What If It’s Not Working?

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Money comes, money goes. You get paid. Wahoo! Then the cable bill comes... Then the phone bill... Then the water bill, power bill, car payment, and house payment all come on one, lovely day. @#$%! This is the month when homeowner’s insurance premiums come in? Did you forget about that? (I know I did!) Wow. There’s just not that much more left than before you and I got paid! And we’re supposed to go to that new, pricey restaurant this weekend with our friends… Do you ever feel like this? I think most people do.

So what should you do when it’s not working? You’re certainly working hard, and you’re reading all of those helpful financial blogs every time your friend pumps one out (hopefully), but your financial situation is just not improving that much. What should you do? In three words:

Try something different.

If you’re having trouble saving money, open a second cash account and direct deposit a portion from each pay check into it. Pretend it’s another one of those deductions on your check no one really understands, and I bet your cash will finally build!

If you’re having trouble paying down your credit card debt or you keep “overusing” your debit card, play rock, paper, scissors with your plastic cards and go with scissors! Cut them up into a lot of pieces (to help reduce the chance of identity theft), and try using cash. When you see how many pictures of Andrew Jackson or Benjamin Franklin something takes, it may feel different and help your self-restraint.

If you’re having trouble actually increasing your contributions to your retirement plan at work, think Nike - just do it! As long as your increased contribution isn’t horribly unreasonable, you’ll probably naturally figure out how to make your reduced income work once you have less income actually coming in.

The one I’ve actually seen a lot of lately is someone trying to do too many good things at once. I admire people who do this, but let’s be realistic; you can’t boost cash, pay down debt, save for a new car, save for a new house, save for your kid’s college, save for your kid’s wedding, and save for that long overdue dream vacation all at the same time. I mean you could, but unless you’re making really big money, that “shotgun approach” isn’t going to work. Based on my experience, most people taking the “shotgun approach” end up feeling like they aren’t making any progress, get frustrated, and then return to spending what they make. Instead, I’d suggest that you go with a “surgical strike approach,” and go after one or only a few items at a time. Boost cash, then pay down debt while keeping your cash up. Save for a car, buy a car, and then save for the new house. This way you will feel like you are making financial progress because you are accomplishing something that is tangible and observable. Things will get checked off your list, and you may find that your rate of financial progress seems to pick up momentum.

If what you are trying to do financially isn’t working, don’t feel bad. When talking about his many attempts to invent the lightbulb, Thomas Edison said that he had not failed, he’d just found 10,000 ways that didn’t work! Edison also said, “Our greatest weakness lies in giving up. The most certain way to succeed is always just to try one more time.”

If you don’t want to listen to this Thomas, that’s fine, but please listen to Thomas Edison. Try one more time!

-Tom

Scams Not to Fall For

Credit: Stuart Miles

A couple of weeks ago I got a call from a blocked phone number. I was curious (despite knowing what curiosity does to felines), so I decided to answer. There were lots of voices in the background and even a few phones ringing, but my caller gruffly asked if he had reached my residence. When I confirmed he had, things got real.

Muffled Voice: “This is the United States Treasury Department, and we are calling to notify you that you have several years of back taxes coming due.”
Me: “Really? I’m surprised to hear that. What tax years are in question?”
Muffled Voice: “You have several years of back taxes coming due, and you need to make a payment or face a lien on your property. You can pay now by credit card or wire transfer.”
Me: “That’s not going to happen. To which IRS Center should I make my payment (yep, that was a CPA joke)?”
[Click]


That call was a pathetic fraud, but I can see how it could scare someone who did not have their wits about them into divulging personal information and maybe even giving out a credit card number. Luckily, I didn’t fall for that farce (that is evidently still going on), but too many people have fallen victim to many similar scams. Today, I thought I’d give you a heads up on some of the latest scams that are out there.

