Healthy Concepts
Alan Prahl

Alan Prahl

Alan Prahl is the Education Leader with FISC, the Financial Information & Service Center. He has an undergraduate degree from the University of Wisconsin in Madison and law degree from Hamline University. A nonprofit program of Goodwill NCW, FISC provides financial counseling and coaching, including a no-cost, no obligation 30-minute consultation with the “counselor on call.” To learn more, call 920-886-1000 or visit www.fisc-cccs.org.

Do you wish you could save more money or had less debt? People often wish things could be better but fail to take action to make their dreams come true. Sometimes, we know how to make our lives better, but we don’t change our behavior. What stops us from making changes?

Spending influences

Experts say each of us receives between 600 and 3,000 advertising messages daily. Advertising is everywhere: billboards, TV, radio, newspapers, catalogs, emails, texts, gas station pumps, bathrooms, direct mail, shopping channels and more. These messages encourage impulsive and emotional spending. Compare the deluge of spending influences with the trickle of saving influences. It’s no contest. Spending influences dominate.

We are creatures of habit

Would you believe that forty percent of our spending is habitual? We often spend because it is a habit and don’t notice how much these habits add up.

In a 2015 survey by Sun Trust, people earning at least $75,000 were asked, “How are you doing with reaching your goals?” Thirty-three percent of people said, “A lack of financial discipline sometimes prevents me from reaching my goals.” Forty-four percent said, “Spending on lifestyle purchases causes me to save less than I should each month.”

We overestimate how much we make

Some people think, “If I’m grossing $75,000 per year, why can’t I afford to do more?” While rising prices and inflation can reduce our buying power, the bigger culprit may be the difference between gross and net income. With pre-tax deductions for 401(k) plans, child care, health savings accounts, the employee share of health insurance premiums, state and federal taxes, and Social Security, it’s no wonder that paychecks have shrunk. Making pre-tax payments is nice, but we need to be realistic about how much money is available to spend.

Countering strategies

To counter spending influences, minimize media and images that encourage spending rather than saving. Get rid of that pile of glossy catalogs next to your favorite chair. Delete “favorite” websites where you longingly browse and spend on lifestyle purchases. If shopping is a habit or a social activity, substitute other activities. Call a friend, take a pet for a walk, get in a workout or go out for coffee.

You can build new habits

We have all developed new habits. Remember learning how to drive? At first driving took a lot of very conscious thought. “I’ve got to slow down, check the right lane, signal my turn, etc.” But through practice and repetition, driving became routine.

To make positive financial changes, try talking with a nonprofit credit counselor or financial coach.

 

Thursday, 31 May 2018 01:15

How optimistic are you?

Are you optimistic about your health and wellness? How optimistic are you about life in general?

A recent article has surprising news about the optimism of millennials. According to Marketwatch.com, “For the first time, young Americans have less optimism than those aged 55 and older.” That’s a big change from past history. According to the article, this is the first time in the last six decades that Americans younger than 35 have scored so low.

What is Behind Millennial Misgivings?

One of the common challenges facing millennials is student loan debt. Nationally, the average 2017 college graduate had more than $37,000 in student loan debt.

Why so much? College costs have risen dramatically. For example, in-state tuition, fees, room, board and expenses are pegged at about $25,000 annually for UW-Madison. In-state tuition, fees, room and board at nearby UW-Oshkosh costs about $15,000.

According to the Pew Research Center, for the first time in more than 130 years, more millennials are living with their parents than with a spouse or partner in their own household. Why aren’t adults ages 18-34 moving out and buying a home? A 2018 online survey conducted by Harris Poll for the National Foundation for Credit Counseling (NFCC) indicates that 38 percent of adults who tried to purchase a home in the past year faced barriers to homeownership. The top five barriers:

  1. Rising home prices
  2. Lack of funding for down payment/closing costs
  3. Existing debt
  4. Limited housing options within budget
  5. Poor credit history/low credit score

A big part of the “existing debt” is student loan debt. Given these barriers, it’s not surprising that many young adults have postponed buying a home. Many millennials have also delayed getting married and having kids.

It’s Not All Doom and Gloom

While consumer confidence for young Americans is generally down, not all millennials are struggling. Some are living the dream, managing their finances well, paying off their student loans and building assets. According to the NFCC survey, 47 percent of millennials have a budget and keep close track of how much they spend.

Developing a budget or spending plan can help people get a clear picture of their financial situation and identify options to improve it. A spending plan gives us accurate information, so we can make wise choices, meet our needs, have money for some wants and attain our goals.

