Getting on-top of your finances – Where to start

The best time to get on-top of your finance is any time, really, but people are most motivated at the beginning of a new year.  So here is a step-by-step guide for those of you who’ve made getting on-top of your finances one of your 2016 goals but don’t really know where to start:

Step 1)  If you’re working and have a 401(k), find out if your company has a 401(k) employer match and make sure you are contributing at least up to the match.  If they match up to 3% of your salary, then start contributing 3% of your salary to your 401(k).  The reason this is step 1 is because this is FREE money you’re leaving on the table.  Side note: It helps to know your company’s vesting schedule.

Step 2)  This step can actually be done in conjunction with Step 1.  Find out if your company has a Roth 401(k) option.  If they do, get it set up and start contributing to your Roth 401(k) instead of your regular 401(k) UNLESS your company doesn’t match Roth contributions.  In that case, contribute to your regular 401(k) first (up to the match) and then the rest into your Roth 401(k).  Reasons why a Roth is usually better for millennials can be found here.

Step 3)  Pay Yourself First

Step 4)  Pay Your Credit Card Balance Every Week

Step 5)  Track Your Spending

If you’re already doing all 5, congratulations!  You’re already way ahead of the game.  I’ll cover some more advance stuff another time like investments and insurance.

Happy New Year!


Guest Post #3 from Aaron – Holiday MBTI x Love Languages

Today we have another guest post from Aaron!  He analyzes two of my favorite topics (personality types and love languages!) and provides some interesting insights that are good to keep in mind as the season of shopping is upon us.  Don’t forget to also check out his first and second guest post if you haven’t already.

From Aaron:

Recently Heidi Priebe conducted a survey that asked for participants’ personality types and love languages and found the top love language for each personality type. This article has been making its rounds through social media, and with good reason; the Myers Brigg’s Type Indicator is very popular and the more recent “Love Languages” has been gaining ground.  It’s interesting to see people begin indicating their MBTI in lieu of their horoscope on dating sites. If you don’t know your personality type, you can discover yours with these 64 questions. You can find your love language(s) here.

I took things a step further.

I placed all the results side by side, heat mapped it by personality type and by love language, and searched for correlations and outliers. I began wondering if the population in general leans in a certain direction so I added in % of population for each category.  MBTI population numbers are pulled from the authoritative CAPT.  Love language data was more dispersed, but every poll I found in general had Quality Time at the top, followed by Words of Affirmation, Physical Touch, and Acts of Service in a close middle, and Receiving Gifts at the bottom.

Take a look!

Chart

 

Data

 

Takeaways

 

Artisans have the most extremes. Expressive in their own way.  _S_Ps show up multiple times in the Takeaways.  

I tried slicing and dicing by, for example, all Es, or all INs, but that didn’t give me anything insightful. If you like, feel free to play with the data here.

The biggest takeaway is that it’s ironic that our hyper materialistic society appreciates gifts the least.  Perhaps this is just another telltale sign that Americans overemphasize our careers and wealth. The illusion that if we can simply buy ourselves and others enough gifts we will have loved and felt loved is complete farce. Or is it simply that humans innately require relationships and physical touch? Everyone is so busy these days and we all have so little time.  It’s been often said that with the internet and our smartphones we’re all more connected than ever, but at the same time, more lonely than ever.  Does “feeling lonely in a crowded room” strike a chord?  In this age where we set up dinners a month in advance lest everyone is booked, and a few button clicks gets our Christmas shopping done, gifts, and even acts of service where there is an app for everything from doing your laundry to filling up your gas, are cheap. We all gravitate towards that which the internet and our electronics have stolen away from us and aren’t able to provide, even through instant messaging and video chat–constructive face to face time where we truly connect with one another and affirm our care for each other, sealed with a hug when we say goodbye.  So next time you want to love on someone, simply take a moment, put your phone away, break from outside distractions, and tell them you care.  But if you’re dealing with an ISTP, pick up a coffee for them and give them a hug. =]

Remember what the true meaning of Christmas is. It’s not about gifts, it’s about the relationships: friends, family, and God’s gift of Jesus so we might have a relationship with him.

Merry Christmas everyone.

 


Medicare – A Quick Breakdown

Since medicare open enrollment is quickly approaching (October 15th), I thought now would be a good time to start talking about it.  I know most of us aren’t even close to being eligible for medicare (age 65).  But our parents might be and if they’re not sure how to navigate the system, it’d be nice if we were informed enough to help them.

So, first things first.  Did you know that Medicare has multiple parts that cover different things?  I didn’t, up until a few years ago.

