Q&A: Why Are Prices So High Now?

Q: I’m trying to heal financially as life returns to pre-pandemic norms, but the rising cost of many commodities, like groceries and gasoline, is making a financial rebound a challenge. Why are prices skyrocketing right now?

A: The jump in prices of many goods is proving to be a formidable challenge to millions of Americans who are attempting to recover from the pandemic. There are several compounding factors triggering the rise in prices across multiple industries, and the upward trend is likely to continue for a while. Here’s what you need to know about the sky-high prices dominating the post-pandemic economy.

How much more do groceries cost compared to a year ago?

A trip to the grocery in 2021 doesn’t come cheap. According to new data from NielsenIQ, all 52 tracked food categories are more expensive now than they were a year ago. The cost of fresh meat, for example, jumped by 8.6% from May 2020 to May 2021, while processed meats are up by 9.2% and the cost of eggs has seen a nationwide increase of 8.2%.

What is causing the increase in grocery prices?

A confluence of factors is causing grocery prices to rise.

For one, the pandemic has caused a shortage in many materials due to a prolonged disruption in the labor force and supply chain, which has increased demand, and the prices of these goods, to rise. Grocery items, in particular, also saw a surge in demand due to the many Americans cooking at home while on lockdown during the pandemic. Many industries are still suffering from these shortages and don’t expect to recover for a while. In fact, the Bloomberg Commodity Spot Index, which tracks 23 raw materials, is at the highest level it’s been in nearly a decade.

Second, there is a shortage in the labor market now, which can likely be attributed to the inflated and extended pandemic unemployment insurance, which made many laborers reluctant to return to work. Employers are forced to offer more pay for attracting workers, and they pass this extra cost on to consumers.

Finally, the increase in prices can be linked to the rise in transportation costs as gas prices continue to rise, which we’ll explore more in a moment. Again, this increased expense is passed on to the shopper through higher prices on consumer goods.

Why are gas prices so high?

It’s sticker shock at the gas pump these days, with prices as high as $4 per gallon in some parts of the country.

There are many factors contributing to the rise and fall in gas prices, of which the fluctuating price of crude oil is most prominent. According to the U.S. Energy Information Administration (EIA), approximately 60% of the money we pay for a gallon of gas goes to cover the costs of the crude oil that went into making it. Another 25% pays for the costs of refining, distributing and marketing the gas, while the rest pays for federal taxes, and state taxes in some states as well.

Crude oil prices, in turn, rise and fall in direct correlation of multiple factors. Most recently, here’s what’s causing the price of crude oil to peak:

  • Basic rules of supply and demand. The last few months saw a loosening of COVID-19 restrictions around the globe. This led to an increase in the demand for gas, and in turn, for crude oil. In contrast, at the height of the pandemic, demand for crude oil fell sharply — and so did its price tag.
  • The presidential election. Crude oil prices have spiked by an average of $0.75 per gallon since Nov. 3, 2020. The oil markets evidently see the current administration as one that will inhibit U.S. oil production, which leads to a tightening on the global oil market. Traders responded by driving up the price of crude oil.
    Seasonal market changes. The price of crude oil tends to rise and fall with the seasons, where prices generally rise in the spring and summer months as more motorists hit the road, thereby increasing demand. The changeover to summer gasoline blends also leads to a jump in gas prices at this time of year
  • Change in the value of the dollar. Oil is priced in U.S. dollars within the world market. When the dollar is strong, relative to other currencies, crude oil is cheaper for Americans and more expensive for the global market. When the dollar is weak, as it is now, oil becomes more expensive for Americans.
  • Strong discipline among the OPEC+ nations. When the nations which are part of OPEC+ stick to their agreement to cut back on oil production, prices increase.

What can I, as a consumer, do about the rising cost of goods?

Unfortunately, as a private consumer, there’s not much you can do to bring down the costs of common goods. However, there are steps you can take to help you manage these costs in a financially responsible manner.

First, you’ll likely need to make some changes to your monthly budget to accommodate the higher costs of groceries and gas. Shuffle your spending categories by trimming discretionary expenses until you have enough money to cover the costs of food and transportation.

Next, incorporate cost-saving techniques you may not have needed to use until now to help you manage these increased expenses. Think couponing, shopping the seasons and the sales, buying items you always use in bulk, and cutting back on pricey grocery items you can do without. To save on gas costs, consider walking to work or to do your errands, carpooling when possible, or using public transportation more often.