Money and Emotions are Connected

I teach workshops about money and sometimes ask people how it feels to find money on the street or in a pocket of their clothes. People will smile and say that finding money feels great. When asked how it feels to receive a large unexpected bill, they say things like frustrated, sad and discouraged.

The stress of dealing with student loans and barriers to home ownership can be frustrating and optimism can decline. If someone you know is experiencing stress about money, maybe it’s time for them to take charge of their money and develop a budget or spending plan. A good plan can help restore hope and optimism. 

As thousands of proud parents celebrate the graduation of their children, many graduates are looking forward to being on their own. Living independently is a significant change. Here are some tips for new graduates.

Have a spending plan

Without a budget or spending plan, it’s easy to spend everything you earn and then some! Identify your core expenses for necessities like rent, utilities, food, health care and car insurance. Then, determine what you can afford to spend on wants like entertainment and travel.

Count all housing costs. Don’t sign a lease until you know all the costs and know if it fits within your budget. How much does heat cost in the winter and air conditioning in the summer?

Many students have been covered under their parent’s auto and health insurance. In some situations, parents might continue that coverage, or it may be time for the graduate to pay for this. Don’t go without coverage. Factor these costs into your budget.

Calculate student loan payments into your budget before you consider upgrading your car or committing to other large expenses.

Live within your income

Don’t overspend on furnishings for your new apartment or on new clothes. Just because some of your friends may drive new cars or be living large doesn’t mean that they are doing well financially. Have fun, but live within your income.

Save money for a rainy day. Smart people save money for future unexpected expenses, like car repairs, health care and other unexpected expenses.

Always pay your bills on time. This helps to build a positive credit rating that can save you thousands of dollars on major purchases like a car or a home.

Begin saving for retirement immediately

Start saving in your employer’s 401(k) plan as soon as you are eligible. If you don’t have access to a 401(k), then save in your own traditional or Roth IRA. Even small amounts of money can add up to be a lot.

There is more to life than making money. Plan to have a life outside of work. Don’t let worries about money dominate your life. Take action to get organized and have a plan to make the most of your money.

Tuesday, 27 March 2018 03:21

How much should I save?

Did you ever wonder how much of your income you should save for retirement? Financial advisors may offer some general guidelines, although there are so many different recommendations that this can be confusing and discouraging.

For years many advisers suggested using an 80-10-10 ratio, living on 80 percent, saving 10 percent and donating 10 percent of income. However, college costs have risen dramatically and many employers dropped pensions in favor of employee savings plans like 401(k) plans. Other trends like longer life expectancies, rising medical costs and inflation have also affected advice on how much to save.

Today, depending upon whom you ask the rule-of-thumb advice might be to save 10 percent, 15 percent or “as much as you can” of your income for retirement. People often have other financial goals like building an emergency fund, saving for college and paying off debt. If you are determined to live frugally or have a large disposable income, you may be able to save 15 percent or more of your income for retirement and make progress on these other goals. However, before assuming that’s how much you should save, use an online calculator or work with a financial planner to estimate how much you need to save.

Financial planners would rather personalize their advice to fit your situation rather than use general rules of thumb. Individuals have different situations, including different incomes, assets, employer provided retirement benefits, Social Security benefits, needs and goals. Some people may not need to save 15 percent or more of their income. Depending upon your situation, your planner may suggest other smart financial moves like paying down high interest debt and building an emergency fund.

According to the St. Louis Federal Reserve Bank, the real median household income in Wisconsin was $59,817 in 2016. With a median income, if a 401(k) retirement savings plan is offered at work, employees may struggle to find the money to save. If people are paying the employee share of health insurance premiums, state and federal taxes and Social Security, saving 10 percent or 15 percent of pay can be very challenging.

If you can’t save what the planner or calculator suggests, explore options like beginning receiving Social Security at a later age, working part-time in retirement and gradually increasing your savings. Try bumping up your savings whenever you get a raise. The earlier you start saving for retirement the better off you will be.

There are good reasons why today’s general guidelines often recommend saving more than 10 percent of your income for retirement. But rather than using general guidelines, it’s wise to analyze your own situation and calculate how much you need to save.

Wednesday, 28 February 2018 15:36

What will you do with your tax refund?

Has your 2017 income tax refund arrived? The average Federal refund last year was about $3,050. A financial windfall like this offers many spending and planning opportunities. What will you do with your refund?

