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October 2022
AuthorJeff Venables is a Christ-follower, husband, father, high school chemistry teacher, Dave Ramsey certified financial coach, runner, and blogger. |
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How to Help your Kids Win With Money10/1/2021 There are many things that you can do as a parent to set your children up for a successful financial future. Children need to learn their money habits somewhere, so I believe that parents should be the primary teachers in this area. While I am a teacher who tries my best to include some financial education in my chemistry classes, we cannot count on our schools and teachers to provide this education for every child. So, here are a few ideas to get started in this area:
1. Be a good role model, and pull back the curtain (a little). Our children learn at least as much from what we do as from what we say. Model good financial habits for your children. Stay out of debt, save and give faithfully, and pay all your bills on time. Most importantly - SPEND LESS THAN YOU EARN! And, at the appropriate times, let your children in on how you do things. They don't need to know all of the ins and outs of the budget, but it won't hurt to let them know how the budgeting and bill-paying processes are done. 2. Help them budget. The tried and true method of 3 jars (or envelopes) would be a great place to start. One is for spending, one for saving, and one for giving. Every time your child earns money (whether inside or outside the home), they should put some money in each jar. Help them figure out their spending priorities, their saving priorities, and their giving priorities. Then show them how to execute all three. 3. Establish a 529 account. a 529 account is a tax-favored savings/investment vehicle to save for your children's education (private school or college). The best way to do this is little by little over time. Start when they are born (or shortly thereafter). Do you have a teenager? Start now. The money in a 529 grows tax-free. As long as the money is used for qualified educational expenses, the withdrawals are not subject to tax. If your child does not use all of the money for education, you can change the beneficiary to another child, or withdraw the money with a penalty. 4. Help their credit score. You can add a child as an authorized user on one of your credit cards as a teenager. And, you don't have to tell them or give them a card. But, adding them this way begins to establish credit for them. When they are a little older, put their cell phone bill in their own name. Paying bills on time establishes credit as well. 5. OPEN A ROTH IRA FOR YOUR CHILDREN. As soon as your child has earned income, you can contribute to a Roth IRA in his/her name. You can open it sooner, so that it is ready for contributions when they start earning money. Why a Roth IRA? It is the best tax-advantaged account that the government has authorized. And, the longer you have money in a Roth IRA (let's say from age 15 to age 65 - that is a long time), the better the tax advantages are! All of the money in a Roth IRA is withdrawn tax-free after the age of 59 1/2. You can contribute up to 100% of your child's earned income each year or $6,000, whichever is less. You can do the same for yourself, but this post is about your kids. Certainly, there are other things that you can do, but teaching your children the right way to handle money and jump-starting their credit history and investments are a great way to set them on the path to winning with their money!
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How Many Credit Cards do I need?5/1/2021 As a financial coach, one of my top priorities is to help people eliminate and avoid debt. There is no "good debt." Credit cards, car loans, student loans, and even home mortgages, should all be paid off as quickly as possible. Once you pay off a credit card, cut it up and cancel the account. In fact, cut it up now, even if it is not paid off. You will never get it paid off if you keep using it. Remove it from your Apple Pay, Google Pay, or any other digital "Pay" app. The first step to getting out of debt is to stop accumulating debt. Don't borrow money. Don't use the credit card. Close the accounts. Don't open new ones. And then freeze your credit at TransUnion, Experian, and Equifax.
Is there a situation when you should have a credit card? Ideally, if you are out of debt and have a fully funded emergency fund, then there is no reason to have a credit card at all. But some people like to have one to swipe when they check into a hotel, for example (they will put a hold on a debit card that will freeze some of the money in your checking account). So, if you feel you must have one, then have one. But no more than one. Make sure it has no annual fee, and do not carry it in your wallet. Nobody needs that temptation. Some people like to purchase certain items (groceries, gas) with a credit card (for convenience or cash back rewards) and they pay it off every month. As long as you stick to a budget and remained disciplined, that is fine. But, it can be the beginning of a slippery slope, especially if you have a history of accumulating debt. So, my recommendation would be not to use it, ever. And when you are out of debt with a fully funded emergency fund, cancel all of the cards. You will be glad you did!
