BE Money

It’s Your Money. Who’s Spending It?

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money (Image: iStock.com/Dean Mitchell)

It’s your money. Whether you’re barely making ends meet or have more than enough, you’ve earned every penny of it. But are you sure you’re the only one spending it?

A big part of managing your money is being clear about what you’re earning, what you’re paying, what you’re keeping and who you owe. However, you also need to manage something even more important: Who has access to your money and other assets, and under what terms.

For many of us, our cash flow issues are not because we are overspending on ourselves, but because of overspending by and for others. We’re especially vulnerable to those we have an emotional attachment or a sense of obligation to, such as relatives, long-time friends, children, and romantic interests. So even though it’s your money, you likely don’t exercise your absolute ownership and control of it.

My recommendation: Track your spending for a month. Play close attention to money spent to provide for the wants and needs of others. Then ask yourself a tough question: Why are you doing it? In most cases, if you are honest, you are buying things people should either buy for themselves or do without. Here are areas you should focus on.

Unnecessary spending on minor children.

Food, water, clothing, shelter and related utilities—the basics are all you should be spending money on for your minor children. Everything else: teach your kids to earn their own money to pay for it. Gifts for birthdays and Christmas are fine exceptions to this rule, but even then, you should resist the pressure—from your kids as well as the onslaught of advertising—to spend more than you’ve budgeted for, and to take on more debt to do it. Your job as a parent is not to give your kids everything they want. It’s to teach them everything they need to know to become independent, productive adults. That means providing your children with financial education, not just buying them stuff.

Taking on adult dependents.

Are you spending money, covering expenses, and otherwise providing for the financial needs of able-bodied adults? In our book Loving In The Grown Zone, my wife and business partner Zara Green and I call that supporting adult dependents. These are otherwise capable people who are disinterested in providing for themselves (and may even resent having to do so), especially if they know others able to do it for them. Many people in your life may fall into this category, including parents, adult children, other relatives, and friends. It’s your money. Why regularly pay bills, extend loans (which are rarely repaid) and operate as a living ATM for others?

How much is love costing you?

Romantic interests can also be adult dependents. (Commit to a relationship with one at your own risk. Don’t say you weren’t warned.) If you are financially independent—your retirement and emergency savings funds are fully funded, you have no debt, plenty of assets, and your income far exceeds your living expenses—this may not be a problem to you. (On the other hand, plenty of people wealthier than you and I have lost fortunes to relationship scammers after being blinded by love.) Otherwise, using money to get or keep a relationship is a bad idea, both emotionally and financially.

After tracking your spending for a month, determine how much of your money is being spent by others and multiply that by 12. How much of your annual budget is going toward supplementing the expenses and lifestyles of others? There goes the money for the contribution to your retirement fund, or to pay down your credit card debt or finance your new business.

Now comes the toughest question. If it’s your money, why are you allowing others to spend it? (After all, they’re not putting a gun to your head.) The answer nearly always come down to one of the emotions—including fear, anxiety, and guilt—that drive most unhealthy financial behaviors. How you handle your money (or allow others to handle it) is usually a symptom of deeper issues. It’s your responsibility to identify and address them if you want to gain real control of your finances.

The bottom line: No one has a right to spend your money, no matter who they are or how much you love them. So don’t allow others to drain income from you out of guilt, to prove your friendship, or as a show of love. After all, it’s your money. You should be spending it, whether on yourself or others, in ways that are healthy for both you and your budget.

Black Enterprise Executive Editor-At-Large Alfred Edmond Jr. is an award-winning business and financial journalist, media executive, entrepreneurship expert,  personal growth/relationships coach, and co-founder of Grown Zone, a multimedia initiative focused on personal growth and healthy decision-making. This blog is dedicated to his thoughts about money, entrepreneurship, leadership and mentorship. Follow him on Twitter at @AlfredEdmondJr.

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What’s In Your Purse or Wallet? Simple Money Management Tips

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purse (Image: iStock.com/Susan Chiang)

Recent survey findings reveal American women, on average, spend as much as $160 on a handbag and own about 11 handbags. Nearly 1 in 10 women has spent more than $400. Ten percent of women have more than 20 bags in their closet and 1 in 5 women are actually holding onto their handbags because they’ve spent so much money on them. Robin A. Young, a certified financial planner, believes that the value of a purse as well as the contents carried inside of it each day “says a lot about who you are and how you manage your money.”

What’s more, multiple studies show about 7 in 10 Americans have at least one credit card, with the average number of credit cards owned being three to four. If you have more than two (not counting debit cards), you’re likely overspending and incurring debt. “You really should be using cash or a debit card, which would indicate that you’re living within your means,” Young says.

What’s In Your Purse?

Here’s a quick exercise you can do. Add up the value of your purse and its contents. For example, if your purse cost $500, your smartphone $350, your wallet $200, your cosmetics $250, and your iPad $750, then the value is $2,050. Now, ask yourself if you’ve invested that same amount into savings or retirement accounts, including your 401(k) plan, over the last month? If you have indeed invested at least $2,050 in the last 30 days, then you are building wealth, Young explains.

What’s In Your Wallet?

Open your wallet and look at how your cash is organized. Is it ordered by denomination with bills facing the same way? You should store small bills in the front with larger bills in the back or vice versa. Or keep smaller bills on one side and larger bills on the other side of your wallet.

Cash that’s arranged and in order is characteristic of a person whose financial life is organized. Not to mention that it’s easier to count when making purchases. Cash in disarray reflects a disorganized financial life. “It is hard to have abundance when your money isn’t in order and financial papers are all over the place,” Young adds. “Organize your cash, financial files, documents, and accounts.”