Here’s a quick breakdown of all the different parts and what they cover.

Part A – Hospital Insurance (hospital bills)

  • Home health care
  • Hospice care
  • Inpatient hospital care (meals, hospital room, nursing services)

Part B – Medical Insurance (doctors’ bills)

  • Physician care
  • Laboratory tests
  • Physical therapy
  • Rehabilitation services
  • Preventative services
  • Annual check-up

Parts A & B make up “Original Medicare.”

Part C – Medicare Advantage*

  • Medicare-covered services available through private health plans, such as HMOs,
    PPOs, and private fee for service plans

Medigap – Supplemental Insurance*

  • Pays for things that Parts A & B won’t cover:
    • Deductibles
    • Co-payments
    • Anything beyond what the doctor has agreed upon with Medicare

*You can have Part C or Medigap but NOT both!  Medigap is the more popular choice.

Part D – Prescription Plan (medication)

  • Prescription drugs

This is just a very brief intro to Medicare.  Eventually I’ll cover topics like when you’ll need to enroll in Medicare, the different Medigap plans available and how to find the best Medigap and Part D plan for you.


Money Saving Tip – Wedding Edition

I got engaged exactly 2 months ago (April 19th) and being the avid planner that I am, I’ve already booked our venue, our engagement and wedding photographers, our DJ/MC, a photo booth and my wedding day hair stylist and make-up artist.

Booking all these vendors has taught me a lot about patience and negotiating.  For those of you reading and not planning a wedding anytime soon, I’m sure these tips can be applied for booking vendors for any occasion (birthdays, anniversaries, corporate events, etc.).

Tip #1 – Get Multiple Estimates

My fiancé and I checked out 7 venues before booking one.  Between the cheapest venue and the most expensive venue was over a $10,000 difference.  Our first choice venue gave us the most expensive estimate, which was way more than what we were willing to pay.  We did a little bit of negotiating within the first few days of meeting their event coordinator and knocked a few hundred dollars off the top right away.  But the biggest win came when we told them what our second choice venue was offering us for food & beverage (after negotiating with them a bit, too).  Once our first choice venue had that information, they gave us a better counter offer the next day, making them the clear winner.  This gave us an instant savings of thousands of dollars.

The same thing happened when we booked all our other vendors.  And even when our first choice vendor couldn’t beat our second choice’s offer, they still ended up offering us a better deal than what they started with.

Keep in mind that if you’re going to use estimates from different vendors as leverage, the vendors have to be comparable.  For instance, our first and second choice venues were in the same city (literally across the street from one another) and offered the same type of food.  You can’t ask for filet mignon at one location and then chicken at another location and expect the first location to match or beat the price.

Tip #2 – Be Patient

Ever hear that quote, “he who speaks first, loses”?  This is definitely true when it comes to negotiating with vendors.  You’re basically playing a game of “who wants this to work out more?”  If you contact them right after they’ve given you an estimate, they’ll think you really want them and be less willing to negotiate.  Even if you’re willing to pay their initial asking price, play it cool if you want to save any money.  Wait for them to reach out to you a second time or tell them you need more time to think about it.  If saving money is not as important as guaranteeing this particular vendor, feel free to book them right away.  FYI, we’ve had multiple vendors tell us that they can only give us a discount if we book them right away or that another party is interested in booking them for our date… whether that’s true or just a sales tactic, by delaying our response for an extra few days, almost every one of our vendors lowered their price a little more before we signed the contract.

Tip #3 – Consider Swap Meets and Cheap Retailers for Your Attire

If you look for dresses specifically under the “bridesmaid” category, they’ll always be more expensive (like at here and here).  But if you look for maxi dresses at your favorite cheap retailer, you could find a bridesmaid dress for a lot less.  Another option is going to a local swap meet.  That’s where I plan on getting my bridesmaid dresses this weekend.  I’m still deciding between 3 options but all of them are under $100 and look just as nice as the dresses that cost $200-$300.


Life Insurance: Permanent (Whole Life) vs. Term

Most people could benefit from having life insurance.  In a previous post, I covered a few scenarios like if you have young children, a mortgage, etc. where life insurance is probably needed, even if you’re a millennial just starting out in your career.

There are so many different types of life insurance options that it’s easy to feel confused on which policy would be the best fit for you.  And if you ask an insurance agent, there is a very high chance they will recommend you get a permanent (also known as whole-life) policy because it’s the most expensive and they will get the most commission.  The biggest hook they use to lure you into buying permanent insurance is the cash value savings component.  They’ll tell you that in addition to buying life insurance that never expires (unlike term insurance, which will expire), you are also building up a savings account.

