford it Digit removes a few dollars from your checking account and transfers it to your Digit account. It’s easy to withdraw money from a Digit account whenever you like and there are no fees.

Tips for Becoming a Financial Superstar and in Two Easy Steps

Young man wearing superman mask and cape

Are you among the 80% of Americans that can’t come up with $400 in the event of an emergency without borrowing the money or do you want to become a financial superstar?

The sad fact is that we have become a nation of debtors Americans between the age of 18 and 65 now owe an average of $4717 in credit card debt. The website CreditCards.com recently reported that the interest rate on a credit card now averages 15%. If you assume a minimum monthly payment of $189 it would take 10 years and a month to pay off that $4717.

Plus, the average household owes more than $15,000 in credit card debt. People that are debt-free – that pay off their bills at the end of every month – have become a very small minority. The credit card companies call these people “transactors” and they don’t like them because they never pay interest, which is where the credit card issuers make their money.

What does a financial superstar look like?

Here’s a good, working definition of a financial superstar:

  • A person who is debt-free (with the exception of a mortgage)
  • A person that has a six months’ emergency fund
  • A person that has saved at least 12 1/2 times her or his annual expenses.
  • At least 10 years

Given these three criteria it’s not possible to become a financial superstar overnight. Achieving these goals will probably take at least 10 years. The good news is that there are basically just two steps to becoming a financial superstar. They are: Get out of debt and save your income for 10 years. That may not seem very profound but that’s it. For example, if you were to save half of your income you would have 12.5 times your annual living expenses in about 8 1/2 years. Assuming you continue to save that 50% for another 1 ½ years, you would then have an emergency fund of 18 months. Of course, this means assuming you shun debt like the Ebola virus.

Tips for reducing household expenses

Are you committed to the idea of becoming a financial superstar? All it really takes is a little self-discipline and in some cases a change in your lifestyle. You say you’re not interested in changing your lifestyle? In that case, it’s unlikely that you’ll ever become a financial superstar. People who become superstars – whether it’s in film, music or especially athletics don’t get there without making sacrifices, which often means big changes in their lifestyles.

Things you can do without dramatic lifestyle changes

So here, first, are tips for cutting expenses without making big lifestyle changes.

1. Take public transportation or walk or bike to work. Of course if you live in a place where there’s winter you probably won’t be able to bike to work to work year around. However, you should be able to take public transportation, which will still be cheaper than driving a car.

2. If none of these alternatives is feasible then buy the best car you can with cash. Forget about an automobile loan or a lease. Driving a car with 100,000 or so miles on it may not do your ego much good but it does offer some real benefits, not the least of which is all the money you’ll save because you won’t be making monthly payments.

3. Don’t have cats or dogs. They come with a number of visible costs such as food and vet care but also invisible costs such as what do you do with that pet when you want to go out of town for a week or more? Unless you have a friend who will pet sit for you, a week away will cost you $240 or even more.

Note: If you can’t stand the idea of living without a pet get a turtle or pet goldfish. They can be entertaining and will cost you much less than either a cat or dog.

4. Here’s a very difficult one. Don’t have children. If you’re married this may be mission impossible because your husband or wife will have a vote in the decision. But if you must have children wait until you’re at least 25. By then you should be emotionally and financially more ready. If you’re a guy, you might not want to date anyone you would consider for marriage. Staying single eliminates a lot of the temptation to have children.

Things that require lifestyle changes

Remember what we said earlier in this article about making lifestyle changes. Here some you would have to make if you truly want to become a financial superstar.

1. Move to a trailer or tiny home. The inescapable truth of homeownership is that the fewer square feet you have the less it will cost you not just in utilities but also in maintenance and insurance.

2. If neither of these is feasible live in an apartment. That will eliminate nearly 100% of the maintenance costs and renter’s insurance is considerably cheaper than homeowner’s insurance.

3. Finally, if there are reasons why you must have a house choose a modestly sized one. Trust us in that your kids won’t hate you if you put them in small bedrooms or even two of them in one bedroom.

In summary

If you’re really serious about saving 50% of your income you will need to find ways to economize on the two biggest expenses – housing and transportation – until you are saving 50%. If this means driving a beat-up looking car or living in a cramped space, so be it. Just keep reminding yourself how great your life will be once you’re a financial superstar and are still in your 30s.

6 Tips for Lowering Your Bills That Will Surprise You

portrait of a young beautiful man surprised face expression
portrait of a young beautiful man surprised face expression

If you wouldn’t like to see you bills cut you must be very wealthy. Of course, there are even some very wealthy people that would like to lower their bills. Finding ways to lower their bills is actually a hobby for some people. And it’s a very profitable one. For example, if you install a programmable thermostat in your home you’d probably cut your energy bill by $50 or more a month now and every month going forward. And that’s like having $50 in your pocket to save or to spend on a night on the town with friends. You’ve probably read the obvious ways to your lower water bill like by installing a low flow faucet or to lower your heating bill by air sealing your house. But there are also some unusual or out-of-the-ordinary to lower your bills and here are six of them.