Rising prices might be hard on the wallet, but with some proactive steps, you can still stay on top of your finances and help bring your financial health back to pre-pandemic norms.

Your Turn: How are you budgeting for the rise in the cost of groceries and gas? Share your tips with us in the comments.

All You Need to Know About HELOCs

If you’re a homeowner in need of a bundle of cash, look no further than your own home. By tapping into your home’s equity, you’re eligible for a loan with a, generally, lower interest rate and easier eligibility requirements. One way to do this is by opening up a home equity line of credit, or a HELOC. Let’s take a closer look at HELOCs and why they can be an excellent option for cash-strapped homeowners. 

What is a HELOC?

A HELOC is a revolving credit line that allows homeowners to borrow money against the equity of their home, as needed. The HELOC is like a second mortgage on a home; if the borrower owns the entire home, the HELOC is a primary mortgage. Since it is backed by a valuable asset (the borrower’s home), the HELOC is secured debt and will generally have a lower interest rate than unsecured debt, like credit cards. You will need to pay closing costs for the line of credit, which are generally equal to 2-5% of the total value of the loan.

How much money can I borrow through a HELOC?

The amount of money you can take out through a HELOC will depend on your home’s total value, the percentage of that value the lender allows you to borrow against and how much you currently owe on your home. 

Many lenders will only offer homeowners a HELOC that allows the borrower to maintain a loan-to-value (LTV) ratio of 80% or lower. 

A quick way to find a good estimate of the maximum amount you can borrow with a HELOC is to multiply your home’s value by the highest LTV the lender allows. For example, continuing with the above example, if your home is valued at $250,000 and your lender allows you to borrow up to 80% of your home’s value, multiply 250,000 by 0.80. This will give you $200,000. Subtract the amount you still owe on your mortgage (let’s assume $100,000) and you’ll have the maximum amount you can borrow using a HELOC: $100,000. 

Is every homeowner eligible for a HELOC?

Like every loan and line of credit, HELOCs have eligibility requirements. Exact criteria will vary, but most lenders will only approve the line of credit for homeowners who have a debt-to-income ratio of 40% or less, a credit score of 620 or higher and a home with an appraised value that is at minimum 15% more than what is owed on the home. 

How does a HELOC work?

A HELOC works similarly to a credit card. Once you’ve been approved, you can borrow as much or as little as needed, and whenever you’d like during a period of time known as the draw period. The draw period generally lasts five to 10 years. Once the draw period ends, the borrower has the choice to begin repaying the loan, or to refinance to a new loan. 

How do I repay my HELOC?

The repayment schedule for a HELOC can take one of three forms:  

Some lenders allow borrowers to make payments toward the interest of the loan during the draw period. When the draw period ends, the borrower will make monthly payments toward the principal of the loan in addition to the interest payments. 

For many borrowers, though, repayment only begins when the draw period ends. At this point, the HELOC generally enters its repayment phase, which can last up to 20 years. During the repayment phase, the homeowner will make monthly payments toward the lHELOC’s interest and principal. 

In lieu of an extended repayment phase, some lenders require homeowners to repay the entire balance in one lump sum when the draw period ends. This is also known as a balloon payment. 

How can I use the funds in my HELOC?

There are no restrictions on how you use the money in your HELOC. However, it’s generally not a good idea to use a HELOC to fund a vacation, pay off credit card debt or to help you make a large purchase. If you default on your repayments, you risk losing your home, so it’s best to use a HELOC to pay for something that has lasting value, such as a home improvement project. 

How is a home equity line of credit different from a home equity loan?

A home equity loan is a loan in which the borrower uses the equity of their home as collateral. Like a HELOC, the homeowner risks losing their home if they default on it. Here, too, the exact amount the homeowner can borrow will depend on their LTV ratio, credit score and debt-to-income ratio.

However, there are several important distinctions between the two. Primarily, in a home equity loan, the borrower receives all the funds in one lump sum. A HELOC, on the other hand, offers more freedom and flexibility as the borrower can take out funds, as needed, throughout the draw period. Repayment for home equity loans also works differently; the borrower will make steady monthly payments toward the loan’s interest and principal over the fixed term of the loan. 

A home equity loan can be the right choice for borrowers who know exactly how much they need to borrow and would prefer to receive the funds up front. Budgeting for repayments is also simpler and can be easier on the wallet since they are spread over the entire loan term. Some borrowers, however, would rather have the flexibility of a HELOC. They may also anticipate being in a better financial place when the repayment phase begins, so they don’t mind the uneven payments. 