Rewards vs. Risks of Credit Card Use

You should have one credit card that you use to, say, rent a car or pay for a trip, with the goal of paying off that card in 30 days. Most people have credit cards that offer benefits such as cash-back rewards, merchant discounts, and airline mileage points. That’s fine as long as you aren’t carrying large balances.

Say, for instance, you have five cards with a credit limit of $5,000 and each has a balance of $2,500, your total debt is $12,500. You have used 50% of your available credit, which affects your FICO score. You need to put away those cards, stop using them, and pay them off. As a rule of thumb, financial experts suggest keeping your credit utilization around 20% to 30%.

For anyone practicing healthy habits, Young stresses that every day you need to be aware of how much money you have in your purse or wallet, checking, and savings account.

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What to Do When You Don’t Have Enough College Savings

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college savingsThe moment parents wait their entire lives for is finally here; it’s high school graduation season, and your kid is heading off to college this fall. You couldn’t be prouder in this moment, except for one minor thing: you don’t have enough college savings to fully fund their education.

The guilt is in the pit of your stomach. You feel the agony hanging in the air, thick as glue, as you take proud pictures on graduation day with their diploma. You know that in just a few short weeks, the tuition bills will start rolling in (if they haven’t already) and that there are significant gaps between the financial aid package you received and the schools overall sticker price.

As parents, we often feel obligated to pay for our child’s college education, but there are many families who are not as financially prepared for college as they wanted or expected to be. Don’t let this journey lead you to financial ruin. It may be wiser and financially beneficial to empower your child to make calculated, smart decisions when it comes to financing their education.

So what can you do?

First, here’s what you don’t want to do: don’t automatically assume that your only option is to take out the remaining balance in parent PLUS and student loans. Before you sign on the dotted line, consider this; the U.S. student loan debt has grown from $1 trillion to $1.3 trillion in the last five years. While the class of 2015 is expected to earn $40,000 or more in their first year after college, graduates of 2013 and 2014 are only earning closer to $25,000. Additionally, the average Class of 2016 college grad is leaving school with $37,000 on average in student loan debt.

If you haven’t saved enough for college and you were planning taking out loans over the next four years that are greater than your child’s first year of potential earnings, you are already taking on too much.  Financially you will be placing either your future goals or theirs behind the eight ball.

Realistically assess your options: Even if this puts their preferred school on the line, there are numerous schools that offer quality education for far less than the price of a new 40 foot yacht.  This is a great time to deeply scrutinize needs versus wants. Your child may want to go Ivy League, but what they need is a quality education at the best price with a good salary outlook.

Uncover and eliminate the secret costs: Author Lynette Khalfani Cox provides hundreds of money-saving ideas to help students and parents reduce or eliminate the hidden expenses associated with the full price of college. Her book is entitled College Secrets: How to Save Money, Cut College Costs and Graduate Debt Free.

Tap every available resource: Research organizations in your community that help young people find scholarships like Seeds of Fortune in New York City. The organization’s founder, Nitiya Walker, funded her Babson College education with a $200,000 Posse Scholarship. Now she is on a mission to help more young people avoid the financial barrier of higher education as well, so they can graduate completely debt free.

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5 Money Moves For College Grads

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iStock_000037875416_MediumTis’ the season when many young people are leaving their academic lives and stepping out into the working world. It’s also an opportunity for college graduates to make financial moves that can help them set a financial foundation that will serve them for the rest of their lives. “There are a wealth of resources available for recent college graduates looking to build their financial prowess,” says Shelly-Ann Eweka, a certified financial planner with TIAA. “In today’s connected world, financial advice can be consumed by reading relevant articles, utilizing online tools and calculators, scanning brochures, or watching videos,” she adds. Eweka shared with BE.com, five essential steps college grads should make when they’re first stepping out.

  • Don’t run up huge amounts of debt: In addition to student loans, many millennials might feel like tacking on a few more loans for car payments or credit card purchases won’t hurt. In reality, if they don’t have a strong, reliable source of income with which to pay off those loans on schedule, the interest rates from those loans could come back to haunt them. One rule of thumb: don’t borrow more than your expected entry-level salary.
  • Plan for the future: Things like weddings and down payments for a home can occur suddenly, and without the right savings in place, they can set unprepared millennials back quite a ways. The same goes for unexpected emergencies like job loss or a broken-down car. A good emergency fund should cover three to six months of living expenses.
  • Be strategic about graduate education: It’s important for millennials considering grad school to weigh the job placement rates and average starting salaries against their financing and student aid options to see if the math works out. A few good options might be attending part time or finding research or teaching work in order to avoid more student loans.

 

  •  Don’t leave free money on the table: Many millennials neglect to enroll in their employer-sponsored 401(k) or 403(b) plans, and end up leaving free money on the table. Take advantage of this workplace benefit, and get ahead with retirement savings in this nearly effortless way. While retirement may seem far away when you are busy finding your first job, there is no such thing as starting to save too early.
  • Meet with an adviser right after graduation: It’s a perfect time to cover the basics and hash out a plan as you embark on this next stage of life. Advisers can help elaborate on key principles and can explain how those particular options and strategies can fit into your personal financial plan.

Money

5 Steps to Clean Up Your Credit

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iStock_000057577364_LargeFor many Americans, credit only becomes important when it’s time to make a purchase or request a loan. However, at that point, it may be too late to fix any major problems and still secure the loan.

You should take a look at your credit annually just to maintain and monitor it, the same way you annually check your health. Consider your annual credit check as preventative care for your financial health.