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Who Needs An Emergency Fund?4/1/2021 Everyone.
This could be the shortest post ever. But let me explain a little further. There is an excellent chance that you will have an emergency that will require money to cover. If you don't have an emergency fund, then chances are that your emergency will cause economic distress. You will either have to go into debt or draw from your savings or investments that are designated for other purposes. The sole purpose of the emergency fund is to protect ourselves from either of those potential situations. What qualifies as an emergency? There are the usual things - car problems, leaking roof or other house situation, an illness or injury to yourself or a family member, just to name a few. Or, suppose there is a pandemic and your job is eliminated, either temporarily or permanently. Depending on your field, the possibility of downsizing, layoffs, or furloughs always exists. We need an emergency fund to cover the shortfall if any of these things should happen. How much should be in the emergency fund? We recommend 3-6 months of expenses. Does that mean 3-6 months of income? Hopefully not - if you experience an emergency, you will likely change your lifestyle (temporarily), and trim the budget significantly. You should not be spending your entire income, anyway. So, depending on your situation, decide how much it would take to survive 3-6 months on a shoestring budget in the case of an emergency. Should the emergency fund be invested? NO - this money should be liquid. It should be in a savings account or money market account. The last thing anyone needs is an emergency in a down market that would require us to take a loss by selling shares of a stock or mutual fund at the wrong time. Keep this money is a low-risk (and therefore low-return) account that is readily and quickly available. The purpose of this money is not wealth-building. It is to protect the other money (in mutual funds) so that you won't have to touch it in the event of an emergency. Some people even like to open an account at a different bank than their "regular" checking and savings account, so that they won't be tempted to access the funds during a non-emergency. When you have an emergency fund, an emergency is just a temporary situation that you can weather. Without the emergency fund, that emergency becomes a financial crisis on top of the emergency. Let's avoid that and fully fund that emergency fund today! Do you need help with this and/or other financial issues? Schedule a consultation and see if a financial coach is the answer!
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When and How to Retire3/1/2021
, When should you retire? 62? 65? I know some people who plan to work until the morning of their funerals. I know others who would retire yesterday if they could afford it. Chris Hogan says that retirement is not an age, it is a financial number. But, what exactly is that number? Well, the short answer is that it depends. The bottom line is this - you need to be sure that your retirement income covers your retirement expenses. Sounds simple, right? Well, the more you have saved and the less you owe, the closer you are to retirement. So, create a "retirement budget." How much will your expenses be? Don't forget about expenses like healthcare. Next, determine your retirement income. Will you receive a pension? How much is in your IRA, 401k, or other savings accounts? How long does it need to last? Will Social Security be part of the equation? Hopefully, it is not the entire plan, because a government that cannot balance its own budget should not be counted on to take care of its citizens when they retire. Are you there yet? I am 48 years old, and I know my number. And it is closer than one might imagine. Do you need help figuring out your number? You can try the calculator below from Calculator Soup. Are you interested in one-on-one coaching to help with your plan, or with any other aspect of your finances? Click here to schedule a complimentary consultation with a financial coach.