Your Turn: Have you taken out a HELOC? Tell us about it in the comments.

Learn More:
creditkarma.com
marketwatch.com
thepennyhoarder.com
investopedia.com

Spring Clean Your Finances

Spring is a great time of year to clear your house of accumulated junk and make it sparkle. Why not do the same for your finances? Junk can accumulate there, too. In fact, some of your money matters may need a good wipe down this season. It is especially true this year, when many Americans are still recovering from the financial fallout of COVID-19, or maybe wondering how to use the latest round of stimulus checks. Whatever your current situation, a thorough spring-cleaning for your finances is a responsible move this time of year.

Here are some ways to spring clean your finances:

Sweep out your budget

It’s time to shake out the dust in your budget! Review your monthly spending and find ways to cut back. Have you been overdoing the takeout food this year? Buying up more shoes than you can possibly wear? Pare down your budget until it’s looking neat and trim.

Freshen up your W-4

Tax season is prime time for revisiting the withholdings on your W-4. If you received an especially large refund this year, you may want to adjust the amount you withhold. The IRS’s tax withholding estimator  can be a useful tool to help you determine the perfect number.

Deep clean your accounts 

If you’ve switched from one bank or credit union to another, you may have dormant accounts that are still open and may be charging you fees. Or, perhaps they’re holding onto money you’ve forgotten you have! And don’t forget about the 401(k) you may have from an old job. Now may be the time to transfer those funds to your current 401(k).

This spring, do a Marie Kondo on your finances and get rid of any accounts you don’t need any longer. A minimalist approach to your finances will make it easier to manage your accounts. It will also give your savings a greater chance at growth, and help you avoid fees for unused accounts.

Toss out your debt

Get ready to kick that debt for good!

If you’ve been stuck on the debt cycle for too long, make this spring the season you create a plan to break free.

First, trim your budget or consider a side hustle for earning some pocket money, designating these extra funds for your debts. Next, choose a popular debt-busting approach, such as the avalanche method, in which you pay off debts in order from highest interest rate to lowest, or the snowball method, where you start with the smallest debt and then move up your list as each is paid off. Once you’ve chosen your approach, maximize payments to the first debt on your list, making sure not to neglect the minimum monthly payments on your other debts. Before you know it, that debt will be gone!

Dust off your saving habits

Have you been remembering to pay yourself first? Get into the habit of maximizing your savings this spring with a tangible financial goal. You can also make savings an itemized line in your budget. This way, you’ll have funds set aside for this purpose, instead of savings only happening if there’s money left over at the end of the month. Finally, automate your savings by setting up a monthly transfer from your checking account to your savings account. Never forget to pay yourself first again!

Make your investments sparkle

Whether you’re an experienced investor or you’re just getting your feet wet, it’s time for a spring cleaning of your investments! Check if your allocation strategy is still serving you well, whether you need to adjust your diversification and if your retirement accounts are on track for your estimated retirement timeline.

Make your stimulus count

Don’t let your stimulus payment and tax refund blow through your checking account. Instead create a spending plan for the funds that includes paying down debt, allocating some of the money for long-term and short-term savings and possibly investing another portion of the payment. Don’t feel guilty about using the rest of your stimulus check to splurge on a purchase or experience you’ve been wanting for a while now. The money is being distributed with the hopes that it will help stimulate the economy, and the best way to do that is to spend — just don’t go overboard.

Spring is the perfect time to give your finances a thorough cleaning. Follow our tips to make your money matters shine!

Your Turn: How are you spring cleaning your finances this season? Share your tips with us in the comments.

Learn More:
nerdwallet.com
thebalance.com
doughroller.net

Spring Clean Your Finances

Spring is a great time of year to clear your house of accumulated junk and make it sparkle. Why not do the same for your finances? Junk can accumulate there, too. In fact, some of your money matters may need a good wipe down this season. It is especially true this year, when many Americans are still recovering from the financial fallout of COVID-19, or maybe wondering how to use the latest round of stimulus checks. Whatever your current situation, a thorough spring-cleaning for your finances is a responsible move this time of year.

Here are some ways to spring clean your finances:

Sweep out your budget

It’s time to shake out the dust in your budget! Review your monthly spending and find ways to cut back. Have you been overdoing the takeout food this year? Buying up more shoes than you can possibly wear? Pare down your budget until it’s looking neat and trim.