1. Pull Your Reports

The first step, if you want to clean up your credit, is to know your score or what is in your credit reports. Pull them from the three major credit reporting bureaus: Experian, Equifax, and Trans Union. You can start by going to www.AnnualCreditReport.com; it’s free to download all three reports once a year, but your scores must be paid for separately, if you want to see them.

2. Check for Errors

Once you have each report in hand, make sure that the debts listed all belong to you. Go through each one to make sure the balances are correct and that the payment history is up to date. Once you have a list of any accounts that either don’t belong to you or have errors, you’re going to want to file a dispute with each reporting agency directly. Creditors have 30 days to prove a debt is valid. If they do not respond or provide proof, you can request the debt be removed from your report.

3. Call Your Creditors

Any debts that are proved valid—such as public records, collection accounts, or any other debts—must be paid. There is no shortcut or quick-fix. Anyone who tells you they have the ability to cancel valid debts if you just pay them a certain amount of money is leading you down a slippery slope—don’t believe them.

4. Negotiate

Debts that haven’t been paid on in some time may have the option to negotiate the amount due. So, instead of paying the full balance, a creditor may extend a better offer, such as a settlement to just collect something on the debt and then close the account. This is totally valid and legal, however it is at the company’s own discretion and will not cancel the debt all together.

5. Make Payment Arrangements

Lastly, once you’ve negotiated with creditors, you’ll want to set up payment arrangements. Whether you pay them in one lump sum or make payments over time, you will start to see slight increases in your credit health and overall credit score.

BE Money

Plain and Simple: The 4 Most Overlooked Insurance Policies You Should Carry

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iStock_000075909907_LargeIn this day and age you need to be prepared and have protection in place to cover you for worst case scenarios. If you are like most Americans who have gaps in income and savings and cannot afford to cover major financial pitfalls, you are going to need to fill those gaps with some type of insurance.

Young professionals in particular are most at risk for being underinsured, whether it’s because of unstable income or simple lack of knowledge.

Without insurance all of your goals and dreams can easily come crumbling down because of the financial strain an unexpected illness, damage or death in the family can cause. Insurance guarantees compensation for specified loss, damage, illness, or death in return for payment of a premium. You don’t receive a return on your premium if you never file a claim, but you will find peace and comfort in knowing you are covered if a situation you can’t afford ever arises.

Here are the four most overlooked yet necessary kinds of insurance policies you should carry especially for young professionals.

Health Insurance – covers or offsets the cost of medical care from seeing doctors for preventive care to hospital stays for unexpected illnesses, and more serious medical conditions.

Why This Coverage Is Necessary: medical bills are very costly, so any type of treatment without insurance will significantly cost you. It’s actually mandatory to have coverage in the U.S. and during tax time you will face a penalty of $625 or 2.5% of your income, whichever is greater, if you are still uninsured.

Where To Go: https://www.Healthcare.gov to get started

Disability Insurance – This coverage replaces a portion of your income if you are ever unable to work because you are injured or hurt for a significant amount of time.

Why This Coverage Is Necessary: four reasons, the average time away from work for disability is 2.5 years. You have a 1 in 5 chance in becoming disabled before age 65. You are also more likely to become disabled than die in an accident, and health insurance will cover the cost of your injuries but disability insurance is necessary to fund other bills like living expenses if you have insufficient savings.

Renter’s Insurance – this policy covers the replacement of your personal belongs if they are ever stolen or destroyed.

Why This Coverage is Necessary: a landlord’s homeowners insurance does not cover your personal property.

Life Insurance: this coverage pays out if you were to pass away. You can purchase varying amounts for specific time periods such as $100,000 worth of coverage for a 10 year term.

Why This Insurance Is Necessary: you will need this coverage if there are people who depend on you financially, like children or a spouse, or if your death and funeral would mean a financial hardship/loss for others. Small policies can be obtained if financially you simply want to cover burial expenses.

Money

Miko Branch Shares 3 Most Important Money Lessons

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IMG_0892 (00000003) (00000002)I’m confident that most journalists who have interviewed Miko Branch, the co-founder and CEO of the black hair care empire Miss Jessie’s, would agree that she is a study in elegance, compassion, and business smarts.

Regardless of how much financial success you achieve through your business, however, it’s what you do with the money that comes through your life, and your relationship with it that determines your financial fate.

Branch shared her insights with BlackEnterprise.com for our series “The 3 Most Important Lessons You’ve Learned About Money.”

BlackEnterprise.com: What would you consider to be the three most important things you’ve learned about money?

Branch: Money is a very interesting thing. My understanding of money in some ways has changed over time. My sister and I were raised by a dad who was often in debt, and understanding in our relationship with money was pay your bills on time. Pay your bills the minute they come through the door. Our experiences growing up also made us see—after we amassed some money—that maybe it’s not so bad to hold onto and keep more money in the bank and getting interest. We learned the power of having your money make money for you.

What are some of the other lessons about money that have stayed with you?

For me, I’ve learned that you have to understand why you’ve gone into business. My sister and I didn’t go into business because we wanted to make $1 million. We went into business because we wanted to be our own bosses. Our father taught us that it was important to control your career, and despite his struggles, we honored his lessons by following them and doing better.

In Ms. Jessie’s and through our career as businesswomen, we haven’t been led by money. Although money is an end result of business, our decision making and relationship with money has been secondary. Understanding our values has really played a huge role, I think, in the success of Miss Jessie’s, but we have never been slaves to money.

Another important lesson is that money does not take the place of happiness. There’s a certain amount of money you can make, and God has blessed us, but after that, you can only eat one lobster at a time. Whether you make $1 million or $10 million, money can just be a tool. Amassing money for the sake of amassing money, in my opinion, could be a little senseless.

If you had one lesson you could share about money, what would it be?

