Spending money and saving money are like natural enemies. The more of one that you do, the less of the other that you’re able to do. If money were unlimited, you’d be able to do both without any stress. But that’s why the spending/saving balance is so complicated – most people have to make hard choices between the two. Unfortunately, saving money often comes up the loser in the conflict, which helps to explain why relatively few people in America ever save a substantial amount of money, and reach a place that looks even remotely like financial freedom.
Saving loses out because spending money is easy. And it’s easy for all the same reasons that saving money is so hard.
Let’s consider the areas of contention.
Controlling Natural Impulses
Spending money is something like our natural default setting. It’s largely impulse driven, which is to say that we’ll do it without even thinking. Overcoming this natural bias toward spending is a challenge, and no small one at that.
Self-denial is hard. Kids usually want everything they see, which is largely why TV is such an effective advertising medium (it’s visual). If we’re honest, then we have to admit that there’s more than a little bit of kid in all of us. When we see something we like, we want it. Denying ourselves goes against our emotions. Resisting only gets easier after you’ve been doing it for a while, which is exactly why most people never get that far. If it was easy, more people would have a lot more savings.
Giving in to your every whim is easy. Giving in to natural impulses is so easy. It takes no thought on our part, and it’s exactly what you’ll do unless you have the discipline to see what’s happening and stop it before it does.
Resisting “Everybody’s Doing It”
At least part of the bias in favor of spending money is cultural. Let’s face it, everyone wants the good life, and so do we. If we simply follow the cultural flow, we’ll spend money constantly. After all, if everybody’s doing it, we should be able to do it too, right?
Being different is hard. Emphasizing saving money over spending can make you seem a little bit odd. While everyone else is out buying new cars and wide screen TV’s on the latest holiday weekend, you’ll be resisting, and hoping to commit your extra money to savings. No following the herd to the mall for you.
Following the crowd is easy. To varying degrees, we all want to conform to the society around us. If everyone is buying the latest new-fangled gadget, we want it too. If you take your cues from the crowd, you’ll mostly be spending your money on what society considers to be important. And that’s actually easier than resisting the trend.
Embracing Delayed Gratification
Delayed gratification has become something of a novel concept that’s seen as a throwback to a less prosperous time. But it’s also the basic philosophy that saving money is built on. In order to save for later, you have to be willing to give up some comforts and luxuries now in favor of a more secure future.
Not everyone gets the concept of delay gratification. Here’s why:
Doing without now is hard. It seems counter-intuitive to do without something, especially if you can actually afford it. It takes discipline and courage of conviction to do without in favor of building a better future. And if we’re honest, we also need to acknowledge that the delayed gratification process is not as much fun as living in the moment.
Living in the moment is easy. It can be easy to throw caution to the wind and focus solely on living for the moment. It’s also an abdication of responsibility – and responsibility is another of those traits that we humans like to rebel against. And there’s no doubt either that living in the moment eliminates some of those annoying burdens, like planning for retirement or saving to send our kids to school. Life is easier when you don’t concern yourself with future obligations.
Until the future actually arrives…
Have you ever seen one of those prayers that says, Lord grant me patience – but hurry? I think it frames the problem well. Patience is another of those qualities that’s hard to come by.
And it’s also a fundamental part of saving money – one that‘s anything but easy.
Trusting your money to the future is hard. You have to be willing to save relatively small amounts of money – on a continuous basis – and be fully prepared to let it grow for many years. Reaching financial independence is never a short-term plan. It may take 10, 20, or 30 years to reach the point where all that saving finally puts you in a comfortable position. Not nearly everyone has that kind of patience.
Instant gratification is easy. It’s easy precisely because all the benefits are had right up front. It may even be a form of compensation – you buy little slices of the good life because you’re never certain that you’ll ever have the real thing. It’s another example of the inner-child running the financial show. It’s an emotionally satisfying short-term strategy, but one that can put you in the poor house permanently.