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Plan or Fail2/1/2021 "If you fail to plan, you are planning to fail." Have you heard this saying? It has been attributed to Benjamin Franklin. I have found this to be true in so many aspects of my life. I am in my 26th year of teaching high school chemistry. When I fail to plan for my students, I am planning to fail them. It also proved to be true when I am coaching sports, completing home improvement projects, implementing a plan for personal health and fitness, or working my financial plan. If you don't have a plan for your money, you will find yourself wondering where it all went every month. How do I know? Because I have been there. This is why everyone should prepare a written household budget. Every month. When I finally started creating a written budget - every single month - I turned the corner with money. This happened for me 8 years ago. It was amazing. It was like getting a raise. I have never stopped. I have a budget every single month. It was hard at first. My first couple budgets were terrible failures. I spent more on food and less on clothes than I planned. I ran out of money before I ran What did I do? I made adjustments the next month. It is not going to be perfect at first. Give yourself permission to fail, but only so that you can later succeed. Zig Ziglar said, "Anything worth doing is worth doing poorly until you learn to do it well." I recommend a zero-based budget. The concept is simple - the amount of money going out equals the amount of money coming in. I am a spreadsheet guy - if you are like me, try this free download from Smartsheet. If you are not into spreadsheets, just write it down on a piece of paper. Start with your take-home pay. Then, write down everything you spend money on. I like to start with giving (church, charities, etc.), then the essentials (house payment, utility bills, transportation costs, food), savings, debt, and other expenses. The first couple of months can be really eye-opening. Give it a try! Do you need help with this and/or other financial issues? Schedule a consultation and see if a financial coach is the answer!
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Risk Avoidance1/1/2021 The beginning of the new year is a great time to take a look at the risks you take. Insurance represents the transfer of certain risks from ourselves to someone else. There are some types of insurance policies that we must have, others that are good to have, and others that are not necessary. Now that it is a new year, let's do a quick insurance check-up!
Here we will cover the must-have insurance policies. If you own a home, you need to have homeowner's insurance. The best way to make sure you are covered is to opt for guaranteed replacement cost. That way, if your home is completely lost, the insurance will cover rebuilding your home. Most homeowner's policies do not cover flood, so consider adding flood coverage. If you do not own your home, you should have renter's insurance. The owner of the home in which you live has insurance to protect their investment, but it rarely covers your belongings. So, you should purchase a renter's policy to cover your belongings in the event of fire or other disaster - it is relatively inexpensive. Next is auto insurance - if you drive a car, you are required to have insurance. Everyone carries liability coverage, but you can decide, based on the age and value of your car, whether to carry collision or comprehensive coverage. Liability coverage covers other people's property and injuries in the event that you are responsible for them in a wreck. Don't be cheap here - carry enough coverage to prevent you from losing everything if you are sued. Collision covers damage your vehicle in the event of a wreck that is your fault, and comprehensive covers damage to your vehicle from other events, such as a storm, falling debris, theft, or vandalism. You can experiment with different deductibles to determine how they affect your premiums. If you have a fully funded emergency fund, you may be willing to choose higher deductibles to lower your monthly costs. Life insurance provides your loved ones with income to replace your income in the event of your death. It is recommended that you have 10-12 times your annual income in life insurance. I only recommend term life insurance, not anything that includes any kind of cash value. We should separate insurance from investing, not try to combine the two. If you are a stay-at-home parent, you should still have life insurance. Your job adds significant value to the household, and that value should be protected with a life insurance policy. If the value of your investments becomes great enough to cover 10-12 times your annual income, then you are considered self-insured, and can consider dropping life insurance. Health insurance is a must. The leading cause of bankruptcy in America is medical bills. The two major types of health insurance are HMO (Health Maintenance Organization) and PPO (Preferred Provider Organization). Depending on your family's situation and overall health, you can consider an HMO, PPO, HSA (Health Savings Account, which can accompany high-deductible insurance policies), or even a health sharing plan. Choose the highest deductible you can afford based on your emergency fund. Disability Insurance replaces your income in the event you become disabled and cannot work. In general, you should consider a long-term disability policy that covers 65% of your income, and pay for it with after-tax dollars so that you will not be taxed on the income in the event that you need to file a claim. If you have an emergency fund, short-term disability insurance is not necessary, and you can choose a longer waiting period for your long-term disability policy, which will reduce premiums. Identity Theft Insurance protects individuals from becoming victims of identity theft, and helps individuals restore their credit. This is technically not insurance, but it fits my earlier definition of transferring risk, so I am including it here. The restoration process can take hundreds of hours (another full-time job), so consider a plan that includes restoration services. Long-Term Care insurance covers the cost of a nursing home, an assisted living facility, and in-home care. It’s a must for people age 60 and older. Individuals must have it in place before they need care and pay the scheduled premiums until they actually need care (so the policy isn’t invalidated). It’s expensive insurance, but it isn’t nearly as expensive as the cost of long-term care, which can easily drain an individual’s savings and wipe out their estate. There are other types of insurance policies, such as cancer, emergency accident, and critical illness, but we don't recommend them if you have a fully-funded emergency fund. There are so many choices out there - don't let it all confuse you. Find a trusted independent insurance broker who will help you shop policies. Zander Insurance is recommended by Dave Ramsey. If you would like help with a check-up on your family's insurance policies, or any other personal financial issues, schedule a complimentary consultation with us today!