Money can often be mistaken for one’s identity. Sometimes we can make the mistake of defining ourselves by what we have. Making a distinction between money and true success is truly important when you’re out here not only as businesswomen, or business people, but as individuals.

Money

Graduation Season: Paying Off Student Loans

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iStock_000053244448_MediumIt’s graduation season and while the accomplishment is new and celebrations are still fresh for many for you, it’s never too early to start thinking about paying off  student loans. In fact, if you have already secured a job, consider making a repayment plan while you are still within your grace period. The student loan grace period is typically a six-month time frame between graduation and when your first student loan payment is due. Small loans of a couple thousand can be wiped out completely in six months if you can afford to pay them aggressively along with your other expenses and it can be a great way to save on interest charges.

Consider Consolidating

It can be difficult to keep track of individual loans and payments. If you are unable to pay off your loans within the grace period and have three or more loans to pay, consider consolidating. Cindy Wilson, director, field consulting group at TIAA says, “A consolidation loan combines all of your student loans into one monthly payment. One loan means only one due date and one check to write. A consolidated loan may have a lower interest rate. While there are benefits to a consolidation loan, keep in mind that you increase the length of your repayment period and you will also make more payments and may pay more in interest.”

Set Automatic Payments

The best way to never forget to make your loan payment is to set up automatic payments. This way each month your payment will be made by the due date. This method can help you maintain your credit rating and could potentially reduce your interest rate. Many loan servicers offer an interest rate reduction of ¼ of a percent if you agree to make automatic payments for one year. That adds up to a significant savings over the life of the loan.

Payoff Opportunities

If your payments are relatively high compared to your income, you should definitely consider the Income Based Repayment (IBR) option. This repayment option is designed to make your payments more manageable while your income is low and the payment amount increases as your income grows. The IBR also states that after 120 consecutive payments the remaining balances are to be cancelled. You may have heard that loan forgiveness was only available for those in public service or worked for a nonprofit, but under the IBR your remaining balance will be cancelled no matter your industry. Wilson, from TIAA also shared, “some employers offer student loan payoff programs as an employee benefit. You may have to agree to work at the company for a certain number of years to qualify.  However, if you enjoy what you do, the commitment is worth it.”

Is it too soon to start thinking about student loans? What’s your repayment plan?

Money

Graduation Season: Befriend the Budget  

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iStock_000085803117_MediumYou just spent the last four years of your life just getting by. Now you are graduating and taking on what may potentially be your first full-time job ever, earning more money than you ever have in your life. Before you touch your first direct deposit, you’ll want to start ahead of the game financially by having a well-designed budget.

Cindy Wilson, director, field consulting group at TIAA shares, “Having a budget will help you in both the short-term and long-term; now to cover expenses and later to save up for longer-term goals. Remember to consider all available income sources—savings, jobs, stipends from parents—and all possible monthly expenses, such as rent, utilities, food, laundry, social activities, online subscriptions, and so forth. It’s also important to build in some wiggle room in case of emergencies, like car repairs, medical bills, or an unexpected trip home.”

The most important lesson when it comes to budgeting is to understand that needs come before your wants. A “need” is anything necessary for you to live—like food and shelter. Premium cable does not count as a need; neither does unlimited services of any kind that you don’t regularly use. A “want” includes any of the lifestyle choices you make or items you buy above what’s necessary and is based primarily on your personal preferences. For example, we all need a place to live, however any apartments larger, more extravagant, and more expensive than what you actually need now moves from the need to want category. This would also include purchasing more clothes and shoes than you can wear, subscription services for items you don’t routinely use, or eating out at restaurants too often. It’s all about moderation.

A good budget breakdown is the 50/30/20 method: 50% of your income is set aside for living expenses like rent and utilities; 30% is set aside for debt payoff, savings, and investments; 20% is set aside for “wants” and fun stuff like shopping, eating out, and vacations. The goal with the 30% is to eventually pay down all your debts, and have your savings and investments account for a robust 30% of your budget. Until then, whatever percentage is available after paying your debts is what you should commit monthly to savings.

Develop good saving habits by looking at your savings like another bill you have to pay monthly. This will help keep you committed month after month and brings some reality to the concept of paying yourself first. You can also consider an incentive to help you stay committed to savings. If your parents have the means and want to participate, ask them to partner with you on a savings challenge where they match your savings contributions monthly.

Are you ready to befriend the budget?

Money

Dr. Janet Taylor Shares 3 Most Important Money Lessons

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IMG_0831While you can often see Dr. Janet Taylor offering advice to help the masses find psychological and emotional well-being on shows such as NBC’s The Today Show, CBS This Morning, or ABC’s Good Morning America, Taylor says it’s her work to help people in her community find psychological stability that she finds most vital.

“Being on the front line with individuals and their families battling the emotional and economic impact of mental illness is where I can make a difference,” she says.

When it comes to her own ‘economics,’ Taylor has had some life lessons that have had an impact on her personal financial behavior. She shared them with BE.com for our “3 Most Important Lessons About Money” series, as we work to bring more awareness to mental wellness during Mental Health Month.

BE.com: What would you say are the three most important lessons you’ve learned about money?

Taylor: The most important lesson that I have learned about money is that how much you save is as important as how much you make. I’ve learned this over the past four years, while managing my separation and divorce. The second lesson is that it’s important to talk about money to children. I grew up in a family where money management was not discussed. I wasn’t curious enough about finances and had to learn on my own.

I have also learned that the amount of money that you have or have access to will never redeem character. I have learned lessons about resilience, grace, and kindness from folks who had very little money but were incredibly generous human beings.

BE.com: What impact have these lessons had on your life today?