Don’t give in to the urge to splurge on the first thing that comes to mind. Try using a “Want List.” Put it on your refrigerator or favorite electronic device where you’ll see it often. As you think of things you want or need, add them to the list.

What do you often think about? Do you wish you had more money in savings? Would you feel better if you paid down debt?

Dream a little. What’s on your bucket list? Is there a vacation you have always wanted to take? Is there something you’ve always wanted for your home?

Build your list for at least a few weeks. Then sit down and sort through your ideas.

Here is an example of a possible strategy:

Emily and David have six items on their want list. They would like to add $800 to car repair savings, pay off their $800 Visa bill, pay off their $500 Kohl’s card balance, save $1,000 for a vacation, add $1,000 to their emergency savings and buy a new couch for $2,000. While they received a $3,300 refund, their want list includes $6,100 of ideas. So, they prioritize.

Many financial professionals would recommend paying off the Visa and Kohl’s bills ($1,300 total) to eliminate the high interest debt. They still have $2,000 left.

They will need new tires soon, so they decide to add $800 to their car repair savings. That leaves $1,200 of their refund to allocate.

It would be quick and easy to put the remaining $1,200 aside for a vacation, but nothing has been added to their emergency fund. They really want to do both, so they decide to split the remaining money.

They put $700 into their vacation savings fund, which is 70 percent of the way toward that $1,000 goal. Because they paid off their credit cards, instead of making monthly payments on those bills, they can put the money that was going toward credit card debt into their vacation fund and look forward to a nice vacation.

They put $500 into their emergency fund. To continue building their emergency savings, they set up an automatic monthly payment from their checking account to their emergency savings. They will continue to save automatically until they have at least three months of living expenses set aside for emergencies.

A combination of paying down debt, adding to their emergency savings fund each month and having a vacation to look forward to offers immediate financial strengthening, plus positive encouragement to stay on track financially. 

Wednesday, 31 January 2018 19:38

Caring couples communicate about money

In February we take a break from winter’s icy grip to celebrate Valentine’s Day. Some of the most popular gifts include cards, candy, flowers and an evening out. What do you like to receive? While most people agree it’s important to express love on Valentine’s Day, people sometimes disagree about what they like to receive.

Disagreements are common too when it comes to money. Couples often have different financial priorities and goals. Here are some simple strategies couples can use to communicate more effectively about money.

Set joint goals

Talk about what is coming up in your lives. For example, talk about planning a warm, sunny summer vacation. Also talk about your long-term goals like saving for college and when you want to retire. What will retirement look like? Where will you live? When do you want to retire? If you want to retire at a young age, you may need to save aggressively to make that happen.

Review your long-term goals before making large purchases, like buying a new car. The new car smell wears off, but the car payments usually last for years. The average cost of a new car today is more than $30,000, and payments of $500 and more a month are common. That’s $500 plus a month going toward a depreciating asset and not toward your retirement. Don’t hijack your long-term plans making a large impulsive purchase you’ll regret.

Don’t blame

Don’t blame one person for doing all the spending. Usually both people spend more than they realize.

Spending money

To minimize blaming, each partner should receive some personal spending money every payday that can be spent on anything. You have freedom to spend this money spontaneously without judgment.

Talk through disagreements

When you disagree, get it out in the open and talk about it. Patient communication and compromise can help you resolve disagreements and identify choices both people can live with.

Plan for the unexpected

Unexpected expenses and low savings can strain relationships. Work toward having at least three to six months of living expenses in an emergency savings account. To boost your savings, talk with your bank or credit union about setting up automatic monthly payments from your checking account to your emergency savings account.

If you don’t have a significant emergency fund, use your tax refund to jump-start your savings. You’ll sleep better knowing you are prepared for the proverbial rainy day.

Keep debt low

Many couples disagree about how much debt they are comfortable carrying. While an affordable home can be a good long-term investment, it’s seldom wise to carry credit card debt. If debt is a concern, work toward reducing it. Don’t take on more debt unless you both genuinely agree.

It’s about balance

Managing money wisely isn’t just about putting numbers on a spreadsheet. Often there isn’t enough money to buy everything we want and save aggressively for retirement. We must talk through our needs and wants and balance competing priorities.

Valentine’s Day is a great time to express love for others. It’s also timely to reflect on how we can make our relationship even better and communicate more effectively about money.

Friday, 29 December 2017 03:46

Use allowances to teach children about money

What do you want your children or grandchildren to know about money? Many parents have used allowances to teach their children financial responsibility. 

