Organize Your Financial Life With This Money Road Map

The following post is by MPFJ staff writer, Melissa Batai. Melissa is a freelance writer who covers topics ranging from personal finance to business to organics to food.  She blogs at Mom’s Plans, where she shares her family’s journey to healthier living and paying down debt.

Are your finances in the shape you’d like them to be?  Or, are they a disaster that you’d like to clean up as soon as possible?

If they’re a disaster, first know that you’re not alone.  Many, many people find themselves in a financial mess at some point in their lives.  There are a number of steps that you can take to strengthen your financial life and make yourself and your family more secure.  Here are the steps that I recommend you take in this order:

 

Put two to three months’ expenses in an emergency fund

If you’re a fan of Dave Ramsey, you know that he advocates a $1,000 emergency fund and then attacking debt.  My husband and I used to follow this approach, but then we ended up with emergencies bigger than $1,000, and we’d have to go back into debt to pay them.

I’d recommend instead that you first save two to three months’ of expenses, and then start paying down your debt.  That way, if you run into unexpected expenses, you can tackle them without going further into debt and erasing the progress you’ve made on paying down the debt.  (Seriously, nothing is more depressing than working hard for months to pay down your debt just to watch all of your progress disappear with one car repair or home repair.)

 

Pay down all of your debt except your mortgage

Once you have the two to three-month emergency fund, it’s time to pay down your debt.  I’d recommend paying off credit cards first, then car loans, then student loans.

While Dave Ramsey recommends using the debt snowball and paying off the lowest debt first, others have good luck paying down the highest interest debt first.  Which option is better depends on what motivates you.  Are you motivated by seeing the debts disappear one by one, or are you motivated by knowing that less money is being paid to interest each month?  Ultimately, your motivation will be what helps you through the sometimes long, painful process of paying down debt, so pick the method that works best for you.

 

If you use your credit card, pay it off each month

Credit cards can be a great tool if you use them responsibly.  If you have a cash back or airline points feature, you can even earn money for using your credit card.  The key is to pay it off each month.  If you can’t do so, it’s time to retrain yourself and start using cash or a debit card.  Once you get better control of your spending, you can start using the credit card again and reaping the rewards.

Credit cards can be a great tool if you use them responsibly.  If you have a cash back or airline points feature, you can even earn money for using your credit card.  The key is to pay it off each month.  If you can’t do so, it’s time to retrain yourself and start using cash or a debit card.  Once you get better control of your spending, you can start using the credit card again and reaping the rewards.

 

Contribute 10% of your income to your retirement fund

When you’re in the midst of financial difficulties, it’s hard to plan for the future, but if you want to be secure in the future, you must take steps now.  Ideally, you’ll want to save at least 10% of your income in a retirement fund with the eventual goal of getting that number up to 15%.  However, don’t feel intimidated by that amount.  Start slowly if you need to, and contribute just 1% of your income to your retirement fund for six months.  Then, slowly bump it up to 2 or 3% for six months.  Continue adding more every few months.  It takes

When you’re in the midst of financial difficulties, it’s hard to plan for the future, but if you want to be secure in the future, you must take steps now.  Ideally, you’ll want to save at least 10% of your income in a retirement fund with the eventual goal of getting that number up to 15%.  However, don’t feel intimidated by that amount.  Start slowly if you need to, and contribute just 1% of your income to your retirement fund for six months.  Then, slowly bump it up to 2 or 3% for six months.  Continue adding more every few months.  It takes time to get used to making retirement savings a priority.  As you develop the habit, you’ll be able to add more to your retirement savings until you get up to 10%.

 

Buy term life insurance

(Bump this step up if you have a family before you get to this point in your financial life.)  I was talking to a mom of four young kids recently.  She is a stay-at-home mom, and her husband is older than her; he’s in his fifties.  She was excitedly telling me about their new financial plan.  Each month, they set aside $100 in an emergency fund in case something happens to her husband.  That was their only plan if something happened to the sole breadwinner of the family.