Taylor: I am focused on saving money. I am making better money decisions and buying less impulsively.

Be.com:  If you had one lesson you could convey to people about money, what would it be?   

Taylor: One lesson for people about money is to learn about money management by reading and asking questions and to begin accounting for every dollar that they have.

Be.com: Your focus is on mental health. Research shows that the black community seeks out mental health services at a much lower rate than whites, although we struggle with things like financial stress at higher levels.

Taylor: Historically, we have used religion and spirituality to make ourselves feel better. I think people are beginning to realize that depression is a biological dysfunction like diabetes or heart disease. You need to get it assessed and taken care of.

For more information on mental health, click here to visit the Mental Health Month website.

Money

What Prince Taught Us About Estate Planning

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Prince-2015_consequenceofsoundAs we learn more about Prince’s estate, and the fallout from his lack of estate planning, we have an opportunity to make sure we have a plan for our legacies when we move on.

“There has been a lot of discussion about the fact that Prince didn’t have a will,” says Lori Anne Douglass, an estate-planning attorney at Moses & Singer in New York. “Estate plans can be tailored to anyone’s needs. A trust would have allowed him to protect his privacy. That information is private, whereas the content of wills is public,” she adds.

As for what’s right for you, keep in mind that a will is a document that allows you, the testator, to name who you want to manage your estate when you die, this is called the executor. It also allows you to direct how you want your property managed and distributed. More importantly, your will allows you to name who you want to act as the guardian for your minor children or other dependents. If you die without a will, you are what is called ‘intestate,’ and your estate will go into probate

A trust is an arrangement that allows a third party – a trustee – to hold assets on behalf of a beneficiary or beneficiaries. It’s essentially a document that spells out how you want the assets you have to be distributed to your beneficiaries. Trusts also allow you to avoid probate and can help keep harmony in your family.

Don’t buy into the belief that trusts are only for the wealthy. Many financial advisers say a good rule of thumb is that you should consider a trust if you have assets of $100,000 or more.

As with the other documents you’ve created for your estate plan, one of the most important factors in creating a trust is determining who you will want for a trustee. Your trustee is going to manage the funds, invest the asset, make distributions, and possibly have to file a tax return every year for the life of the trust.  Make sure you select someone who is reliable; it’s a tremendous responsibility.

You may also consider a trust depending on your family’s needs. If you have a special needs child or an elderly parent, creating a trust for their benefits could impact whether they qualify for government benefits. If you put $50k in a trust for your mother, for example, the government could consider that money as part of your mother’s assets, which could disqualify her from eligibility for Medicare benefits.

There are different types of trusts for different purposes, which is why you should always talk to an estates attorney as part of your planning.

Money

Retirees Can Cushion Nest Egg from Market Meltdown

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iStock_000055471600_MediumWhat if your worst retirement nightmare became a reality and, as you settle down into a life of travel and leisure, the stock market falls off of a cliff?

[Related: 4 Ways to Protect Your Nest Egg in Retirement]

If you’re living off your investments, you know a financial crisis can hit you hard, as the contents of your 401(k) and other retirement plans will be worth less than the money you originally invested.

In a worst-case scenario, the Dow Jones Industrial Average loses 40% of value after a week of panic selling. “Unless you have some kind of side gig where you’re still contributing money, most people who are retired can’t afford that kind of loss,” says John Waggoner, an investment news columnist.

Rattled by the market crash, you hit the pause button on retirement activities. Since it will cost you money, you scrap plans to buy and sell antiques. Your husband chucks plans to turn a digital photography hobby into a side business. Instead, you focus on preserving your retirement nest egg.

Your circumstances may not be as bad as you think. A smooth retirement transition is imperiled only if your nest egg is front-end loaded with stocks. In other words, the money you will need in the next five years or so is still in the market as it collapses.

If you’ve been getting solid financial advice all along, your portfolio likely contains built-in safeguards. Your near-term money is in cash-like proxies, such as certificates of deposit and money market accounts. These provide monthly cash to meet your needs. Have enough for a year’s income, so that you’re not pulling out in the middle of a horrific downturn.

“If you’re just starting retirement and need to take the first year’s worth of income and withdrawals out of cash, you need to have enough so that, if the market falls 30% in a year, you don’t care,” Waggoner says.

Known as “The Wealth Coach,” Deborah Owens concurs. “What retirees need to understand is that any money that you’re going to need in five years should not have any stock market exposure at all,” Owens says. “Take any money that you’re going to need in the next couple of years out of the market. As you get older, you cannot afford to recover from a long downturn.”

Should the worst-case occur, Owens’ advice is to:

  • Use the crash as a “gut-check” moment. “You really don’t know what kind of investor you are, until you experience the downturn.”
  • Resist the impulse to flee the market. You suffered a paper loss, but “you haven’t lost anything until you actually realize it, meaning if you were to sell out of the market.”
  • Be calculated in your approach in a market downturn. “You need to look at your overall portfolio to see if it is allocated correctly.”

“You don’t want to take withdrawals while the market is taking a nosedive,” adds Waggoner. “If you’re in stock funds that are volatile, you don’t want to touch those during a downturn.”

Money

What Prince Taught Us About Estate Planning

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Prince-2015_consequenceofsoundOne has to wonder what Prince would think about the public spectacle surrounding his estate, which is estimated to be worth about $300 million.

The music icon worked so hard during his life to protect his privacy, and now the details of his assets, and more importantly the possibility that he did not create a plan for them after his passing, have cast his financial life into a spotlight that he tried so desperately to avoid.

“I think Prince simply thought he had time,“ says Lori Anne Douglass, an estate-planning attorney at Moses & Singer in New York.  