Allowances can help children learn: 

  • Our spending choices are almost limitless
  • We have limited resources
  • We all need to make choices
  • From spending mistakes they make

By age 5 or 6, many children are ready to receive an allowance. Children are often required to work or do some things around the home to earn their allowance. They learn there is a connection between working and getting paid. 

Of course, there’s more to handling money wisely than just earning money and spending it. Parents can use an allowance to help children learn to make choices and save money. 

Parents can set guidelines for saving, spending and sharing. For example, let them spend 40 percent, require them to save 50 percent and to share or donate 10 percent of their allowance.

Many parents wonder how much they should pay their children. A common guideline is to pay 50 cents or $1 for every year of their age. So, a six year old would get $6, a ten year old $10, etc. As they age, they get paid more and have more to manage. Some parents pay their children every time they get paid; others pay allowances once a month. 

Some children handle money better than others. Many will make mistakes, like buying things immediately with their spending money, and then being out of spending money until they get paid again. Let them run out of spending money and learn that timeless lesson, “Once I spend my money it’s gone.” Don’t rescue them with more spending money. Making mistakes with small amounts of money can be a priceless way to learn enduring lessons. 

To encourage saving money, talk with them about how you are saving for a short-term goal, like some clothes or electronics. Tell them you also save for your long-term goals like retirement. 

Even if you do most of your banking, shopping and bill paying digitally, occasionally take younger children to the bank. Let them see you putting money into the bank, not just taking money out or spending money. 

You can also help develop the habit of saving money by: 

  • Using a piggy bank or other visual savings tool
  • Opening a savings account in their name
  • Having them make regular deposits into their savings account
  • Showing them how their balance is growing 

If you want your children or grandchildren to understand some of the key financial facts of life, help them learn when they are young. An allowance coupled with good parental guidelines can help them learn wise financial habits that will serve them throughout their lives. 

 

Thursday, 30 November 2017 20:50

How much money will pass through your hands?

How much will you spend on gifts during the holidays? In 2016, the average American family spent more than $900 on gifts. Most families also spent money on special food, decorations and eating out.

How much money will pass through your hands during the 2017 holiday season? Or, consider this much bigger question: how much money will pass through your hands during your lifetime?

It might be a lot more than you think. Take for example, a 22-year-old woman earning $15 per hour. She gets 3 percent raises in many years. By the time she retires more than forty years later, she may have grossed more than $1,800,000.

Projecting your lifetime earnings is a great exercise to do in your 20s and 30s. Take your current income, assume 2-3 percent wage increases in many years and project your income through age 65. The total amount is often an eye-opening surprise.

What about you? Have you added up how much money will pass through your hands in your lifetime? Projecting your lifetime earnings can be an exciting, thought-provoking exercise.

If you’re going to earn that much during your lifetime, what will you do with that money? How much will you save and invest? Are you taking advantage of all the tax breaks you can legitimately use?

It is easy to get in a financial rut and not pause to ask big picture questions. Sadly, surveys have shown that many Americans spend more time planning for a vacation or buying gifts for the holidays than they spend planning for their retirement.

Without a plan, many people spend and save haphazardly. With a plan, people often can save consistently for their dreams and goals. They enjoy the deep satisfaction of having money for goals like a better home, car, education or retirement. Even modest savings can add up to be significant amounts.

During the holidays, do you prepare special seasonal meals, cookies or desserts? Do you follow recipes closely, using quality ingredients so that your food will be delightful?

There’s a recipe for long-term financial success too. Spend less than what you earn, save consistently and invest for your long-term goals.

To increase your joy this holiday season and beyond, think about how much money is passing through your hands. Have a thoughtful plan for spending, sharing and saving your money.

Tuesday, 31 October 2017 16:55

Rethinking holiday shopping strategies

Many people begin holiday shopping before Thanksgiving, go all out on Black Friday and Cyber Monday, then continue shopping at a slightly less feverish pace for several more weeks. Searching for the perfect gift and great deals can be fun or stressful depending on how you approach it.

To make holiday shopping more satisfying, plan to give gifts that delight the receiver without breaking your budget. Here are some holiday shopping tips, plus a few suggestions on ways to enjoy the holidays.