Use a negotiating service

Yes, there are services that will negotiate your bills for you. As an example of this there is Shrinkbill.com. Its people will call your service providers and try to reduce what you owe. In fact, it’s so certain it can help that it will send you a $25 gift card if it can’t save you money. However, if it is able to save you money it will keep 45% of what it saves you for the first year so that you’ll get 55% of the savings. Similar services are Billcutters.com and Billfixers.com. They split whatever they are able to save you 50/50 for the first year.

Be aware that there are some things you will need to do to utilize one of these services. You will need to provide your bill and possibly information such as the last four digits of your Social Security number and your mother’s maiden name so it will know it’s negotiating for you. But the good part is that if you’re not a great negotiator and don’t want to have to talk with your service providers then these companies could be a helpful option.

Negotiate yourself

First, when you contact one of your service providers don’t get sidetracked by any of those free-trial service offers. An example of this would be your cable provider offering free HBO for a few months to distract you from getting your bill reduced.

Also, when you contact a service provider it’s best not to just ask outright for a cheaper rate. Instead, you should use open-ended questions where it’s unlikely you’ll get a flat no. Examples of these include, “Are there discounts available right now I could take advantage of?” and “Where is it you could save me money?”

Call during off hours

The best time to call to try to get your bill reduced is early in the day. Never call right before the lunch hour or closing time. If you call early in the day, the odds are that customer service representatives will be likely to spend more time with you on the phone. And if they are less stressed out, the chances are greater that you will be successful.

Call your insurance agent (s)

Just because you’ve been paying about the same premium for the past several years doesn’t mean that you can’t get a better deal. For example, if you bundle several insurance policies together – such as your auto and home – you should get a pretty good discount. In fact, if you bundle your homeowners and auto insurance policies you should save around 18%. In addition, there are other ways you should be able to cut that bill. Have you taken a safe driving course, installed a security system or quit smoking? If you’ve made any of these changes it should mean a cut in your premium.

Use your leverage

If you’re a really good customer of the company use it as leverage. This can be helpful especially in getting credit card interest rates reduced or annual fees waived. It may also help you get your monthly cable and Internet bills reduced. Begin by being polite and using the customer service rep’s name several times during the conversation. If this doesn’t work, don’t be afraid to get really aggressive by threatening to close your account or switching to the company’s biggest competitor if you don’t get what you’re looking for.

Track your history

Bill that go down often go back up. That makes it important to keep track of your bills so you’ll know when you’ll need to make more phone calls. Also, if you weren’t successful the first time around, go back and ask for a better deal a few months down the line. You have nothing to lose as your service providers already have your money. And you’ll never get any of your bills reduced if you fail to ask.

Revealed — The Two Ways to Make a Budget for Debt Management

debt management plan costsIf you don’t have a household budget it’s sort of like driving at night with your lights off. You may be okay for a while but ultimately you’ll run it into a problem that totally wrecks your finances. The timing belt in your car’s engine could break, you could have a serious medical emergency or you could need to replace a bunch of furniture because a pipe broke and flooded your living room. When you haven’t budgeted for things like this you could find yourself headed towards financial disaster in the blink of an eye.

Tracking your spending

Whether you choose the simple or more not-so-simple way to develop a household, you will need to first track your spending for at least a month. This means writing down everything you spend money on right down to those drive-through coffees. Most people find the easiest way to do this is by keeping a small notepad with them at all times so that whenever they spend money they can immediately jot down how much and for what. And yes, this won’t be a fun exercise but it’s absolutely essential.

The simple way to develop a budget

Once you’ve tracked your spending for a month you will need to decide which budgeting method to use. The simple way is by following the 50/20/30 rule. The way this works is that you organize your spending as follows: 50% of your net income for essentials, 20% for savings and 30% personal.

So what are essentials?

These are those categories where you would have to spend money regardless of where you live or your future plans. Essentials generally include utility bills, food, housing and transportation costs. You could also add insurance premiums to this category as well as student loan debts if you have any.

The 20% for savings

This is where you commit 20% of your take-home pay towards savings. This would include savings plans, emergency funds and debt payments. Of these three, your first priority should be to build an emergency fund as this is how you shelter yourself from the kinds of emergencies that would totally wreck your finances.

The 30% personal

This category should include things such as your cable bill, those drive-through coffees, your cell phone plan and your entertainment. You could also toss your gym membership, weekend trips and dining out with friends into this category. It’s entirely up to you which of your expenses you decide to designate as “personal” versus those that are ‘essential.’ But what this boils down to is that 30% personal is money you can spend just about any way you choose.

The not so-simple way to make a budget

There’s also a not-so-simple way to make a budget. It’s where you create some very specific spending categories and then assign a percentage to each. Here’s an example of what this might look like.