“For someone who worked so hard to be private and maintain control of his own music, it doesn’t make sense that he gave up his power in this way. The most important thing we learned from Prince is that you simply never know when you’re going to die,” she adds.

Douglass points out that while so much discussion centered around the fact that Prince didn’t have a will, a trust would have allowed him to protect his privacy. That information is private, whereas the content of wills is public.

The fact is, Prince, like the rest of us, was human. We are not wired to focus on estate planning. According to Legalzoom.com, nearly 70% of blacks in the United States die without a will.

When you consider, however, that a significant portion of wealth is passed through generations, you begin to understand the significance of creating a plan for your assets when you move on, and some of the challenges our community has had when it comes to building wealth.

For many of us, the hardest part of estate planning is figuring out how to begin. Douglass says the first step is to think about what happens as people die, and to consider the fact that we are all living longer, and likely to become incapacitated in some way at some point in our lives.

“The first step is getting your disability documents in order through a healthcare proxy and power of attorney. You can get statutory forms on your state’s website,” says Douglass.

The person you appoint to make healthcare decisions is called ‘the agent.’ You are ‘the principal.’ Unless you limit your agent’s authority, in most cases, they have the power to make any medical decisions you would make on your behalf.

“When beginning your estate planning, it’s also important to make sure that you have the correct beneficiary designations on things like employer benefits—401 (k)’s and insurance,” says Douglass.

In addition, when you start the estate planning process, you should consult an attorney so that you understand how the different aspects of your plan should come together. Douglass suggests seeking out a free consultation, which can at least result in guidance and affordable recommendations.

Once you cover those basic areas, it’s important to get wills and trusts in place. We’ll examine determining which is right for you in Part 2 of this series.

Money

Is Your Partner Your Financial Downfall? 

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iStock_000019830754_Medium“Spending is the second most common reason why couples fight, according to a SmartMoney survey. What usually happens, is that one spouse gets labeled the “spender” —Ruth Hayden, author of For Richer, Not Poorer: The Money Book for Couples.

[Related: 4 Ways to Protect Your Nest Egg in Retirement]

Is your partner your financial downfall? If you have ever checked your joint bank account statement at the end of the month and are confused as to what some of the purchases are, you are not alone. Sixty-four percent of couples put all of their money in joint accounts, and many identify one person in the relationship as a spender. While it may feel comforting to know you are not the only person facing this, studies also show that husbands and wives typically spend about the same throughout the year but on different things.

Instead of feeling like your partner is ruining your financial lives, come together to create new financial processes and solutions for your relationship.

Create a spending account.

No one wants to feel like they are being watched for every dollar they spend. Consider keeping your joint accounts for things such as bills, savings, and activities for the kids, but create separate accounts for spending with an agreed upon amount for each of you. This way you both have the liberty to save or spend how you like, but from a limited amount of money and with no chance to overspend or short the bill money.

Set some ground rules.

Agree to a few parameters for your household. Discuss whether it’s OK for one person to decide to save all their personal money and make a large purchase without consulting the other. It’s not about asking for permission, it’s about promoting and maintaining a healthy level of communication with your spouse.

Be transparent.

The purpose of a personal spending account is not an excuse to keep financial secrets. If you purchased something new for $500 and you saved to buy it, don’t lie and tell your spouse it only cost $150. You also don’t want to use your personal spending account as a way to hide debt. All debts should be paid from the joint account, which means both parties need to be aware of its existence. The same goes for income, there should be no bypassing of the joint account for your personal spending. All of these situations breed financial mistrust, which is extremely damaging to relationships long term.

Do you and your spouse fight over spending? Would any of these suggestions help your situation? Tell us about it in the comments below. 

Money

[Mental Health Month] Financial Stress Relief for Moms

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iStock_000073723339_MediumFor many mothers, Mother’s Day is a distant memory as they step back into their lives, balancing careers, budgets, and their children’s lives.

As we focus on psychological and emotional wellness in Mental Health Month, it’s important to note that financial stress is a major concern for certain groups of women.

A study by financial education company, Financial Finesse, finds that mothers ages 30 to 55 earning less than $60,000 a year, report “high” or “overwhelming” levels of stress at a much higher rate than other groups.

According to the study, 55% of women in this group report “high” or “overwhelming” levels of financial stress. That’s 40% more than similar-aged male parents in the same income group. In fact, women were more likely to report significantly higher levels of financial stress in every age group.

The study also found that “a lack of a sense of control” is a primary factor for those reporting high or overwhelming financial stress, with 84% of those facing overwhelming stress describing their current financial situation as “not under control.”

As for the least stressed group, that title went to men under 30, with 26% reporting that they have “no financial stress at all.”

“While it’s no surprise to any working mother that juggling competing financial needs is stressful, small steps over time can create financial balance for families at any income level,” said Liz Davidson, Financial Finesse CEO.

Davidson suggests:

  • Building an emergency fund over time
  • Tracking expenses to find ways to save in order to pay down high interest debt and
  • Taking full advantage of employer-sponsored benefits at work

You can also build up your financial resources by investing small amounts. Jacquette Timmons, financial behavior expert and CEO of Sterling Investment Management Inc.: I’m pretty fascinated by the investing app Acorns, so, I’d recommend opening an account with the entire $100, and then selecting the recurring option to invest your spare change. The business model is incredibly appealing because it supports the idea that no dollar amount is too small to invest; a concept that resonates with me since I often say small is the new significant.

Most important, have faith in yourself and trust that as a mother, you are built to always find a way.

Money

Looking for Alternatives to Filing Bankruptcy?