However, besides the the big commission they get from a permanent life insurance sale, here are few other considerations insurance agents might conveniently leave out:

1)  You might not really need life insurance.  Life insurance is for protecting your dependents so that when your income is lost, the death benefit (amount your beneficiaries would receive when you pass) will allow them to maintain their lifestyle or at least it’d alleviate some of the financial burden while they adjust.  But if you’re single with no kids or parents who depend on you and you don’t have any large debt that needs to be paid off, then you don’t have much of a need for life insurance.  It’d be like getting car insurance when you don’t drive.

2)  Term insurance might be better for your cash flow needs.  Let’s just say you buy a term policy with a $500,000 death benefit, it might cost you as little as $17 a month.  But for a permanent policy with the exact same death benefit, it might cost you something closer to $400 a month.  A lot of us millennials need that extra $383 for other financial priorities (paying off student loans, saving for retirement, building an emergency fund, etc.).

3)  Investing the difference between the cost of term and permanent insurance gives you more savings in the long run.  There is a popular saying that goes “buy term and invest the difference.”  Using the example from above, you would buy the term insurance for $17 and invest the difference ($400-$17 = $383).  Chances are, if you invest the difference in the stock market, you will end up with more money than if you had “saved” it in a permanent life insurance policy.  This will, of course, heavily depend on what investments you select.

If all that was confusing, here is a shortcut: Term insurance is most likely better for you than permanent insurance if…

  • you have student loans or credit card debt
  • you’re not saving a lot (or at all) for retirement
  • you don’t have an emergency fund
  • you have large expenses coming up (wedding, car purchase, home purchase, a baby on the way, etc.)

Lessons Learned from Filing My 2013 Tax Return

The following post was drafted back in October but never published because it needed editing, which I didn’t get to till now…

***

I filed my 2013 tax return today.

The 24 hours leading up to me going to the post office was very dramatic and overwhelming.  I’ll spare you the details and just get to the lessons I learned:

1.  Your Tax Return is YOUR Responsibility

Ever since I started working and paying taxes, I relied on my mom to do my taxes for me.  She would get together with our CPA for a day or two and all I had to do was sign the bottom of my 1040 once it was complete.  This year was different.  In April, when tax returns were due, my mom was busy preparing for an out-of-country trip and didn’t have time to get it done so we filed for an extension.  Long story short, my tax return wasn’t ready until this morning, the LAST day of the extension.  I’m not a last minute person so I was in a panicked mess these last 2 days.  I wanted to blame my CPA for all the mistakes that were made/overlooked.  I wanted to blame my mom for not getting together with him sooner.  But at the end of the day, my tax return is ultimately my responsibility and I could’ve been more proactive and taken the time to get all the documents together myself.

2.  Save Your Tax Documents As You Go

When my coworker pointed out all the deductions that were missed, I scrambled to find all the necessary paper work to fill in those gaps: receipts, bank statements, etc.  If I had saved those documents as they were accrued, it would have saved me so much time and hassle.

3.  IRA & 401k Contribution Deadlines

Sadly, I realized on April 16th that you have to make your IRA and 401(k) contributions by April 15th to count for the previous tax year.  So in order for my IRA contribution to count towards my 2013 tax return, I had to have made the contribution by April 15th of 2014.  Just because you can file for an extension to complete your tax return, it does NOT mean you can get an extension on your contribution deadline.  I missed out on a key opportunity to lower my taxes.

4.  Make Sure You Are Withholding Enough

I wasn’t withholding enough of my paycheck and was slapped with a bunch of penalties, fees and interest.  You can estimate if you’re withholding enough using this calculator.

***

I started working on my 2014 tax return a few weeks ago and feel much more prepared this time around!


Good Personal Finance Reads

When Judging Financial Advisers, Look Beyond the Annual Return (NY Times) – Great article on why returns aren’t everything when it comes to selecting a financial adviser.

When Bread Bags Weren’t Funny (Bloomberg View) – I stumbled upon this article through Becoming Minimalist.  In his comment about the article, he wrote “perspective”.  I couldn’t have said it better myself.

Debt After Death – Are You Responsible? (Wealth Pilgrim) – When are you responsible for someone else’s debt after they’ve passed away?  This article answers that question really well.

6 Easy Moves to Make in Your 30s That Will Pay Off Huge Later On (Time) – This article was sent to me by a friend.  It provides some solid financial advice for us millennials.


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