The Top Three Things Most People Don’t Know About Personal Finance

Do you feel financially secure?

According to a recent survey, 47 percent of Americans are confident about their financial health. However, when pressed with a financial quiz, only six percent of respondents passed.

If that number leaves you wanting to brush up on your financial concepts, you can start with three facts that people got wrong most often.

1. The typical married couple will spend $265K on health costs in retirement

Does this number sound high to you? You’re not alone. Most of the participants in the quiz dramatically underestimated how much retired couples need to afford medical costs (and this is with Medicare coverage and supplemental insurance).

Remember, it’s never too late to start a retirement savings account. If you delayed saving for your post-career life, you can always play catch up by contributing a larger sum every month.

2. The typical 65-year-old woman will live another 23 years (another 20 years for a man)

According to the Social Security Administration, men and women are expected to live well into their 80s. While contemplating your life span isn’t the most fun way to spend an afternoon, it can be helpful when planning your retirement savings. Make sure that you account for 20 years of expenses once you begin your life’s third act.

3. The annual rate of inflation for college tuition is eight percent

College isn’t getting any cheaper. In fact, at eight percent inflation, tuition for higher education doubles every nine years. Let this be a wake-up call if you or your kids plan on attending college in the future—you’ll most likely need to apply for a student loan.

 

Three Ways to Ensure Your Kids Stay Debt-Free Later in Life

All parents want their kids to grow up to be financially secure. So why do so many children lack basic financial skills?

A recent study by the Program for International Student Assessment found that one in five American teens lack simple knowledge of how money works. As a subject, money seems to slip through the cracks between family and school, leaving many children to learn it on their own. The problem is that, without proper guidance, they may never grasp fundamentals like saving, balancing a budget, and avoiding debt, which can lead to stress and hardship when they grow up.

To ensure that your kids become money-smart adults, here are three things to keep in mind:

1. Don’t wait to educate

Introduce money to your kids’ lives early. Many children can understand simple financial concepts as early as five, which is a good time to teach them about the value of dollars and cents, as well as concepts like needs versus wants.

Another great tool for teaching money management at a young age is an allowance. With an allowance, children start to learn the importance of not spending all their money at once. If you don’t love the idea of giving your kids free money, create a system where they can earn it through chores or tasks.

2. Have them open a savings account

Once your children start receiving an allowance or regular income, have them set aside a fixed amount for savings. Explain that savings are important for things they want but can’t afford right now. To reinforce the idea, take them to your local financial institution to open a savings account in their name. Explain that they can deposit money into it, and withdraw from it when they have enough to purchase their savings goal.

3. Share successes—and failures

As your children’s money mentor, you should share examples from your own life once your kids are a little older. Did you pay off a credit card recently? This is an opportunity to explain the concept of debt, and why it’s crucial to eliminate it.

Of course, no one’s perfect. If you over-spent and blew your budget last month, don’t sugarcoat your mistake. Talk to them about where you went wrong, and how you intend to do better next time. Honesty lets them know that it’s okay to make—and learn from—mistakes.

Baby, It’s Cold Outside: Reducing Seasonal Energy Costs

When winter hits, we can’t help but think of that old song, “Baby, it’s cold outside.” For many of us, winter means high energy bills, but sitting in the dark or turning off the heat are not your only options. Here are some ways to improve your home’s energy efficiency and save money during the cold months:

Sealing

Cold air can get in around the sides of windows, doors, and vents. If you hold a piece of tissue near the frames inside on a windy day and it flutters, you need to seal the window. Check out your local hardware store and pick up some weather-stripping. Talk to an employee or do research online about the right product.

Insulation

Insulating your attic can increase your home’s energy efficiency significantly, and it’s usually fairly easy. Consult with a professional or do some research at the Department of Energy.

Heating and Cooling Systems

Temperature systems account for about 56% of the energy in a typical U.S. home, so updating can save a lot. You can retrofit or replace your furnace or boiler, depending how long your system has to live and how much each option costs. New heating systems can achieve an efficiency of up to 97%.

Appliances and Electronics

Appliances account for 20% of energy use in a typical U.S. home. Old ones can be energy hogs. To find energy-efficient products, look for the Energy Star label. For more information, check www.energystar.gov.

Water Heaters

Insulating or increasing the insulation on your water heater tank and pipes can decrease heat loss and lower your energy bills for a fraction of the price of replacing your water heater. On the other hand, if your water heater is nearing the end of its life, it is probably a good idea to replace it.

Solar Panels

Solar panels typically have high upfront costs, though they can provide clean, free energy for years to come. Use the Solar Calculator at www.findsolar.com to estimate the cost of installing panels and how long it will take for your investment to pay you back.

Financing

Many cities and states have programs to help pay for green renovations. Contact your state’s energy department to see what low-interest loans, rebates, or other benefits are available. You may also qualify for tax benefits; visit the IRS’s website.

*Energy usage and efficiency figures come from the Department of Energy. For more facts and tips, visit www.energysavers.gov.

Revised January 2016

Savings: Your Key to Success

You have wants. You have needs. And you have two ways of paying for them – pull out the credit card or use the money you have set aside. Which would you prefer?

It’s a safe bet that most people would choose to have a stash of cash from which they could pay for everything from impulse purchases to long-term financial goals. But how do you save when there are bills to pay and the paycheck only goes so far?

Do It Now

Even without a specific goal, saving immediately will make you feel good. Have debt? Put a little aside anyway. Acquiring a savings habit as soon as possible is critical. By setting a little aside each month while aggressively paying down your obligations, you will graduate into being debt free with a happy little nest egg in place. And in the event of an emergency you won’t have to touch the credit cards and feel like you’re driving in reverse.