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iStock_000053907754_MediumIf you are laden with debt and looking for a way out, you may be considering filing bankruptcy. There are six types of bankruptcies that can be filed, but Chapter 7—the liquidation of assets—and Chapter 13—the restructuring of debts—are the most commonly filed among individuals.

You May Not Qualify for Bankruptcy

To file for Chapter 7, you can be employed, working full- or part-time, and have an income of any size, but you must first qualify to file by proving that your expenses exceed your ability to pay through a bankruptcy means test. If you fail the means test, you will not be able to absolve your debt through Chapter 7 bankruptcy, and only Chapter 13—the restructuring of debt—will be made available to you. So, in this case, you may want to seek alternatives to filing bankruptcy.

Debt Counseling & Negotiating Your Debts

If you only qualify for Chapter 13, it may prove more advantageous to restructure your debt yourself or through a debt counseling agency like Green Path. The benefit to you will include receiving the help you need to create a debt payoff plan and have it monitored by your credit counselor at no cost. Filing bankruptcy and having the courts restructure your debt is not free. While the administrative cost to file bankruptcy is only $335 for Chapter 7 and $310 for Chapter 13, attorney fees for completion of the filing can range anywhere from $500 to $3,500.

Another benefit to you includes having someone who will negotiate with your creditors on your behalf, which will potentially save you even more money if debts are settled for less than you actually owe. Lastly, no bankruptcy will appear on your credit report for seven years under Chapter 13 or 10 years under Chapter 7.

Sell Something

If you have large assets of any kind—a house, jewelry, a paid off car—and want to make a dent in your debts, you may consider selling some of them. Small assets may not be worth selling and the sentimental value of some larger assets will be hard to part with, but large debts hanging over your head are no fun and need to be tackled.

Do Nothing

Bankruptcy doesn’t have to be your only option, neither does negotiating or restructuring. In fact, doing nothing may actually be a possibility for some Americans with high debt and very low income (though it’s not something that I would personally recommend). If your income is extremely low, you have no assets, and you have no interest in having a future relationship with credit, there may be no action your creditors can take against you to collect, even if they decide to sue you. However, this solution could backfire down the road if your financial situation improves and a creditor decides to renew and collect their judgment against you.

Money

Why Automating Savings Isn’t For Everyone

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iStock_000079509469_MediumAll the experts recommend it. “Automate your savings and set up recurring transfers. Arrange for the transfers to occur shortly after payday so the money comes off the top of each paycheck. That will help you budget your spending and avoid overdrafts.” – Kiplinger

However, when it comes to personal finances the systems you set up only work as well as you do. If you are automating savings and want to watch that savings grow, the No. 1 thing you need to do is not touch it. Yet, 62% of Americans have less than $1,000 in their savings accounts and 21% don’t even have a savings account against the advice of all the experts, according to a Google Consumer Survey for personal finance website GOBankingRates.com. So what is happening exactly? Why are Americans not saving as much as they should? Behavioral psychologists have reason to believe it has something to do with using electronic money over cash. In fact, a study by Dun & Bradstreet found that people spend 12% to 18% more when using plastic instead of cash.

They attribute this overspend to the fact that electronic money doesn’t feel real. You are not physically holding or being accountable as you would for cash. There is no emotional connection or pain when you have to spend electronic money, and the immediate effect of having less money in your pocket doesn’t happen or the feeling can be avoided altogether until you decide to check your balance at a later time.

This same digital money effect can happen with our savings. You will often find people who say they save routinely with automatic deductions or transfers, but then turn around and spend exactly what they saved before the month is over. They see the money in their savings, know it’s there but can’t leave it alone when an opportunity to spend comes up.

Moving to a cash system can be very beneficial to Americans who struggle with this problem. Although it may seem archaic and inconvenient, it has definitive benefits. Turning off your automatic deductions and physically withdrawing your savings, spending and bill money may actually help you save more! Every month place each amount in an envelope and write what it will be used for. Every time you remove a bill from a particular envelope, it will trigger feelings or reactions of pain. Cash is physical; you touch and feel it. When you spend a bill, you have less left in your wallet. You can see that there is less and process that feeling immediately. Subconsciously, you will be encouraging yourself to spend less just to avoid the pain associated with spending.

Dr. Eric Agner, philosopher and behavioral economist from George Mason University who wrote A Course in Behavioral Economics, tells us “People who use cash really do spend less.” If you have issues leaving your savings put after the automatic deposits and transfers happen, try an all-cash system to see if physically having to handle your money works better for you.

Money

When You Earn Over $100,000 and Still Live Paycheck to Paycheck

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iStock_000062007824_MediumIt may sound unbelievable, but even when you earn six figures you can be living paycheck to paycheck. How does this happen and how can you keep it from happening to you? In 2015, the number of six-figure earners living paycheck to paycheck was a whopping 25% according to a survey by SunTrust. Thirty percent of those surveyed blamed lack of financial discipline, another 68% blamed eating out as the main reasons behind their constant spending. Therefore, we continually see simple lifestyle habits and everyday expenses that exacerbate the problem, not low earnings or flashy lifestyles.

How can you get control when you earn more than $100,000 and still live paycheck to paycheck?

First, you have to acknowledge that earning $100,000 doesn’t automatically make you wealthy. There is a perception that $100,000 is the gateway to being rich, but you will still live paycheck to paycheck if you don’t budget or keep track of your spending.

Second, be willing to make some lifestyle trade-offs. Is your rent or mortgage more than 35% of your income? Are you paying for the convenience of being close to work? Perhaps it’s time to downsize or take on a roommate to help manage your housing costs.