Embracing Financial Freedom
Virtually everyone wants financial freedom – but not everyone is willing to do what it takes to achieve it. Embracing financial freedom is having a plan, then committing to making the plan a reality. Wanting financial freedom is just a wish because it has no action behind it.
Why don’t more people see that? They do, and that’s part of the obstacle.
Working toward financial freedom is hard. Embracing financial freedom is about a whole lot more than cutting back on spending (though that is an important part of it). It often also involves working more hours (to increase income), taking risks, getting serious about an investment plan, and living a life that looks very different from everyone else’s. That’s more than most people are willing to commit to.
Wanting financial freedom is easy. Wanting financial freedom is “free”. You can talk about it, dream about it, watch it on TV and even read books about it. But until you commit time, effort and money to it, it’s just a feel-good adventure.
So there you have it – spending money is easy because saving money is hard. Are you willing to take some hard steps to secure a better future?
A lot of people wonder why they get passed over promotions – why the promotion always seems to go to someone else. Sometimes the reason is office politics. But most times it’s because most people coast at work. They do that – often unconsciously – because coasting at work is easy. But working for a promotion is hard – which is why most people avoid it at all costs.
Generally speaking, when employers look to promote someone, they are looking for an impact person – that person who stands above the rest in making a difference in the organization. Unless you are that person, the chance of you getting a promotion is slim.
Employers have expectations for all employees, but promotions usually go to the people who exceed those expectations.
Embracing Company Goals
Every employer, every department, has goals. They have to “make their (sales and net income) numbers”, and establish a set of goals that they believe to be the best way to accomplish it. Naturally, employees who are the most aligned with those goals are typically the ones who are most likely to be promoted when the opportunity comes around.
Embracing company goals is hard. It often means putting your own goals second. It can also mean carrying out a set of objectives that you don’t necessarily agree with – and doing it with enthusiasm. Though that may seem unnatural on an individual level, it’s an indication to the employer that the employee is able to subordinate their own interests for the good of the whole organization.
Going along for the ride is easy. Most employees don’t so much embrace company goals, as much as they ride them out. That is to say that they aren’t necessarily willing participants. They’re mostly going with the flow, recognizing it as a requirement for their paychecks.
Which quality is an employer most likely to favor in a promotion?
Being the Go-To Guy/Girl
In almost every department and every organization, there is a small percentage of the staff who represent key players. They are the people who step up and do the better job each and every day. Most people in the organization readily recognize this; the go-to guy or girl will be the first person they’ll go to when they need help.
Being the go-to person is hard. It means taking time out of your own schedule, and away from your own responsibilities, to either help someone else, or to troubleshoot a problem.
Relying on the go-to guy/girl is easy. It’s easy because you never need to worry about anything but your own work, and if you get into a tough spot, you can simply go to the go-to guy or girl for help.
Is an employer more likely to promote someone who only does their own work, or are they going to promote someone who others have come to rely on?
Taking Ownership of Projects or Tasks
One of the very best ways to position yourself for a promotion is to take ownership of important projects or tasks. Employers see people who do as management material.
Taking ownership is hard. The downside of taking ownership is that you are responsible for the success or failure of the project. Failure is an obvious risk, but success is not without its burdens either. In order to make sure that the project is completed properly and in a timely fashion, you have to put out extra effort, and generally more of it than your coworkers.
Letting others take ownership is easy. This is a low risk strategy for any employee. By avoiding putting yourself in a position to have responsibility, you eliminate the risk of failure.
But you also take yourself out of the running for a promotion. Moving into management, or into higher management, is all about taking ownership.
Learning New Skills
Learning new skills is a way to increase both your importance and your visibility in an organization. Acquiring new skills not only gives you the inside track with new techniques and applications, but it also puts you in a position to teach others. Since training is an important part of management, companies look for people who embrace new skills on a consistent basis when they need to fill higher positions.
Learning new skills is hard. Learning new skills requires extra effort. It also requires extra time, and time is often found in non-working hours. In order to learn the skills that will get you promoted, you may have to invest a significant amount of private time, and even some of your own money.