Freshen up your W-4

Tax season is prime time for revisiting the withholdings on your W-4. If you received an especially large refund this year, you may want to adjust the amount you withhold. The IRS’s tax withholding estimator  can be a useful tool to help you determine the perfect number.

Deep clean your accounts 

If you’ve switched from one bank or credit union to another, you may have dormant accounts that are still open and may be charging you fees. Or, perhaps they’re holding onto money you’ve forgotten you have! And don’t forget about the 401(k) you may have from an old job. Now may be the time to transfer those funds to your current 401(k).

This spring, do a Marie Kondo on your finances and get rid of any accounts you don’t need any longer. A minimalist approach to your finances will make it easier to manage your accounts. It will also give your savings a greater chance at growth, and help you avoid fees for unused accounts.

Toss out your debt

Get ready to kick that debt for good!

If you’ve been stuck on the debt cycle for too long, make this spring the season you create a plan to break free.

First, trim your budget or consider a side hustle for earning some pocket money, designating these extra funds for your debts. Next, choose a popular debt-busting approach, such as the avalanche method, in which you pay off debts in order from highest interest rate to lowest, or the snowball method, where you start with the smallest debt and then move up your list as each is paid off. Once you’ve chosen your approach, maximize payments to the first debt on your list, making sure not to neglect the minimum monthly payments on your other debts. Before you know it, that debt will be gone!

Dust off your saving habits

Have you been remembering to pay yourself first? Get into the habit of maximizing your savings this spring with a tangible financial goal. You can also make savings an itemized line in your budget. This way, you’ll have funds set aside for this purpose, instead of savings only happening if there’s money left over at the end of the month. Finally, automate your savings by setting up a monthly transfer from your checking account to your savings account. Never forget to pay yourself first again!

Make your investments sparkle

Whether you’re an experienced investor or you’re just getting your feet wet, it’s time for a spring cleaning of your investments! Check if your allocation strategy is still serving you well, whether you need to adjust your diversification and if your retirement accounts are on track for your estimated retirement timeline.

Make your stimulus count

Don’t let your stimulus payment and tax refund blow through your checking account. Instead create a spending plan for the funds that includes paying down debt, allocating some of the money for long-term and short-term savings and possibly investing another portion of the payment. Don’t feel guilty about using the rest of your stimulus check to splurge on a purchase or experience you’ve been wanting for a while now. The money is being distributed with the hopes that it will help stimulate the economy, and the best way to do that is to spend — just don’t go overboard.

Spring is the perfect time to give your finances a thorough cleaning. Follow our tips to make your money matters shine!

Your Turn: How are you spring cleaning your finances this season? Share your tips with us in the comments.

Learn More:
nerdwallet.com
thebalance.com
doughroller.net

Get Good With Money: Ten Simple Steps to Becoming Financially Whole

Title: Get Good with Money: Ten Simple Steps to Becoming Financially Whole

Author: Tiffany Aliche

Hardcover: 368 pages

Publisher: Rodale Books

Publishing date: March 30, 2021

Who is this book for? 

Anyone looking to take charge of their personal finances, get their spending under control and learn how to live with financial wholeness.

What’s inside this book?

  • The 10-step formula for attaining financial security and peace of mind that was created and perfected by Aliche, AKA “The Budgetnista.”
  • Checklists, worksheets, a toolkit of resources and advanced advice from money-management experts.
  • Real-life examples to bring financial lessons home.
  • Actionable steps for taking charge of your credit score, maximizing bill-paying automation, savings and investing and calculating your life, disability and property insurance needs.

5 lessons you’ll learn from this book: How to achieve and maintain financial wholeness through a series of financial improvements.

  • How to create the game-changing “noodle budget.”
  • How to see your credit score as a grade point average.
  • How to practice mindful budgeting and spending habits.
  • A simple calculation to help you retire early.

3 questions this book will answer for you: 

  • How can I determine if my money problem is that I don’t earn enough or I that I spend too much, and how do I fix either issue?
  • How can I learn to make a habit out of saving for a rainy day?
  • How can I protect my beneficiaries’ future?