Savings:  5 to 10%
Housing (rent, mortgage, taxes, insurance); 25 to 35%
Food:  5 to 15%
Utilities (heat, water, telephone, etc.):   5 to 10%
Transportation (automobile, public transportation,
Taxis, Uber or Lyft): 10 to 15%
Clothing:  2 to 7%
Leisure and education:  5 to 10%
Health (insurance, dentist, glasses, medication, etc.):  5 to 10%
Personal:  5 to 10%

Of course, you may want to organize your categories differently or even divide some of them into subcategories.

Get an app

You’ve now done the hard work. The easier part is learning to stick to this budget. It’s easier because there are a number of apps that can help. One of the most popular of these is Mvelopes. The way it works is that you create a virtual envelope for each of your categories and then assign money into it based on the percentage of your budget it represents. For example, if your take-home pay is $5000 a month and you had budgeted 10% for housing, you would assign $500 to that Mvelope.

This is a sort of tough love form of budgeting because when you empty one of your Mvelopes you’ll have to stop spending money in that category or move money from another Mvelope into it. An example of this would be if you assigned 5% ($250) to your Personal Mvelope and spent all of it a week before your next pay day. You would then have to either stop spending in your Personal category or maybe move $100 from your Clothing Mvelope into this one.

Just pick one

It isn’t important which of these two forms of budgeting you choose. The important thing is to choose one and get started. The happy news is that if you stick with your budget, after some period of time it will become second nature to you and you may be able to stop writing anything down or worrying about your Mvelopes. You’ll instinctually know how much money you can spend in each of your categories and what you need to do if you overspend in any of them. In other words, you will be able to carry your budget in your head as many consumers actually do.

A Concept More Powerful Than Compound Interest

happy-young-man-with-fixed-car-300x199Experts on personal finance may disagree on a lot of things but they all agree on one thing –thpower of compound interest. Albert Einstein may or may not have called it the most powerful force in the universe. But one thing’s for certain — it can either work for you or against you.

Putting compound interest to work for you

Compound interest is your friend when you put it to work for you, Here’s an example of this. Let’s suppose you put $100 in an investment that pays 10% compounded semi-annually. In this case you’d have $110 at the end of the year. Then at the end of year two you’d have $121 ($110 + 10% = $121). And the $21 would be passive income as you didn’t have to do anything to earn it.

$21 may not sound like much … but

The fact that $100 earned you $21 in just two years may not sound like a really good deal but look what happens if you put $5000 in that investment with 10% interest compounded semi-annually. You’d have $6077.53 at the end of two years with $1073.53 in interest and $8144.48 at the end of five years with $3144.48 just in interest. And again, this is passive income because you didn’t have to lift a finger to earn it.

The dark side

Compound interest becomes your enemy when it goes to the dark side – that is, when you’re paying it instead of receiving it. For example, if you owed that $5000 on a credit card at 15% interest and made a fixed payment of $200 a month, it would take you 31 months to repay the $5000 and would cost you $5,729.21 in interest or more than your original balance.

A more powerful force>/h2>

Despite what Albert Einstein may or may not have said there is a force more powerful than compound interest.

It’s the magic doubling penny.

The way it works is incredibly simple. You invest in something that gets you a penny the first day and then doubles to two cents the second day. By day 10 that penny is now $5.12, which probably doesn’t sound like much but by day 20 it will have turned into $5,242.88 and $5,368,709.12 by day 30 – or the end of just one month.

So which would you rather have – compound interest or the magic doubling penny?

There is no such thing

Wouldn’t it be great to invest one penny and then have more than $5,000,000 after just 30 days? You could retire to a warm country with great beaches and spend the rest of your life lying around in a hammock and drinking Pina Coladas. Unfortunately, there is no such thing as an investment where you would start with a penny and see it double every day. But you could harness the power of compound interest to have a nice retirement or even retire early.

If you’re not saving for retirement now

If you’re already saving for retirement, congratulations! That puts you ahead of 33% of the people recently surveyed that reported they have saved nothing for retirement. If you’re part of that group, you absolutely must get started or you could literally end up working until you die.

Just a few dollars a week

If all you can afford to save at this point in your life is a few dollars a week, that’s okay. The important thing is to get started and to build a savings habit. You can always increase that few dollars a week to $25, $50 or even $100 as your earnings increase.

A traditional vs. a Roth IRA

Your employer must not offer a 401(k) or you would certainly be taking advantage of it. Or maybe you’re self-employed. In either case you could open a traditional or Roth IRA and start putting money into it. There are several important differences between these two plans but the biggest has to do with income taxes. If you choose a traditional IRA, the money you put in it is tax exempt until you retire and begin withdrawing from it. A Roth IRA is almost the exact opposite – the money you invest in it is taxed but it’s tax free when you begin making withdrawals.

Be careful and diversify

Whether you choose a traditional or Roth IRA do be careful, diversify your investments and stay away from individual stocks. Even professional stock pickers are often wrong and it’s something they do full time. Invest instead in mutual and index funds where you might not see compound interest but you will be spreading you risk and are almost guaranteed see good, steady growth over the years until you’re ready to retire.