I wanted to cry.  They have four young kids, she doesn’t work, and her husband is in his fifties, yet they have no life insurance!  While the money they’re setting aside is great, if her husband unexpectedly passed away, that money would quickly be consumed.

The family I’m referring to isn’t alone.  According to Fox Business, “Currently, 95 million Americans live without life insurance and only one-third of consumers are covered by individually-owned life policies.”

Term life insurance is relatively inexpensive, especially if you’re young and healthy.  While experts recommend you take out a policy for 10x your income, you can use an online calculator and talk to an expert to help you determine how much you actually need based on your life circumstances.

If you have dependents who rely on your income, you must make buying term life insurance a priority.  I would move this to the first step in this plan, even before creating a two to three-month emergency fund, if you have dependents.  Life insurance and the financial security it can bring your loved ones is that important.

 

Build an eight-month emergency fund

For ultimate security, you’ll want to bulk up your emergency fund once your debt is paid off, you’re adding to your retirement regularly, and you have term life insurance.   Some experts recommend an eight to twelve-month emergency fund, but start with an eight-month emergency fund first.  This money will be essential if you unexpectedly lose your job or suffer an injury.

Remember, when you’re measuring a month’s worth of expenses, you want to consider the essentials.  If you were suddenly laid off, you’d probably cut non-essentials like eating out and buying new clothes.  Base a month’s worth of savings on how much money you’d need to pay the essentials.  While your current monthly expenses may be $5,000 a month, you may find if you cut non-essential line items, your expenses drop down to $3,800 a month.  The latter amount should be the amount that you consider a month’s worth of expenses.

 

Pay off your house

When all the steps above have been achieved, it’s time for the biggie—pay off your house.  While some people prefer to pay off their house right on schedule thanks to low mortgage interest rates, why not pay it off if you’re otherwise financially secure?  Think what you could do with that extra money in your budget each month if you didn’t have to pay your mortgage payment?  You could invest it, give to charity, travel the world.  Once the house is paid off and you’ve completed all of the steps above, you’re truly financially free.

The best way to become financially secure is to create a map for yourself with financial goals that you want to achieve.  While the steps above may take as little as 10 years to complete (depending on your current financial situation), or as long as thirty years or more, the point is that you have a plan that you’re following.  It’s imperative that you’re continually making financial progress throughout the years rather than squandering money and going through life without a plan to guide you on your journey.

What do you think?  Do you agree with these financial steps, or would you rearrange them?  If so, what order would you put them in?

***Photo courtesy of http://www.idpinthat.com/edit/4335

How to Help Your Kids Develop Respect for Money

The following post is by MPFJ staff writer, Laurie Blank.  Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.

The debt train is gaining speed in America, as shown by this article on Bloomberg’s website. It seems as if consumers’ love affair with living beyond their means is far from over. Part of the problem – in my humble opinion – is the lack of personal finance education in the lives of children, whether by their parents or their education system. How can we as parents help our kids to understand and value money so that they don’t head the way of so many who are deep in debt?

 

How to Teach Kids to Value and Respect Money

There are many different facets involved with teaching kids respect for money. Teaching them how to budget is one of them, but that doesn’t begin to touch the tip of the iceberg in today’s instant gratification world. Here are some ways you can help your kids understand and respect the role of money in life.

 

Teach Them about Emotions and Money

So much of overspending is rooted in the training we receive from media. Commercials show us that if we wear these shoes, drink this beer, drive this car or vacation at this exotic place we’ll be living the good life. They show happy, smiling people with perfect bodies and perfect tans, and seemingly with no troubles in life. The goal they have is to get us to spend money on their products.

We get the same messages in real life. We’re encouraged by our family, our friends, our fellow employees and our community to keep up with the Joneses. People question us when we drive older cars or live in a smaller house.

These messages tempt people to want to spend in order to impress others or make themselves happy, but most people know that the joy that comes with getting new and shiny stuff never lasts for very long. If we can teach our kids this truth, we can help them understand that true happiness comes from the inside out and not from the outside in, and help them avoid using money as a path to acceptance or happiness via ownership of “stuff”.