What people are saying about this book:

  • “Aliche can take the most complex of money concepts and distill them into something relatable and understandable. No matter where you stand in your money journey, Get Good with Money has a lesson or two for you!” — Erin Lowry
  • “Get Good with Money helps you put all the pieces of your financial life together without making you feel overwhelmed or ashamed about your circumstances. Whether you need to budget better, slash debt, and save more money or learn to invest, boost your net worth, and build wealth, Tiffany Aliche offers great advice to let you know you can do this, sis!” — Lynnette Khalfani-Cox
  • “I’m so inspired by Tiffany Aliche’s own story of digging out of deep debt and building back her credit and her cash flow. Get Good with Money will soon have you believing in your own ability to set yourself up for a life that’s rich in every way.” — Farnoosh Torabi

Your Turn: What did you think of Get Good With Money? Share your opinion in the comments.

Learn More:
amazon.com
goodreads.com
getgoodwithmoney

5 Reasons We Overspend (and How to Overcome Them)

We’ve all been there. Maybe it’s that I-gotta-have-it urge that overtakes us when we see a pair of designer jeans. Maybe it’s that shrug as we reach for the $6 cup of overrated coffee that says “I deserve this.” Or maybe it’s that helpless feeling as the end of the month draws near and we realize we’ve outspent our budget — again.

What makes us overspend? Let’s take a look at five common reasons and how we can overcome them.

1. To keep up with the Jones’s

Humans are naturally social creatures who want to blend in with their surroundings. When people who seem to be in the same financial bracket as we are can seemingly afford another pair of designer shoes for each outfit, we should be able to afford them, too, right?

The obvious flaw in this line of thinking is that nobody knows what’s really going on at the Jones’s’ house. Maybe Mrs. Jones’ expensive taste in shoes has landed the family deeply in debt and they are in danger of losing their home. Maybe her Great Aunt Bertha passed and left her a six-digit inheritance. Maybe all of her Louboutin’s are cheap knockoffs she bought online for $23 each.

Break the cycle: Learn to keep your eyes on your own wallet and to ignore how your friends or peers choose to spend their money. Develop a self-image that is independent of material possessions. Adapt this meme as your tagline when you feel that urge to overspend as a means to fit in: Let the Jones’s keep up with me!

2. We don’t have a budget

A recent survey shows that 65% of Americans don’t know how they spent their money last month.

When all of our spending is just a guessing game, it can be challenging not to overspend. We can easily assure ourselves that we can afford another dinner out, a new top and a new pair of boots — until the truth hits and we realize we’ve overspent again.

Break the cycle: Create a monthly budget covering all your needs and some of your wants. If you’d rather not track every dollar, you can give yourself a general budget for all non-fixed expenses and then spend it as you please.

3. To get a high

Retail therapy is a real thing. Research shows that shopping and spending money releases feel-good dopamine in the brain, just like recreational drugs. David Sulzer, professor of neuro-biology at Columbia, explains that the neurotransmitter surges when people anticipate a reward — like a shopper anticipating a new purchase. And when we encounter an unforeseen benefit, like a discount, the dopamine really spikes!

“This chemical response is commonly called ‘shopper’s high,’” Sulzer says, likening it to the rush that can come with drinking or gambling.

This explains the addictive quality of shopping that can be hard to fight. When life gets stressful, or we just want to feel good, we hit the shops or start adding items to our virtual carts.

Break the cycle: There’s nothing wrong with spending money to feel good, so long as you don’t go overboard. It’s best to put some “just for fun” money into your budget so you can make that feel-good purchase when you need to without letting it put you into debt.

4. Misuse of credit

Credit cards offer incredible convenience and an easy way to track spending. But they also offer a gateway into deep debt. Research shows that consumers spend up to 18% more when they pay with plastic over cash.

Break the cycle: When shopping in places where you tend to overspend, use cash and you’ll be forced to stick to your budget. You can also use a debit card with a careful budget so you know how much you want to spend.

5. Lack of self-discipline

Sometimes, there’s no deep reason or poor money management behind our spending. Sometimes, we just can’t tell ourselves — or our children — “no.”

Scott Butler, a retirement income planner at the wealth management firm Klauenberg Retirement Solutions in Laurel, MD, explains that it takes tremendous willpower to say no to something we want now.

“One of the big reasons people overspend is that they don’t think ahead,” Butler says.

Too often, we allow our immediate needs to take precedence over more important needs that won’t be relevant for years — such as a retirement fund or our children’s college education. We simply lack the discipline to not exchange immediate gratification for long-term benefit.

