Miscellaneous Nuggets from a Professional Conference (FERMA and ACCI)

I recently attended two back-to-back conferences for financial educators. Below are 14 ideas that I took away:

¨     When people are talking about money, it is not about money. It is about their money values.

 

¨     Money is not about numbers. It is about the stories we tell ourselves about the numbers,

 

¨     Don’t make key financial decisions when you experience HALTS: hungry, angry, lonely, tired, and scared.

¨     Some people sabotage themselves when they start to succeed because they lack successful role models.

 

¨     There are six money habitudes: planning, security, carefree, spontaneous, status, and giving.

 

¨     A study found that a future-minded time orientation was positively associated with financial capability.

 

¨     Another found that “thinking ahead” improved financial health more than age, income, or financial literacy.

 

¨     People who think “I control my financial destiny” feel empowered to successfully manage their money.

 

¨     When people feel powerless, they should think about a time when they felt completely in control.

¨     Identify an realistically attainable financial role model and identify steps to take to be like that person,

¨     A little money invested for a long time will grow more than a lot of money invested for a short time.

 

¨     Both health and financial literacy require the ability to read and interpret documents and use numbers.

 

¨     The lack of houses for sale in some areas is partially due to those age 65+ still working or “aging in place.”

 

¨     A study of financial literacy with 50 questions found that 5 under-estimate effects of financial education.

How to Dig Out From Under a Pile of Debt

The term “consumer debt” describes money owed to others, excluding a home mortgage. It includes credit cards, car loans, student loans, lines of credit, and other debts. There are two types of consumer credit: revolving credit (where a balance can be carried forward month to month) and installment credit (fixed monthly payments for a specified time).

High consumer debt is a problem for many U.S. families and there is no easy way out. Rather, there are small steps that can make the situation better over time. It is impossible to borrow your way out of debt because new debt will just make things worse. The solution, instead, is taking positive action. Below are five specific action steps:

¨      Maintain a Low Consumer Debt-to-Income Ratio- Monthly consumer debt payments should not exceed 20% of take-home (net) pay, which is consider a “danger zone.” A debt ratio of 10% to 15% is even better, especially for people living in high-cost states and/or those with high ongoing expenses such as child care.

 

¨      Drive a Less Expensive Car- When people spend less on a car, say $17,000 instead of $26,000, they can take out shorter loans, make lower monthly payments, and/or be underwater (i.e., owing more than your car is worth) for less time. Purchasing options include a smaller, lower-cost new car or a late model “new used” car in good condition. Services that comparison shop and negotiate prices on a buyer’s behalf may also be useful.

 

¨      Do a PowerPay Debt Acceleration Calculation- PowerPay is a free Utah State University website that shows how much time and interest can be saved by accelerating debt repayment. If people have multiple creditors, PowerPay will create a calendar of monthly payments. As each debt gets repaid, its payment gets applied to payments for remaining creditors. Debts can be accelerated in order of highest interest rate, lowest balance, and shortest payoff term.

 

¨      Earmark Extra Income for Debt Repayment- Sometimes, it may be possible to apply a large lump sum toward reducing or eliminating debt. Sources of extra cash can include working overtime, freelance work, reducing household expenses, expenses that end (e.g., child care), completing a savings challenge, and/or receiving a raise or bonus.

 

¨      Get Help When Needed- Non-profit credit counseling agencies can assist people whose consumer debt has gotten out of hand. They may be able to negotiate concessions from creditors (e.g., waived late fees and lower interest) but will probably require clients to surrender their credit cards to not run up additional debt.

Seven Strategies to Increase Your Salary

Personal finance articles often focus on expense reduction ideas to save money. This is understandable because expenses are generally easier to control than income. Individuals, themselves, can decide to spend less on variable expenses whereas decisions about how much people are paid are generally made by employers or clients (if you are self-employed).

Nevertheless, there are time-tested ways for people to improve their cash flow (i.e., income minus expenses) by increasing their income. Below are seven small steps to boost your salary:

Be Valuable and Visible- Develop areas of expertise that your employer or clients (if self-employed) value and make sure that they are aware of your talents, skills, and past performance (e.g., through formal reports and social media posts).

 

Have One or More Mentors- Mentoring is a process of transferring knowledge and expertise between workers.

 

Plan Ahead- Think about where you want to be in your career 5, 10, and 20 years and develop an action plan to get there.

 

Keep Your Resume Updated- Develop a process to revise your resume; highlight skills and results that employers value.

 

Develop Good Writing Skills- Writing everything from reports to blogs to company marketing materials is required in most job settings. This skill can be developed through self-study, mentoring and feedback from coworkers, and practice.

 

Develop Good Public Speaking Skills- Like writing, this skill is valued by employers and can be developed through self-study (e.g., joining a Toastmasters group), mentoring and feedback from coworkers, and practice.

 

Live a Healthy Lifestyle- Employees who are healthy get things done and are not a drag on an employer’s productivity. Specific steps to take include eating healthy meals, getting daily physical activity, and getting adequate sleep.

Miscellaneous Nuggets from a Professional Conference (FPA-NJ)

Yesterday, I attended the Spring conference of the Financial Planning Association of New Jersey. Below are some ideas that I gleaned from this meeting:

• More financial planners are shifting from lifestyle practices (i.e., firms with 1 or 2 principals and no formal succession plan) to enduring businesses that ensure services for clients after they retire or pass away.
   
• Client service is important in financial planning and ANY transaction with consumers. The best experience you had anywhere should be the experience you have everywhere.
   
• Approximately 63 million Americans receive $1 trillion in annual Social Security benefits.  Social Security spending topped $1 trillion for the first time in 2017.
   
• People who froze their credit (e.g., after the Equifax hack) and want to set up an online Social Security account need to unfreeze their credit with Equifax.  Another option is to go to a Social Security office (appointments were recommended) to get a special code. The reason given is that certain questions (to set up an online account) are based on credit report data and a freeze needs to be lifted to access this data.
   
• If people do not sign up for Medicare during the 7 month window around their 65^th birthday and wait until age 75, premiums will be doubled (10 years x 10% penalty for each year they should have Medicare but didn’t). If you are still working and not receiving Social Security at age 65, you must enroll yourself.
   
• Retirement is a major life transition and “the longest vacation people will have.”
   
• The estate tax exemption will be cut in half after 2025 under the Tax Cuts and Jobs Act (TCJA). Affluent households who will be affected by this need to plan now. Also, as a result of the TCJA, only 5 million taxpayers are expected to be able to itemize tax deductions vs. about 30 million who itemized last year.