 

Teach Them the True Value of Money

The true value of money is rooted in freedom. When your debt load is non-existent – or at least super manageable – and you’ve got money in the bank, you have the freedom to make decisions based on other factors and not on whether or not you can afford it.

This means that you can take the lower paying job that you’ll like better, move to a different state or country, give to those in need when you feel like it or take a sabbatical from work in order to focus on yourself and/or your family.

If we can teach our kids that a healthy bank account balance and a lack of bondage to debtors equals true freedom and happiness, we can help them put potential purchases into perspective.

 

Teach Them How to Analyze Purchases

This goes along with emotions and money. It helps to teach kids to be able to analyze purchases before they make them. There are two main questions we can teach them to ask themselves before buying:

  1. What value will this purchase add to my life?
  2. Are there other things I want more than this purchase?

If the answer to either of these questions is more important that the purchase itself, that may be a sign that their money is better spent (or saved) somewhere else. Helping kids to work through the “whys” of a potential purchase will help them learn to avoid spontaneous spending that they’ll later regret.

 

Don’t Hand Them Money “Just Because”

Many parents these days give their kids money whenever they ask or buy them whatever they ask for at the store. When there’s no limit to money in a kid’s world, they’ll have a tough time developing respect for money – or for work.

In our house, the general rule is that we don’t buy them non-necessities unless it’s for birthday or Christmas presents. We also don’t give them money just because they ask or because they want to do something.

Instead, we help them figure out ways to earn money for the things they want. For instance, we have assigned chores that are done by each of our four children just because they’re a part of our family. We also have a separate list of chores they can do to earn money.

Just yesterday our second oldest asked how she could earn money to see a movie with a friend. I offered to pay her $2 for cleaning out the fridge and $5 for organizing my bedroom closet – both are jobs I’m not a big fan of doing. I got some needed tasks off my plate, and she earned $7 toward her movie excursion.

We’ve found that when our kids have to earn the money they get, they tend to be more cautious about how they spend it, and they also value more highly the items and experiences they get when they spend it.

 

Teach Them the Value of Spending, Saving and Giving

We basically have three choices with our money. We can spend it, save it or give it. All three choices have intrinsic value. Spending money on things that are important to us brings a sense of accomplishment as we fulfill our own needs and wants. Saving money teaches us discipline and helps us prepare a more secure future for ourselves. Giving helps us become detached from money and also helps us to realize the importance of helping others.

If we can teach our kids to balance the three choices they have with their own money, we can help them to develop a healthy respect for money.

Teaching kids to understand how to have a proper respect for money without idolizing it will help them prepare for a secure financial future that isn’t overshadowed by heavy debt payments.

How about you all? How do you teach your kids to respect money?

Share your experiences by commenting below! 

***Photo courtesy of https://www.flickr.com/photos/62030038@N02/8402437512/sizes/l

The Advantages of Using a Mortgage Broker over a Bank

The following is a guest post. Enjoy! 

Dana at Tundra Mortgage Brokers recently shared her opinion on the benefit of hiring a mortgage broker to help with a home loan, instead of going directly to a bank. Whether you’re a first time buyer, a property developer, or an investor; could you really benefit by turning to a broker when it comes to borrowing money?

In this post, we’ll be diving into the advantages of using a mortgage broker instead of applying to a bank directly – and just how much you could save by doing so.

The Potential to Compare Interest Rates

Have you ever actually sat down and tried to compile a list of the different rates offered by banks? Not only do most of those in Australia (and other parts of the world) propose varying rates depending on the type of loans available; there are also fixed and variable ones to consider, too. As you might imagine this process can be quite time consuming and this is actually something that mortgage brokers typically specialize in.

Most will offer effective interest rate comparison services to those in need – and if you hire a great one, you could be looking at a selection of options in the space of a couple of days (or less!)

Recognizing a Great Deal

What’s the one thing that most borrowers will want to make sure they do when applying for a loan? Keep their costs as low as possible, of course. There aren’t many mortgages that won’t go on for at least a decade (or three) and so finding a great deal can make a lot of difference to your future finances.

A good mortgage broker should be able to compare the varying terms and conditions proposed with specific loan packages and hone in on the best available on behalf of a client.