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Crush that Debt!12/1/2020 Debt = Bad. We advocate paying off all debt as quickly as possible and avoiding borrowing ever again. The reason that paying off debt is the second baby step in Dave Ramsey’s Financial Peace is that debt will prevent you from doing all the other things to win with money. Debt robs you of your future. Maybe your debts seem overwhelming. Is there a way to pay it all off? Yes. There are two basic approaches that many people have found to work successfully to pay off debt. Both will work, and both will require some sacrifice and determination. Neither is a “magic bullet.” These two approaches are the Debt Avalanche and the Debt Snowball. Let’s start with the debt snowball. List all of your debts based on the total balance owed. Start with the smallest. You should make a list, showing the name of the debt, balance owed, and minimum payment. It might look like this: As long as you can afford it, you need to make the minimum payments on all of the debts. Let’s say you do your monthly budget, find ways to save by cutting out cable TV and reducing eating out (just examples), and that leaves $1250 in the budget to pay debt. First step, don’t use the credit cards – ever again! Make all the minimum payments, and pay the extra $335.05 on the car loan. Do this until the car loan is paid off, then cross if off the list. Now, take the $619.61 that you were paying on the car loan, and add it to the $146.78 minimum payment on the VISA card. This is called a snowball because you are gaining momentum and making larger payments as you pay off debts. Once the VISA is paid off, roll that payment into the MasterCard payment. Then, once that is paid off, the entire $1250 is paid monthly towards the student loan. Of course, if you have any “found money” along the way, you should use it as an additional payment towards whichever debt you are paying. The biggest strength of the debt snowball approach is the psychological advantage of seeing progress and staying encouraged as you pay off the debt. Now, let’s look at the Debt Avalanche. This is the more solid mathematical approach to paying off your debt while minimizing interest paid. But, it lacks the psychological advantage of seeing entire loans/credit cards get crossed off the list quickly. We will list all of the debts again, but this time, we will list them from highest interest rate to lowest. We attack the debt with the highest interest rate first. If we take the same debts for the same family, it may look like this: So, we essentially do the same thing we did for the debt snowball, in that we make all minimum payments, find money in the budget to make an extra payment, and pay off one debt first. But, instead of starting with the lowest balance, we start with the highest interest rate. So, the extra $335.05 in our budget goes towards the MasterCard until it is paid off. Then we roll the $335.05 and $186.61 into the payment on the VISA card, and so on. This approach will make the total amount you pay to get out of debt less than the debt snowball, because you are getting rid of the highest interest payments first.
We often hear that this is a no-brainer – the debt avalanche is the better approach. Mathematically, this is true. But, as Dave Ramsey says, if we were that good at math, we wouldn’t be in this situation to begin with. Debt is often a psychology/behavior issue. So, the advantage of the debt snowball is that you can see progress faster, and seeing progress often keeps us motivated. To wrap up, you can use either the debt avalanche or the debt snowball – both approaches are proven to work to get you out of debt. But you have to be committed to getting out of debt, and to staying out of debt, in order to win with money. If you can sell some stuff along the way, do it. Use the money to accelerate your progress towards being debt-free. Do you need someone to help? Schedule a consultation with one of our coaches today. Our coaches will help you come up with a plan, not just for getting out of debt, but for continuing your journey of winning with money! |