Friday, October 27, 2017

A Proposed Rank Ordering of Wealth-Maximizing Actions

At the 2017, Financial Planning Association (FPA) meeting, Dr. Greg Geisler from the University of Missouri-St. Louis presented research on a hierarchy of steps to maximize wealth. In other words, if people have discretionary income to save or reduce debt, what should they do first?

According to Geisler, Step #1 is to contribute to a matched employer 401(k) retirement savings plan and/or a health savings account (HSA). Interestingly, the tax savings on many employees’ contributions to an HSA increases wealth by more than an employer match on the same employees’ 401(k) contributions. In such cases, the maximum allowable HSA contribution should be made prior to the employee contributing to a 401(k).

After deposits to a matched 401(k) and HSA, which were called Steps 1a and 1b, Geisler suggests the following order of wealth-maximizing actions:

¨     Step #2: Pay off high-interest debts in order of their after-tax interest rate. For example, various credit cards.

¨     Step #3: Put savings into a 529 higher education savings account if an individual is a resident of a state that offers tax savings for contributions.

¨     Step #4: Make unmatched contributions to an employer retirement saving account.

¨     Step #5: Pay off moderate after-tax interest rate debts in order of their after-tax interest rate. For example, low-interest rate credit cards and an auto loan, home equity loan, and student loans.

¨     Step #6: Make deposits to taxable (non-retirement) accounts.

This hierarchy is not “set in stone,” however. There may be excellent non-tax related reasons for not following these financial steps in exact order, such as saving for a house down payment and building an emergency fund.

Friday, October 20, 2017

Weekend Financial Self-Improvement Activities

Many people find it difficult to manage their finances on weekdays. Between work, commuting, and/or children’s school activities, there is precious little time. What to do? Carve out one hour of time over the weekend (or another day, if your days off fall on weekdays) to do at least one financial management task.


Here are some suggested strategies. Checking your credit report should take no more than 10 minutes. Go to and enter the required data or download a mail-in form. To reconcile your checking account balance, go online for the balance or use your most recent bank statement.


Net worth calculations involve subtracting the value of debts (what you owe) from assets (what you own). This will involve pulling account statements and checking newspaper ads or websites to determine the value of your home and personal property. To prepare a spending plan, project your future income and expenses.


Got a little extra time this weekend? Take some time to learn something new about personal finance or do one thing to improve your finances.

Wednesday, October 11, 2017

How to Become More Future Minded

In an earlier blog post, I cited research by Morningstar behavioral economist Sarah Newcomb that links a focus on the future with increased savings. Sounds simple enough, but the “f-word” (future) can be vague and scary to many people. It is easy to postpone action today for something that might be two or three decades down the road. For this reason, some people prefer to use the words “now” and “later” instead of “future goal.”

What to do? Use tools and techniques that develop your future-mindedness. Below are five ideas:

Experience Small Successes- Achieve success for motivation to move on to bigger goals. For example, if you complete the 30-Day $100 Savings Challenge a few times, you might ramp up the savings target to $200.

Do Backwards Thinking- Write down on a post-it note, on a board or wall, where you want to be and where you are now. Then, working backwards, insert post-its to identify all needed steps in between the two points.

Post-it Planning- Do the same thing as Backwards Thinking, but in reverse. Work forward from where you are now to where you want to be and use post-it notes to identify all needed steps in between the two points.

 Listen to Powerful Stories- Google “Powerful Personal Finance Stories” and you will find inspiring stories about people like you who took small steps to turn their financial lives around.

Get a Glimpse of Your “Future Financial Self”- Research has shown that people who see themselves as an older person save more money. Web sites like Age Me and Change My Face can show you what you look like as an older person and give you a better appreciation of your “future self.


Thursday, October 5, 2017

How to be Vigilant in the Aftermath of the Equifax Hack: Part 2 (Insurance and Income Taxes)

In last week’s post, I noted that your personal identification information (PII) is now basically “out there” in perpetuity. In addition, proactive measures such as fraud alerts on credit cards and credit freezes will not deter non-credit related frauds such as tax refund identity theft and health insurance fraud. For that, we are simply told to “be vigilant,” probably for the rest of our lives. Hacked data can remain dormant for years before it is actually misused so you can’t let down your guard. Below are five vigilant practices to follow for insurance and taxes:


  • File Your Income Taxes Early- Beat fraudsters to your tax refund. They now have the name, address, and Social Security number of 143 million Americans, which is everything needed to file a fraudulent tax return.
  • Avoid Over-Withholding- Adjust your tax withholding, using a new W-4 form, to get a smaller refund or no refund; you’ll have little or no money stolen if someone uses your PII to claim a fraudulent tax refund.
  • Look for Suspicious Activity- Beware of “red flags” for tax ID theft such as a tax notice from an unknown employer. If you receive such a notice, contact the employer to explain that someone stole your identity.
  • Beware of Phony IRS Pretexting- Remember that the IRS rarely contacts taxpayers by phone and never by e-mail. Remember, the Equifax frausters have lots of information to sound convincing. Delete or hang up.
  • Review Medical Bills and Explanation of Benefits (EOB) Statements- Scrutinize bills and EOBs to look for medical services that were not received by you. Medical identity theft is very serious and can potentially lead to death if a fraudster’s medical history (e.g., blood type and allergies) is co-mingled with a victim’s.

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