Taking the Stress Out of Applying

Another frequently overlooked advantage of hiring a broker is the fact that they can actually take care of the technicalities, to minimize the stress that you feel when applying for a home loan. As they’ll be the middle-person when dealing with a bank you will often be able to submit your documentation to them directly, so that it can be forwarded to your chosen bank.

This can make it easy for you to minimize the formal activities associated with applying for a mortgage and allow you to focus on what really matters; getting approval.

You might need to cover a small cost when hiring a brokering agency up front, although some are happy to offer their services free of charge to you for commission from a bank, but just imagine the long term financial savings that you could enjoy. For a relatively small fee at first, you could save yourself thousands of dollars by ensuring that you sign up to a cheaper deal than you would have when applying to a bank directly.

5 Ways To Start Investing With Less Than $1,000

The following is a guest post. Enjoy! 

There is a common misconception that you have to have thousands and thousands of dollars to start an investment portfolio, but that couldn’t be further from the truth. There are dozens of ways that you can start investing with $1,000 (or less). It’s important that you start investing for your future, but if you’ve never gotten in the investment waters, it can be a scary jump to make. Luckily, there are several simple ways that you can put your money to use.

 

Betterment

If you’re looking for a simple investment that you can make, without having to pour over different graphs and reports to decide which investment is the best option, then Betterment could be an excellent choice. Betterment is the better choice for anyone that is looking to set it and forget it.

With Betterment, all you have to do is create an account, set your goals, and start investing. After that, their robo-advisors will invest your money based on your risk preference and goals. They will even continue to reinvest your money as you make it, which means that all you have to do is sit back and watch your money grow. You can easily start investing with $1,000 and not have to worry about making the wrong choice for your money.

 

Motif

Maybe you want a little more control of how your money is invested, then Motif is another excellent option. Motif is an excellent website that allows you to purchase 30 stocks of companies that all revolve around the same idea. For example, you can buy 30 stocks in business that all deal with medical technology.

There are several advantages to Motif, but the most notable is that the trading fees are going to be drastically lower than any other brokerage that you’ll find. Motif allows you to invest in the industries that you want, without having to pay the massive fees.

 

Pay off Debt

Most people don’t see paying off debts as a form of investing, but it could be the best option for you $1,000. If you’ve got credit card bills or lingering student loans that have been hanging over your head, it’s vital that you pay those off as quickly as possible.

The amount of money that you’ll pay in interest will hinder the amount of money that you can invest. Use any extra money that you have to pay off those debts, then all the money that you save can be invested.

 

Save for College

If you have kids, you may not be thinking about sending them off to college yet, but that could be the perfect use for your extra dough. If you didn’t know, college is expensive. Very expensive. It’s important that you start saving as early as possible.

There are several ways that you can start saving for your children’s college, but the best way is to open up a 529 Plan. These are special accounts that you can put the money in, but you’ll get several tax advantages as long as you use the money for any college expenses.

 

Set it Aside for a Rainy Day

You never know when something is going to break or need replacing. If your water heater were to go out suddenly, or your car broke down, you probably wouldn’t have the money that you needed to pay for that bill, but setting aside the $1,000 is a simple way that you can invest in your future. That’s a great way to have a rainy day fund, which can prevent you from having to use a credit card for any sudden bills that you run into. It’s not the most exciting way that you can “invest” your money, but investing in your future by having a safety net is one of the wisest things that you can do with your money.

 

Investing $1,000

These are only a few of the hundreds of different ways that you can put your money to work. It’s vital that you make the best decision for you and your money. Investing is going to be the foundation for your future and the security of you and your family.

Take the time to look at all of your different options and decide which one is going to work best for you. It can be scary investing your money because of the horror stories, but thanks to the Internet, investing your hard-earned money has never been easier.

***Photo courtesy of https://www.flickr.com/photos/gotcredit/33502814980/sizes/l

Facing High Medical Debt? Here’s What You Should Do

The following is a post by MPFJ staff writer, Toi Williams, who is a professional finance blogger for MarketBeat. She has backgrounds in personal finance, sales, and real estate.