• Scam #1: Congratulations! You’ve won a sweepstakes or random drawing, but there’s just one thing, you’re pretty sure you didn’t enter. Once they ask you for banking information so they can withhold the proper taxes and send you your winnings, go ahead and wish them an unpleasant day.
• Scam #2: You’ve won a free cruise or a vacation? I doubt it. Once they ask you for personal information so you can claim your prize and await further instructions, go ahead and hang up. Cruise on to whatever else you had planned for the day.
• Scam #3: You get a call from a “friend” telling you one of your family members is in jail. This is evidently a favorite to use on grandmas whose grandsons are in jail and are “too embarrassed” to call their parents. Please don’t wire any bail money and promise to keep it a secret…
• Scam #4: If you frequently sell things online personally or as part of your business, and someone sends you a check that is larger than your agreed upon price and they ask you to just send them the difference back, I hope you hear the alarm bells. They’re probably trying to get the difference from you in real money and leave you with a not-so-real check!
• Scam #5: Would you like to buy this widget at a discounted price that’s only available for a limited period of time? I hope you don’t, but if you do, I hope you wouldn’t be so easily pressured into quickly handing over your personal and financial information.
• Scam #6: Would you like to make a donation to the United Thieves of the Southeastern United States to benefit those who suffer from Antarctican Measleitis (asked in a super sweet voice)? With apologies to those who suffer from Antarctican Measleitis, no! Stick to the charities and causes you know. Your support is very much appreciated.
• Scam #7: You get an email from one of your friends (whose email address has been hacked) telling you they randomly took an international trip, are in trouble, and need money. First, how many people take random international trips? Second, if your friend took a random trip to Mozambique without telling you they were going, aren’t you a little peeved? Why would you send them money? Third, call your friend, and see if they are okay. I’d be willing to bet they are, and whatever you do, don’t click the link!
• Scam #8: You’re staying in a nice hotel, it’s kind of late in the evening, and you get a call from “the front desk” letting you know there was a glitch with the computer system and they lost your credit card information on file. They either need you to come down with your card or go over your information with them over the phone. You’re tired and tying your shoes again seems like a more significant inconvenience than it probably should, so you might be tempted to give your name as it is written on the card, your credit card number, expiration date, and the 3- or 4-digit security code. Don’t do it! It’s probably not the front desk of the hotel. Much more likely, it’s the guy two people behind you when you checked in who heard your last name and room number when the clerk wished you a nice stay!

I believe there really are a lot of good people out there in today’s world, but unfortunately, there are some real stinkers, too. There are some very sick and evil people who prey on the naïve, the lonely, and the elderly. Sadly, they are somewhat successful at it. Please be smart. Don’t give anyone anything unless you’re sure they are who they claim. Ask them questions they should be able to answer. Call them back on phone numbers you look up and email them back at email addresses you search for to test them.

Don’t fall for these scams. Don’t let your friends fall for them either.

-Tom

The Hidden Costs of Changing Jobs

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For whatever reason, I’ve had a lot of people recently ask me about changing jobs. Maybe it’s been all the rain, maybe the end of year bonuses weren’t so good, or maybe with the holidays and New Year’s, everyone just forgot how much fun a five-day workweek can be. Either way, there is an awful lot to consider if you are thinking about changing jobs. I’ve covered some of the basics of changing jobs before, but today I thought I’d share with you some of the hidden costs you should consider before changing jobs.

Hidden Cost #1:  Parking – Don’t make the mistake of assuming your current parking situation will be the same as your next parking situation if you are planning on leaving your current employer for a $1,000 raise. This is particularly true if you are going from a suburb to a city or a small city to a big city. Parking can be a serious expense, and not all employers are going to pay or reimburse you for it.

Hidden Cost #2: Clothing – There are lots of different wardrobes required for lots of different careers, but if your new job is going to require a substantially different “Monday through Friday collection,” I’d suggest you factor this into your decision. I personally felt this when I went from a business casual environment to somewhere between a business professional and black tie environment. Okay, I haven’t had to wear a tuxedo just yet, but suits, ties, dress shoes, and cuff links don’t grow on trees!