Set a Goal

All achievable goals share the same five factors:

– Specific – describe your goal to the smallest details

– Measurable – how much do you need to save?

– Actionable – break it down into reasonable action steps

– Realistic – could you really achieve this goal in the given time?

– Time-bound – what is the time frame for the goal?

Put it somewhere. How much you have, your time frame, and personal risk tolerance will determine the best home for your money. A few accounts you may consider are:

– Savings account – A great starter account. Interest and risk are low and minimum deposit is small.

– Money market account – This savings account pays slightly better interest but may require a higher minimum balance.

– Money market fund – A very secure mutual fund account. Invested in high-quality, short-term investments. Higher deposit, interest and risk.

– Certificates of deposit (CDs) – Generally a three month to seven year investment commitment, CDs offer higher and fixed interest rates, but with a greater initial deposit and penalty for early withdrawal.

For mid to long-term goals, you may opt for investment rather than savings vehicles. After you’ve saved enough in one of the above accounts, you can transfer your money to mutual funds, bonds, or individual stocks if you wish.

Impossible? Not at all. With careful planning, savings is the key to successfully managing your money and getting everything you want.

Revised February 2016.

Your Clutter Is Costing You

What is the current state of your closet? Is it stuffed to the brim with clothes, shoes, suitcases, cleaning supplies, your high school chemistry textbook, etc., or can you do cartwheels in there? Is every horizontal surface covered in piles and piles of stuff or bare, save for a few knickknacks?

If your house is filled with clutter, you probably know you won’t make the cover of Better Homes and Gardens, but you may not be aware that it could be costing you money too. Many people buy or rent bigger (and usually more expensive) places so they can have more closets or other storage space. They may also opt for the smaller space and pay rent on a storage unit. A clutter-filled house can also lead to increased entertainment costs; you don’t want your friends to see the mess (or are sick of seeing it yourself), so you go out. Duplication is another way that clutter can cost you. Have you ever spent money on something you already had because you had no idea where it was, and did not want to spend hours looking for it?

If the thought of actually having to go through all your stuff makes you sweat, don’t worry. Here are some tips that can help make the decluttering process as painless as possible:

Do a little at a time: You are less likely to get discouraged and give up if you set a series of small goals spread out over time (e.g., clean the closet in the master bedroom tomorrow, clean the garage next weekend) instead of trying to clean up the whole house at once.

Take a picture of sentimental items: Do you have some items that you never use but can’t throw out because of their sentimental value (such as the doll you bought for your daughter who is now 25)? Taking a picture can make it easier to part with. You will have a reminder even if it’s no longer collecting dust in your closet.

Donate or sell: While some of your items may be worn out and only welcomed by the trash bin, there may be many things you can sell to a consignment or thrift store, or donate to charity. Think of your cleaning as putting money in your pocket or helping others, instead of just a chore.

Use the “one in, one out” rule: After you go through all that effort to get rid of what you don’t need, you probably don’t want the house to revert back to its former messy state a few months from now. A good solution is to get rid of something whenever you purchase something new. You buy a new t-shirt at the mall—when you get home, go into the drawers and get rid of an old one.

By taking the time to declutter, you’ll be cleaning all the way to the bank.

Revised January 2016

Maintain and Save

When we’re looking to save money, the first thing most of us do is scrutinize our every purchase to see where we can squeeze out unnecessary spending. After all, a nip and a tuck here and there can add up to a bundle of savings over time! What many forget, though, is the cost savings that can result from proper maintenance of the things we already own – especially the really high-ticket items, like a home and car, which can be costly to repair and even more expensive to replace.

R. L. Polk reports the average person holds on to a new vehicle for just under six years. That’s longer than it was before the Great Recession, but with the average new car price topping $33,000, it makes good budget sense to find ways to extend the ownership period as long as possible. Just think of the boost it would be to your retirement savings if you bought just one fewer car in your lifetime, and instead directed that cash to an IRA or 401k account!

Here are some simple things you can do to keep your car and other stuff in good shape for the long haul.

Get Regular Oil Changes

Be sure to read your vehicle’s owner’s manual to find out how often oil changes and other preventive maintenance is recommended. Nobody knows more than the manufacturer about what your car needs to continue running properly. Plus, not following the manufacturer’s recommended maintenance schedule could affect your warranty.

Check Tires Regularly

A flat tire’s not just inconvenient and expensive to replace. If not fixed promptly, a flat tire can lead to costly wheel damage. In addition to checking tire pressure monthly, have tires rotated, balanced and alignment checked regularly. Oftentimes, this regular maintenance is included in the warranty for new sets of tires.

Following Cleaning Instructions

If the tag says “dry clean only” believe it! Professional cleaning can add up, so you may be tempted to try laundering at home, but it’s a false economy if it means you ruin an expensive item of clothing. Instead, look at care instructions before you buy and decide then whether or not it’s a smart purchase.

Rotate Your Mattress

Some super-premium beds have different maintenance instructions, but if you have a standard mattress and box springs set-up, you’ll get longer life out of it by rotating it at least twice a year. If you notice sagging sooner, go with a three-month rotation schedule.

Replace AC Filters Regularly

A home’s air conditioning system is one of the most expensive items to replace if it goes bad. Twice-yearly maintenance is a prudent investment, and replacing filters regularly is really important since clogged filters can cause the system to burn-out prematurely.

Maintain Exterior Paint

Shabby and peeling paint doesn’t just make the outside of a home look unkempt. A proper paint job protects surfaces from the sun and weather, and helps ensure that cracks are repaired, preventing leaks and helping to keep destructive pests like termites at bay.