Break the cycle: Define your long-term financial goals. Create a plan for reaching these goals with small and measurable steps. While working through your plan, assign an amount to save each month. Before giving in to an impulse purchase or an indulgence you can’t really afford, remind yourself of your long-term goals and how much longer your time-frame will need to be if you spend this money now.

Your Turn: What makes you overspend? Tell us about it in the comments.

Learn More:
thebalance.com
thedollarstretcher.com
hermoney.com
money.usnews.com
elle.com

Five Steps to Take After a Financial Disaster

As we sail into 2021, many Americans are struggling with the aftershocks of financial disaster. Whether it’s due to a layoff, a smaller workload, medical expenses or a change in family circumstances, the financial fallout of COVID-19 has been devastating for people in every sector of the economy.

Recovering from a financial disaster, due to a pandemic or any other reason, is never easy; however, with hard work and the ability to look forward, it can be done. Here’s how.

Step 1: Assess the damage

Take a step back to evaluate exactly how much financial recovery you need to do. Are you thousands of dollars in debt? Do you need to find a new job? Do you have new ongoing costs you will have to cover each month? Are there any other long-term financial implications of the recent disaster, including alimony and IRS liens?

It’s also a good idea to review your overall financial picture at this point, including your current income and ongoing expenses.

Crunching the numbers and putting it all on paper will make it easier to take concrete steps toward recovery.

Step 2: Accept your new reality and stay calm

Shock and denial are valid stages of grief for any major loss or disaster, but in order for recovery to be possible, it’s important to reach a place of acceptance about your new reality. You can vent to a close friend or your life partner, express your feelings in an online journal or a paper-and-pen version, de-stress with your favorite low-cost hobby and then let go. Revisiting the past and constantly harping on what could have been will only drain you of the energy you need to move on.

Tim Essman, a financial professional with West Coast Wealth Strategies and Insurance Solutions in San Diego, also stresses the importance of remaining calm during an economic downturn. Don’t make any rash moves out of panic and fear, he cautions, as the best move in a financial crisis is to keep things stable until you can evaluate the situation and make rational decisions.

Step 3: Outline your goals

Before you get started on the actual recovery steps, define your primary objectives. Are you looking to rebuild a depleted emergency fund? Find gainful employment that will help bring your income back to its previous level? Pay down your medical bills?  Outlining your goals will make it easier to move ahead.

As you work through this step, remember to choose goals that are SMART:

Specific — The goal should be clearly defined.

Measureable — It’s best if there’s a way for you to measure the goal, such as dollar amounts, credit score numbers, etc.

Attainable — Set a goal that challenges you, but is possible to achieve.

Realistic — Your goal should not be completely out of reach.

Timely — A goal without a deadline is just a wish.

Step 4: Create a Plan

You’re now ready to create a full-blown plan to help you reach your goal. Your plan should consist of consecutive steps that lead to a life of complete financial wellness.

Here are some steps you may want to include in your plan:

  • Trim your spending until you can consistently spend less than you earn.
  • Build a small emergency fund to help get you through an unexpected expense.
  • Seek new employment or new income streams, as necessary. Consider moonlighting, blogging or selling stuff online for extra cash.
  • Start paying down debts. You may want to consolidate your debts with an unsecured loan to make this step easier.
  • Save more aggressively, with an eye toward your retirement and another toward a large emergency fund with up to six months’ of living expenses.

Step 5: Make it Happen

It’s time to put your plan into action. If you were careful to set goals that are SMART, you should be able to take the first steps in your plan immediately.

Be sure to review your plan occasionally and adjust it if any changes are needed.

Times are hard, but with a forward-thinking attitude and the willingness to work hard, we can all recover.

Your Turn: What steps have you taken toward financial recovery after COVID-19? Share them with us in the comments.

Learn More:
www.thesimpledollar.com
financialmentor.com
blog.massmutual.com

How Do I Give Myself an End-of-Year Financial Review?

Q: With 2020 drawing to a close, I’d love to give myself an end-of-year financial review before it goes.  Where do I begin?

A: Giving yourself an end-of-year financial review is a wonderful way to check on the progress you’ve made toward your goals, highlight areas needing improvement and update your accounts, funds and investments. Here’s all you need to know about this important end-of-year ritual.

Step 1: Review all your debts and create a payoff plan

Take a few minutes to list all your debts and their interest rates. Have you made any real progress toward paying them off this year? Or have you stuck with minimal payments each month, leaving the actual balance to pile up since you’re mostly just paying for interest?