Medical debt is becoming a big problem for many in the United States. According to data from the Consumer Financial Protection Bureau, medical debt collections currently make up about 52 percent of collection accounts on credit reports, a much higher rate than other types of debt. About a quarter of adults ages 18 to 64 reported having past-due medical debt in 2015, compared with 10 percent of people over 65. An estimated 43 million consumers with a credit report at a nationwide consumer reporting agency have one or more medical accounts in collection.

Of the consumers with only medical collections accounts, 50 percent have otherwise “clean” credit reports. However, having a single collections item on a credit report can hurt a credit score severely. A person with a FICO score of 680 could see their credit score drop 45-65 points once a collections account has been added to the information. Someone with a score of 780 could see a decline of 105-125 points.

This makes it very important to act on the medical debt quickly before it is sent to collections. There is currently no set standard for when a medical debt will be sent to collections, so it could happen anywhere between 30 – 180 days past the billing date. Here are some steps to take that will make handling high medical debt a little easier.

 

Examine Medical Bills Carefully For Errors

Medical bills are complicated and are often full of codes and terms that you may not understand. Those with chronic conditions, medical emergencies, or lengthy hospital stays face even more challenges because their care often results in multiple bills from multiple providers. Requesting itemized bill from each provider will allow you to check how much you were charged for each service.

When reviewing your medical bills, make sure that you were not mistakenly charged for services you didn’t receive. If a provider listed is unfamiliar, check the date of service to see if you had a medical treatment that day. Some providers may be associated with a hospital where you were treated but chose to bill you directly for the services.

 

Review Circumstances Of Denied Coverage

Many cases of high medical debt are due to the patient’s insurer denying coverage for certain procedures. Unless it is a medical emergency, in most cases you will know what your insurance will cover before receiving treatment. If coverage is denied for something that you believe should have been covered, there are several things that you can do.

First, review your health insurance policy to see exactly what providers and procedures are covered under your plan. If the questionable items should be covered, make sure your provider has your correct insurance info and that they used the correct billing codes when submitting the claim to your insurance company. A small mistake can lead to expensive bills for procedures that your insurance should have covered.

 

Dispute Inaccurate Charges

If you have reviewed your medical bills and find that you have been charged incorrectly, it is important to dispute the bill as quickly as you can. The first step is to send a written notice to the provider detailing which portions of the bill you are disputing. Be sure to send copies of all relevant documents along with the written notice, including copies of the bills with the errors clearly indicated and copies of medical records related to your claim.

In many cases, the provider will revise the bill to correct the errors once this notification has been received. It is important to stay on top of the matter until you can confirm that the necessary changes have been made. Keep a record of contacts made with the provider in your efforts to correct the bill. This information can be valuable if the medical bill is sent to collections still containing errors.

 

Ask If Discounts, Payment Plans, Or Financial Assistance Is Available

Medical care providers know that many people have trouble paying high medical debt and many offer ways to make paying the debt easier. For example, some medical providers will offer a discount to those that can pay the discounted amount right away. Others will accept the Medicare rate for their services, which is typically lower than the rate charged by private insurers. It doesn’t hurt to ask.

Some hospitals and clinics have a financial-assistance program to help people that are unable to pay their bills, but there are typically income limitations on who can apply for these programs. The provider might also offer a monthly payment plan that enables you to pay off the debt in installments at little or no interest. You may also be able to negotiate the amount due directly with your health care provider. In many cases, they will be willing to work with you to come up with a plan that you can afford.

One of the worst things you can do is put large amounts of medical debt on your credit card. If you cannot pay off the balance right away, you will be subject to a much higher interest rate on the debt than the provider would have charged you. If the debt is sent to collections, it will look like any other credit card debt to creditors, severely harming your ability to obtain credit in the future. Explore other options for repayment first and only use your credit card if you can pay off the entire amount before the next billing cycle.

How about you all? Have you been struggling with high medical debt? How have you been coping? Tell us in the comments.

***Photo courtesy of https://www.flickr.com/photos/usarmyafrica/4567202913/sizes/l