To avoid post-holiday blues from ugly credit card bills and depleted bank accounts, set a limit on the total amount of money you want to spend on everything for the holidays. Then, determine how much you will spend in each of these categories:

  • Gifts, cash gifts and gift cards
  • Donations
  • Special meals, food and beverages
  • Decorations, cards, wrapping paper and postage/shipping

List all gifts and the spending limit on each person or gift. If you are buying clothes, write down the sizes so you minimize post-holiday gift returns.

Shop smart

If you don’t like fighting massive crowds, avoid in-person shopping during peak shopping hours. Mix in some online shopping. Comparison shop before you buy. Keep your shopping list with you. Check off gifts or names as you work through your list. If you find something wonderful that’s better than your original gift idea, go ahead and buy that instead. Be flexible on gifts, but stick to your target spending amount for each person.

Many people make better shopping choices, and stick to a spending limit more effectively, when they carry and use cash. So, try using cash or debit for all your bricks and mortar shopping, saving your credit cards for online shopping.

Set firm limits for your credit card spending and stick to them. Write down every credit card purchase, so you know how much you are spending.

Declare victory when you’re done

When you have bought something for everyone on your list, stop shopping. Congratulate yourself because you found some great deals! Declare this shopping season a success and move on to planning meals and activities with family or friends.

To make it easier to stop shopping, talk with your friends and family before the holidays. Set comfortable spending limits on gifts for each other, so that gift giving is not a burden for anyone.

While it’s fun to give and receive gifts, there are other rewarding ways to celebrate the holidays

  • Invite people to join you for a holiday meal
  • Ring a bell for the Salvation Army
  • Donate to St. Joe’s Food Pantry, Goodwill or another local charity
  • Help someone with holiday decorations or baking
  • Share a favorite play or performance
  • Surprise a friend with an encouraging gift

What do you enjoy most about the holidays? What are some of your fondest memories? Don’t feel that you must spend a gazillion dollars to show you care. Spend your time, money and energy doing what matters most to you. 

 

Wednesday, 27 September 2017 02:09

Four simple ways to boost financial wellness

How healthy are your finances? The Center for Financial Services Innovation recently reported that 56 percent of American workers are financially unhealthy. A survey by the American Psychological Association (APA) identified some causes of financial stress including dealing with unexpected expenses, paying for essentials and saving for retirement.

Stress can leave people feeling irritable, anxious and overwhelmed. In the 2015 APA survey, 51 percent of the women surveyed said they had lain awake at night due to stress.

1. Rainy day fund

One proven way to relieve financial stress is to have money saved for the proverbial “rainy day.” Rainy days can come in many ways. A twisted ankle or nagging illness can trigger high co-pays and deductibles. Your car may start hissing like an alley cat instead of purring contentedly. Or your dentist may say, “It’s time for you to wear a crown” — only it’s not for the top of your head!

Experts recommend having three to six months of living expenses saved for emergencies. It takes time to save such a large amount. For a pain-free way to save automatically, ask your bank or credit union to set up an automatic transfer from your checking account to a separate savings account.

For example, on the 15th of each month, Lisa has $100 automatically transferred from her checking account to her emergency savings account. She is treating this just like she’s paying an important bill, and it is important, because it helps her be prepared and have peace of mind.

2. Plan to play

Financial wellness includes planning to spend money on playing and having fun. Surprised? We’re all busy. We need time to play and re-charge. For your long-term mental health, plan to spend an amount that’s appropriate for you on entertainment and vacations.

3. Have a spending plan

How much can you afford to spend on vacations and entertainment? A simple budget or “spending plan” earmarks money for necessities like housing and transportation, helps you save for your dreams and identifies what you can comfortably spend on entertainment.

Investing some time creating a spending plan offers huge rewards for your family’s future and your peace of mind. A financial coach can help you review your finances and develop a balanced spending plan that fits your life.

4. Financial check up

You know it’s wise to have an annual medical checkup. It’s also smart to have an annual financial checkup.

Summarizing your net worth is a key part of a financial checkup. Write down your assets, including your checking account balance, savings, 401(k) and IRA balances and fair market value of assets like a home and cars. Also list your debts, including car loans, mortgages, credit cards and student loans.

When you subtract your debts from your assets that is your net worth. The goal is to build up assets and pay down debt. If your debts are growing and your assets are dragging, don’t ignore that financial warning sign. (For a blank net worth worksheet and an example of a completed worksheet, visit https://www.fisc-cccs.org/resources/.)

Build financial security and peace of mind

A financial counselor or coach can help you discover ways to fine tune your finances, build financial security and increase your peace of mind. A few simple steps can often make a dramatic difference. 

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