If your debt needs some help, you have two primary options for how to proceed:

  • The avalanche method. Focus on paying off the debt with the highest interest rate first, and then continue to the debt with the second-highest interest rate. Move through the list until you’ve paid off all debts.
  • The snowball method. Work your way through your debts, starting with the lowest-balance debt. Then, once it’s paid off, apply the payment that was previously committed to that debt to your new lowest debt. Repeat through the rest until all debts are paid off.

For both methods, be sure to pay the minimum balance on all your other debts each month. Try to boost your income and/or trim your monthly spending for extra cash and use it toward the first debt you are paying off completely.

Step 2: Automate your savings

Review your savings from 2020. Have you reached your goals? Have you forgotten to put money into savings each month?

Going forward, make it easy by automating your savings. Give us a call at 734-676-7000 to set up an automatic monthly transfer from your checking account to your savings account. [You can also set this up through your online and/or mobile banking with us.] This way, you’ll never forget to put money into savings again.

Step 3: Review the progress you have (or haven’t) made on financial goals

Have you made measurable progress toward your financial goals in 2020?

Take a few minutes to review your past goals, taking note of your progress and determining how you can move toward achieving them.

Step 4: Review your retirement account(s) and investments

As you work through this crucial step, be sure to review the following variables:

  • Your employer’s matching contributions. Are you taking advantage of this free money, or leaving some of it on the table?
  • The maximum IRA contribution limits for 2021. You will likely need to make adjustments for the coming year.
  • Management fees and expense ratios for your investments. Fees should ideally be less than 0.1%.
  • Your stock/bond ratio and investing style. You may want to take more risks in 2021 or decide to play it safer this year.
  • Your portfolio’s balance. Does it need adjusting?

Step 5: Create an ICE Binder

The events of 2020 underscored the importance of making plans in case one becomes incapacitated for any reason. Create an In-Case-of-Emergency (ICE) Binder to hold all your important documents in one place in case the unthinkable happens. Because of the sensitive nature of the information it holds, be sure to keep this in a safe place where it will not fall into the hands of identity thieves.

Include the following in your binder:

  • Medical information
  • Account information
  • Child care and pet care details
  • Online accounts and passwords
  • Insurance policy documentation and details
  • Investment accounts and details
  • A copy of your life insurance policy
  • A copy of your living will
  • A copy of your last will and testament

Step 6: Set new financial goals for 2021
As you finish reviewing your financial progress of the past year, look forward to accomplishing greater financial goals in the coming year.

A great way to turn dreams into reality is to set goals that are SMART:

Specific

Measurable

Attainable

Realistic

Timely

Here are some goals you may want to set for the coming year:

  • Create a monthly budget before January. Be sure to include all expense categories. Review on the first of each month and tweak as necessary.
  • Review the week’s spending with your partner each Friday night.
  • Pay off your largest credit card bill by 2022.
  • Start a vacation fund in February.
  • Cut out two subscriptions you don’t really use by mid-year.
  • Slash your weekly grocery bill by 10% before May.

Wishing you a financially healthy New Year!

Your Turn: Do you have any additional steps for your own end-of-year financial review? Share them with us in the comments.

Learn More:
moneyning.com
14news.com
steppingstonestofi.com

Pass It On: Transferring Wealth, Wisdom, and Financial Smarts to Future Generations

Title: Pass It On: Transferring Wealth, Wisdom, and Financial Smarts to Future Generations

Authors: Lori B. Gervais and Roger G. Gervais

Paperback: 268 pages

Publisher: Lioncrest Publishing

Publishing date:  Oct. 9, 2020

Who is this book for?

  • Parents planning for their children’s financial futures
  • Those wanting to further their own financial knowledge and skills
  • Readers who are or will soon be starting a family

What’s inside this book?

  • Clients’ stories of talking to children about managing wealth
  • Tips on how to begin the conversation about preserving the family fortune
  • Lessons on transferring family values, as well as transferring wealth
  • Instructions on preparing children to inherit responsibility as well as money
  • The authors’ personal experiences both in growing up and in raising their own children

Lessons you’ll learn from this book: 

  • How to speak to children about preserving your family’s wealth
  • How to ensure your personal values concerning your money are maintained
  • How to instill responsibility
  • How to use money for creating a great positive effect on your community and future generations
  • How and why financial literacy must be addressed within the family

Questions this book will answer for you: 

  • How do I prepare my children to manage their inheritances?
  • How can I maintain my family values while also transferring family wealth?
  • How do I introduce the topic to my family?