Hidden Cost #3: Vesting – This could be buried in those documents you signed when you first started working for your current employer (saying that you’d read them when you probably didn’t), but it’s worth understanding if any of your benefits are on vesting schedules. Quite frequently, things such as employer 401(k) contributions, pensions, and stock options have vesting schedules. Put simply, a vesting schedule means you only get to keep a certain amount of what you’ve been “given” if you leave before a certain point in time. If you’re miserable or have a great opportunity, then change jobs. On the other hand, if you are hastily plotting the delivery of your resignation letter on a rainy Tuesday, look to see if any of your benefits are on vesting schedules and make sure you don’t leave three days before the 60% of your employer’s 401(k) contributions you get to keep becomes 80%.

Hidden Cost #4: Pension Implications – I really think pensions are headed in the direction of the dinosaurs and dodo birds, so if you are working towards one, just know a lot of other people are jealous. A pension is an unbelievable and usually steady benefit for a retiree, and because they’ve been such a huge benefit, they have cost companies a lot of money over the years. It is not a mystery why they are being phased out. All that just to say that walking away from a pension benefit could be a decision with long-term consequences, so consider your next actions carefully.

Hidden Cost #5: Health Insurance – Health, dental, and vision benefits vary an awful lot from company to company, and you should certainly keep that in mind. A small pay raise can easily become a net loss if the health coverage significantly varies between Job A and Job B. This hidden cost difference can even be exacerbated if your spouse is on your insurance or if your family is growing.

Hidden Cost #6: Cost of Living – Let’s face it, Little Rock, Arkansas, and Los Angeles, California, are not the same place. Humorously enough, the people of Arkansas and California are also probably okay with that! Either way, things don’t cost the same in different places. If you are going to need to get on an airplane to go to your new “office,” you are going to want to really consider the change in cost of living versus the change in your compensation or benefits. The cost of groceries, the cost of gasoline, the state income tax rate, and property taxes can all be big surprises unless you’ve done your homework.

In case my employer is reading today’s post, I should probably go ahead and articulate that I’m not looking to change jobs. Besides, if I was, I’d be thinking about getting out my old trombone, trying to restart my musical theatre career, or becoming a high school U.S. history teacher. Don’t worry, I’d keep 2MuchCents up and running as a hobby!

-Tom

You Might Be Well Diversified If...

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You are probably familiar with comedian Jeff Foxworthy’s “You Might Be a Redneck” routine. If you’re not, you should be! His routine is hilarious, and since I was born and raised in the Southeast, I've seen some of what he is talking about. I’ve seen driveways where it doesn’t look like the boat has left the driveway in 15 years. I’ve seen people whose dog and wallet were both on a chain. I’ve seen yards where if someone mowed them, I believe they might just find a car! It’s funnier when he does it, but you get the point. Either way, it got me thinking about an idea for today’s post…

By now you’ve probably gotten the year-end statements for most of your investment accounts, and if you’ve looked at them closely, you might have noticed 2014 was kind of a weird year for stocks. I say it was a weird year for stocks because some of the classes of stocks had very different returns. U.S. stocks ended up having a pretty good year after some ups and downs, but international stocks finished the year down for the most part. If you took a closer look at U.S. stocks, you likely found that the stocks of large U.S. companies (“large cap stocks”) did pretty well, but the stocks of smaller U.S. companies (“small cap stocks”) were not up nearly as much as their larger counterparts. Small cap stocks were even negative for a good portion of the year!

Statistically speaking, the S&P 500 (an index that represents large cap stocks) was up between 13% and 14% for 2014. The Russell 2000 (an index that represents small cap stocks) was up around 5% for 2014. The MSCI EAFE (an index that represents international stocks) was down around 5% for 2014. Why do I tell you all of this? To share with you that, if you had a stock portfolio filled with large cap stocks, small cap stocks, and international stocks, you probably didn’t end up with the 13% to 14% return “the market” had in 2014 that the television pundits, radio hosts, and investment newsletter writers keep talking about! As Jeff Foxworthy might say, you might be well diversified if you did not end up with the S&P 500’s return!

