Control What You Can About Your Finances

Some of the post stressful times in life are when people feel out of control. Some examples include not being told when a delayed airline flight will take off or sitting in stalled traffic and not knowing why.

There are also many times when aspects of personal finance seem out of control. Examples include stock market volatility, housing values, data hacks, unemployment, reductions to employee benefit plans, and economic cycles.

What to do? Control what you can about your finances. Below are five decisions or actions that are totally within your control and can enhance your financial security:

¨      Personal Health Habits- Follow expert recommendations for diet, physical activity, sleep, dental flossing, and more. Spending less on health care means more money available to build wealth.

 

¨      Spending and Saving Habits- Choose to spend less and save more. Savings provides access (e.g., to housing and health care), options, and financial independence (i.e., the ability to support yourself without a paycheck).

 

¨      Prudent Practices- Decide to prepare a budget, purchase adequate insurance, shred outdated documents, prepare a will, and review your credit report regularly for errors and evidence of identity theft.

 

¨      Human Capital Investments- Make plans to take courses or other training to increase your knowledge and skills. Doing so will enhance your employability and could result in a better-paying new job or a promotion.

 

¨      Time Management- Decide how you want to spend your time, which can often affect your finances. While employers and family members are definitely a big influence, people ultimately set their own time priorities.

Social Security: Key Facts That Everyone Needs to Know

The department of Agricultural, Food, and Resource Economics at Rutgers University recently held a seminar on Social Security for university faculty and staff. Below are seven highlights shared by two presenters: Everett Lo, Deputy Regional Communication Director for the Social Security Administration-New York Region, and Gina Diouf, administrator of the New Brunswick, NJ Social Security office:

¨      Social Security affects people throughout the life cycle including their birth, first job, marriage, divorce, widowhood, and/or retirement. It is intended to replace a portion of income but not be a sole source of income.

 

¨      The Social Security Retirement Estimator provides benefit estimates based on your Social Security earnings record. Social Security benefits are based on a worker’s highest 35 years of earnings.

 

¨      Workers should check their Social Security statement annually to confirm that their earnings information is accurate. To do this, use the “My Account” feature of the Social Security web site.

 

¨      To qualify for Social Security retirement benefits, a person must work 10 years and be at least age 62. If you delay benefits beyond full retirement age or FRA (age 66 to 67 depending on birth year), extra credits apply.

 

¨      It does not make sense to wait for benefits past age 70 because no additional delayed retirement credits are available. Between age 66 and 70, there is an 8% annual increase in benefits. In an example provided at the seminar, a benefit of $1,000 at FRA of 66 would be equivalent to a $1,320 benefit at age 70.

 

¨      Social Security benefits may be taxable if individual or household income exceeds certain limits. Social Security can withhold federal income taxes or beneficiaries can send the IRS quarterly estimated payments.

 

¨      If someone is working and receiving Social Security benefits, the earnings limit ($17,640 in 2019) applies before FRA. Future work plans are a key factor in deciding when to claim Social Security.

Take-Aways From the ACCI Conference

I recently attended the 2019 American Council on Consumer Interests (ACCI) conference in Arlington, VA. Below are nine research findings that I took away from the speaker presentations and posters:

¨      Household Wealth- Cars are a major asset for low-income households that do not own homes.

 

¨      Research Lag Time- It takes 17 years for just 14% of research to get translated into practice.

 

¨      Choice Architecture- The framing of options for people can greatly affect financial behavior (e.g., saving).

 

¨      Positive Outcomes- Participants in an Assets for Independence (AFI) matched savings program for low-income families were less likely to be evicted and more likely to pay their utility bills.

 

¨      Gig Economy- 1 in 10 workers has earned money through the “gig economy.” Gig workers must generally provide the “physical capital” for doing their work (e.g., use of a computer or a personal car for Uber).

 

¨      Financial Education Impact- Financial education in high school can decrease the probability of being over-confident about your finances, which is associated with use of alternative financial services products.

 

¨      Phased Retirement- Working part-time in later life avoids the psychological challenges of jumping immediately from full-time work to immediately retiring and helps to maintain older adult happiness.

 

¨      Financial Self-Efficacy-This is a feeling of being able to deal with financial situations effectively. A study found that a higher level of self-efficacy significantly contributed to higher financial well-being.

 

¨      Financial Capability- The Consumer Financial Protection Bureau described three building blocks of financial capability: executive function, financial habits and norms, and financial knowledge and decision-making skills.

“Success Boosts” to Improve Your Finances

According to online dictionaries, the word “boost” can be defined as “a source of help or encouragement leading to an increase or improvement” or “to lift, elevate, enhance, or raise.” It is often noted in reference to the economy, minimum wages, tourism, organizational morale, production, sales, and television ratings.

 

I started thinking about the word “boost” this week in a new way after a recent personal experience. Last week, for two days, I was a sick puppy. Vomiting and diarrhea and I’m not really sure why. Business travel, perhaps, a Memorial Day party, or maybe some food poisoning?  I don’t know. Regardless, there was one silver lining. I lost four pounds after all the unpleasantness…. weight that I had been half-heartedly trying to lose for months.

 

Then, an interesting thing happened. I became much more conscientious about my food intake again because I wanted to keep those hard-won four pounds off. So far, so good. I realized that I had experienced a “success boost” and it was very empowering. I leap-frogged weeks of loosing a half-pound here and there and had real results to be proud of… and to want to fight to protect. My success boost changed my mindset and behavior.

 

Since I speak and conduct research about health and wealth relationships, I started thinking about comparable financial “success boosts” where people can make big, empowering progress leaps. Here are a few examples:

 

Snowball Repayment Method- Pay off debts starting with smallest balances first while making minimum payments on larger debts. The psychological benefit of owing fewer creditors provides positive feedback.

 

Income Increases- Save more when you earn more through raises, promotions, side hustles, or a change of employment. Your cash flow will essentially remain the same and you can save without feeling deprived.

 

Windfalls- Treat “found” money (whether expected or not) as a precious resource. Set some aside for emergency savings, repayment of outstanding debt, long-term goal savings, and other high-priority items.

 

Matched Savings- Two common examples are employer matching for 401(k) plan deposits and matched savings for individual development account (IDA) program savings.

 

Become aware of opportunities for “success boosts” in your financial life. If your work involves financial education or counseling, help others to do the same. Everyone can benefit from a boost from time to time.