What people are saying about this book: 

“Managing money and finances can be some of the most challenging concepts for any family to navigate. I love the way the authors break it down and give us ways to help not only as a couple managing finances…more importantly equipping us with tools to help educate our family, setting us up for success for the future.” — Tara Gundrum

“…Pass It On, provides a financial framework that all of us can customize to meet our financial and life objectives. It goes well beyond wealth management or estate planning, providing clear, practical and actionable guidance we can all apply to virtually any financial matter. A must read.” — H. Edward Wynn, author of We the People: Restoring Civility, Sanity and Unifying Solutions to U.S. Politics

“Many parents fear leaving their kids’ substantial wealth. It can be difficult to know if they will be good stewards of what you leave them. If you are looking to learn a path and framework for passing on wealth and wisdom to those you care about, you will want to check out this book.” — Timothy J. McNeely, CFP CIMA

Your Turn: Tell us how you’ve used the advice of “Pass it On” in your own life.

The Importance of Being Financially Fit

Are you ready to stretch those financial fitness muscles? We hope so, because it’s time to get financially fit!

Being financially fit means living a life of complete financial responsibility. The Center for Financial Services Innovation (CFSI), also known as the Financial Health Network, defines four basic components of financial health: Spend, Save, Borrow and Plan. These components reference everyday financial activities. As such, every choice you make in terms of these four activities either builds or detracts from your financial fitness. Like physical fitness, you can beef up those fitness muscles a little bit more each day.

Being financially fit is crucial for a well-balanced, stress-free life. Here’s why (and how):

Expand your financial knowledge

A financially fit person is constantly broadening their money knowledge. They read personal finance books and blogs, attend financial education seminars and are aware of the evolving state of the economy. This enables them to make monetary decisions from a position of knowledge and power, leaving much less up to chance or luck.

Stick to a budget

A financially fit person knows that tracking monthly expenses is key to financial health. They are careful to set aside money from their monthly income for all fixed and discretionary expenses and to stay within budget for each spending category.

Minimize debt

A financially fit person is committed to paying down debts and seeks to live debt-free. Constant budgeting, ongoing financial education and planning ahead enables them to make it through the month, and through unexpected expenses, without spiraling into debt.

Maximize savings 

A financially fit person prioritizes savings. In fact, savings is a fixed item on their monthly budget instead of something that only happens if there’s money left over. This allows them to think ahead and build a comfortable nest egg or emergency fund. In turn, having a robust safety net means sleeping better at night knowing there’s money available to cover unexpected expenses or a change in life circumstances.

Maintain complete awareness of the state of your finances

A financially fit person knows exactly how much money they owe, the accumulated value of their assets and the complete sum of their fixed and fluctuating expenses. This awareness takes the stress out of money management, allowing them to make better financial choices.

Maintain a healthy credit score

A financially fit person knows that an excellent credit history and score is a crucial component to long-term financial health. They are careful to pay all bills on time, hold onto their credit cards for a while and to keep their credit utilization low. This enables them to qualify for long-term loans with favorable interest rates, which saves them money for years to come.

Help your money go further

A financially fit person does not waste large sums of money on interest charges for purchases made using borrowed funds via credit cards or loans. They live within their means and only use these resources for purchases they can actually afford, or for large, long-term assets, like a car or a house. This means they have more funds at their disposal to help build their wealth through savings and investments.

Create concrete financial goals

A financially fit person has long-term and short-term financial goals. This enables them to keep their focus on the big picture when making everyday money choices, empowering them to actually realize their financial dreams.

Achieve financial independence

A financially fit person is independent. They don’t rely on loans from friends or family members to get by, and they don’t need to pay with plastic at the end of the month because they ran out of money. Their well-padded emergency fund means they don’t depend on their monthly income to put bread on the table, either. By sticking to a budget, prioritizing savings and maintaining an awareness of their finances, they are strong, secure and completely independent.

Being financially fit means living a life without battling anxiety about getting through the month or stressing about the future. You can achieve financial fitness by committing to making choices in each of the four components of financial health (spend, save, borrow, plan) that are forward-thinking and help to build your financial wellness.

Your Turn: Why is financial fitness so important? Share your reasons with us in the comments.

Learn More:
femcove.com
doughroller.net
moneybites.com
forbes.com
cbsnews.com