I’ve also heard it said that you know you are well diversified if there is always part of your portfolio that you are “mad” at. I’m not sure that’s always the case, but there is definitely some merit to that statement. If you were mad at your bonds in 2013 when the stock market roared, I bet you were pretty pleased with them in 2008 and 2009 when the stock market took a dive. If you were mad at your stocks in 2008 and 2009, I bet you have been pretty pleased with them the last five years or so. So all in all, you might just be well diversified if there’s usually a part of your portfolio that you aren’t pleased with.

If what I’ve said so far hasn’t really applied to you because you only own one stock or a couple of stocks, I’d offer two things. First, concentration in a single stock is how you can accumulate and/or evaporate wealth - not preserve wealth. Second, you might be well diversified if you can’t name every holding in your portfolio from memory!

As your friend and someone who wants you to do well and make as much money as you can, I wish you were completely invested in the S&P 500 last year and got that 13% to 14%. However (and please read my next words very carefully), as your humble financial blogger and a financial advisor who believes in the long-term investment strategies of diversification and compounding, I certainly hope you didn’t!

-Tom

The Right Answer

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With all of the great college football bowl games that have been on television recently, I have seen a lot of fans doing some pretty strange things. Some fans are flat out in costume. Some are chanting the same words over and over, while some are constantly jumping in place, and some even make animal sounds during kickoffs! I can’t help but think of that old Bud Light commercial showing fans doing similarly strange things in an effort to somehow help their teams win the game. The slogan reads, “It’s only weird if it doesn’t work.”

In my world of financial advice, people ask me questions all the time. Sometimes I know or can find the “correct” financial answer pretty quickly, but most of the time I need to develop some sort of probability analysis or perform a calculation or projection before I can offer the “correct” numerical solution. The thing is, my initial “correct” financial answer or “correct” numerical solution isn’t always right for the client who asked the question, and it’s not because of faulty research or incorrect math; it’s because it doesn’t yet factor in my client’s feelings or emotions. The slogan for the financial advice I try to give to people would read, “It’s only correct if it works for you.”

Let’s say someone has $10,000 to invest and asks me if they should invest it all in gold. Let’s say a retired person who has more assets than they likely need to continue to live comfortably is really concerned about the world situation and asks me if they should invest $10,000 of their assets in gold coins to put in their safe deposit box. My long-term investment advice would probably be the same to both parties, but it might not be the right answer for both parties.

One of the questions I’m asked most frequently is when someone should begin drawing their Social Security. Someone can choose to start at age 62 or wait until age 70 and likely receive a higher benefit for each year they waited, but it is not always an easy question to answer. If two 62-year-old clients with the exact same assets and retirement incomes asked me if they should start Social Security, but one of them is losing sleep because they are concerned that the government might change their benefits if they wait to start drawing Social Security, my Social Security advice would probably be the same to both clients, but it might not be the right answer for both clients.

If two people can finally pay off their low-interest student loans or make their annual IRA contributions, but one of them has really been struggling with the fact that they still have student debt, my cash utilization advice would probably be the same to both people, but it might not be the right answer for both people.

My point is that almost all financial decisions are double-edged. There is often an analytical or numerical “correct” answer and an emotional “correct” answer. When those are the same, it’s easy to decide what to do, but when they are different, it can be quite the conundrum. Some of the deepest and most meaningful conversations I’ve ever had with clients have come from discussions where financial expertise seemed to suggest one thing and emotional credence seemed to suggest another. I take the privilege of being a part of such conversations very seriously, and it is because of conversations like these that I know no software, no app, no robo-advisor, and no strictly commission-based broker can completely replace my role in helping people think through the tough financial decisions to find their right answer.

When you find yourself facing a tough decision where your emotions and finances seem to be pushing you in two different directions, proceed with caution! Be careful relying on what you’ve read, what you’ve heard, what your computer says, and what Bob told you he did that time in the break room. Remember, it’s only correct if it works for you, and I’m happy to try to help you find your right answer.

-Tom