Third, make savings a priority. People earning more than $100,000 are often not saving enough in proportion to their income. They are also more comfortable increasing their debt loads due to their higher income. Remember, you still have to pay back your debt, so keeping it under 30% utilization is ideal no matter what your income.

Fourth, don’t allow your job title or income to spend for you. If there is an unspoken expectation that leads you to believe there is a certain type of apartment you should have, or a certain type of car, or certain types of clothes if you earn six figures, erase those myths. Especially if you have children and everyone in your neighborhood sends their kids to the same pricey private school. You should focus on making financial choices that are practical for your finances and your future, not your neighbors.

Assessing the issues that are keeping you living paycheck to paycheck is a vital part of the process. Also, honestly considering how your lifestyle choices can be adjusted to help lighten the load is critical as well. Lastly, committing a portion of your reduced expenses to increasing your savings and building your wealth for the future will be the best thing you can ever buy for yourself.

 

Money

What My Mother Taught Me About Gender and Money

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WangI was recently reminded of a conversation I had with a few days ago. I was with an amazing group of about eight women, including news legend Carol Jenkins, host of CUNY TV’s Black America. The conversation was “light,” gender stereotypes and the ways in which they have affected our lives. About halfway into it, we began to speak about our mothers.

My mom grew up on a farm in a small town in North Carolina near New Bern. Her family grew and sold tobacco, cotton, and lumber. They were poor, and all of the family members, including the seven children, worked on the farm.

I shared with the group how my maternal grandmother (unfortunately, we never met), insisted that the girls get a college education. The boys stayed home and worked the farm to help support their sisters.

Jenkins, whose family also grew up poor in the South, shared that she had the same experience. The group then discussed how this was a relatively common practice in black southern families “back in the day.” The reasoning, at least from my Mom’s family’s perspective, was that black women are going to be faced with so many challenges and disadvantages that being educated was crucial to their survival.

Our mothers and grandmothers “got it.” They knew that the world is not designed for women, particularly their daughters, to create lives in which they could thrive. They knew that the key to standing up to these challenges was education.

Even with education, however, the scales are greatly weighted against black women. A survey by The Washington Post and the Kaiser Family Foundation found that black women have a harder time getting loans and paying bills than other groups.

This is not ‘breaking news.’ We all know that black women are on the losing side of socioeconomics. They are at the bottom of the pay gap, making 64 cents for every dollar that white men make, and 70% of black women are trying to raise children on their own.

It’s more important than ever to empower ourselves with knowledge, and be the financial role model our children need us to be as we honor our own mothers.

Ask yourself:

  • What are the five most important things I want my child to learn about money?
  • What would I want my child to do differently when it comes to money?
  • What changes do I have to make in order to be the financial role model my child needs me to be?

Write down your answers and share your thoughts and feelings with your children, as one day they will be reflecting on the financial lessons you taught them.

Money

New ‘Gig Economy’ Embraces Workers Young and Old

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iStock_000063830007_MediumIt goes by different names: sharing economy, on-demand economy, 1099 economy, but more commonly, the ‘gig economy.’

[Related: ‘Unretirement’ Becomes New Buzz Word for Post-career Baby Boomers]

Gig work is not just for millennials who can’t find a satisfying job or Gen-Xers who’ve been downsized. It’s for baby boomers, too. More and more people are joining the growing ranks of the gig economy as self-employed workers.

With job security a thing of the past, many millennials and Gen-Xers turn to side gigs for financial security. If you belong to either demographic group, income volatility can be a real issue. If you’re not smart about it, your financial health can be impacted, says Rob Levy, managing director at the Center for Financial Services Innovation.

Working for yourself, you won’t have: a 401(k) retirement plan, employer-sponsored health insurance, automated tax withholding. You’re on your own when it comes to managing your financial health. Levy recommends several tools that help provide financial clarity: United Capital’s FlexScore; Schwab MoneyWise Financial Fitness Quiz; SunTrust OnUp Movement quiz.

As for taxes, don’t trust yourself to keep track of expenses. Deducting expenses helps lower your tax bill. Use accounting software that puts expenses on autopilot. Consider: QuickBooks, Xero, Wave.

If you’re a retired baby boomer living a secure retirement, gig work is hardly vital. You have a bountiful retirement portfolio. For you, the world of work is history.

But if you’re defined by your occupation, you’ll have a hard time breaking the inertia of a 40-year career. Re-entering the workforce is a way to apply the skills acquired over a lifetime and earn extra income in the process.

Everett Bellamy, a retired Georgetown Law dean, continues to teach at the school. He also advises a company in the burgeoning business of ensuring the integrity of test scores in public school systems. The gig comes in response to a spate of scandals involving teaches and administrators inflating test scores of children from struggling schools. Roscoe Nance, a retired sportswriter, picks up cash as a freelancer for the Black America and Mid-Atlantic Athletic Conference websites.

Career is not always a predictor of gig choice. James Mathis, a retired operations analyst, expanded his landscaping business. Cash earned ‘gigging’ can stretch income, maybe pay for your daughter’s wedding, pay unexpected dental bills, or cover the cost of a leisurely Caribbean cruise.

In that last regard, Jo Israelson hasn’t enjoyed much leisure. Israelson fits the definition of a ‘solopreneur,’ a freelancer running a one-person business. Jo ‘The Clutter Buster’ helps clients – often downsizing seniors – prune sentimental possessions.

Israelson launched the business to fund a second career as a sculptor after working in teacher training for the hearing impaired.

Along the way, she’s worked at landscaping, house sitting, opening summer cottages of rich people. “You clean the cottage, stock the fridge, remove any creatures residing there all winter,” she says. One summer she worked “16 different gigs” – hardly the stuff of a restful retirement.