Stagnating is easy. Not only does this enable you to avoid the time and possible expense involved in learning new skills, but it also lowers the possibility that you will be given additional responsibilities.
By improving your own abilities, you increase your value to your employer. That makes you more likely to be promoted.
Helping Management and Co-workers
In any job situation, there are many employees who do no more than the required minimum. But there are others who make themselves available to help their coworkers and even management when those people are particularly busy and in need of assistance. Such an employee not only demonstrates a willingness to help others, but also the ability to manage their own workload in a way that enables them to have the time to do it. This is an attractive quality for promotion purposes.
Helping others is hard. In order to be in a position to help others, you have to have the willingness and ability to work harder, faster, and more efficiently than others. It may also require working additional hours, such as coming in early, working through lunch, or leaving the office late.
Letting others help you is easy. By not helping others, you’re able to devote 100% of your time and attention to completing your own workload. And you’re virtually assured that you’ll get out of work on time.
Getting a promotion only looks easy on the day it’s handed out. But the work needed to get you to that point – that’s not so easy.
One of the things that always strikes me when I look for good advice on career networking is that a lot of the suggestions people make revolve around the idea that you need to be a giver first. This was also a theme I saw when helping put together a video about career networking using advice from attendees to the recent FinCon Expo in New Orleans.
This got me thinking about the way I network for my career, and wondering whether or not I’m a giver.
Why You Should Be a Giver First
It’s tempting to go into a networking situation with the idea that you will look for people and ideas that you can use, rather than worry too much about what you’re offering others. However, no matter how desperate you are to get something out of a networking experience, you can actually come out ahead when you start from the position that you will see what you have to offer others. Here are some of the reasons that being a giver first can benefit you in the long run:
- Develop real relationships: If you want to develop a real relationship that goes beyond quid pro quo, it makes sense to be a giver. When you open yourself a little bit, and offer to help someone out, you open the door for a more meaningful relationship. In the long run, this could lead to a good relationship that has more benefits (not all of them directly related to a bottom line) than you originally thought.
- Establish a good reputation: When people see that you are willing to give, they have a more favorable impression of you, and you can establish a good reputation. Do what you can to be helpful to others, and it will come back around as others enjoy working with you, and say good things about you.
- You understand what others need more: One of the best ways to succeed in business and in your career is to understand what others need, and be able to provide it to them. This works in networking as well. If you make it a point to give your attention to others, and find out what problems they need help with, you can better show how your strengths can help out.
By giving first, and worrying about taking later, you can set up your networking experiences to provide you with lasting, long-term benefits.
How to Be a Giver in Career Networking Situations
When you attend your next career networking experience, make sure that you understand what you need to do in order to be a giver. One of the best things you can do as a giver is to ask questions about the other person. Find out what makes him or her tick, and ask questions about what they need.
You can also offer your help and experience. This can be difficult, since you don’t want to go down the rabbit hole of offering too much time and energy and “freebies” to the point that you can’t work on your own goals. However, giving a little time and attention to answer questions and offer your insights can be one way to be a giver. Let someone “pick your brain” for 10 minutes or so.
Don’t forget to look for deeper connections that can turn into partnerships later. When you give of yourself a little bit, and open yourself up to be a little bit vulnerable and establish good friendships beyond just career networking, you have the potential to reap great rewards down the road, through business partnerships, as well as through worthwhile personal relationships.
Have you ever wondered why so many people are in debt? Or maybe even why you’re in debt? It’s because being in debt is easy, and that’s because getting out of debt is hard. Despite all the advice from financial advisors telling people to get out of debt, many millions are still there.
Why is it so hard to get out of debt?
Saying NO to Yourself
The basic reason why anyone is in debt is because they spend more money than they bring in. They make up the difference with debt, which gives the illusion that they can “afford” the lifestyle that they’re living. You can reverse that cycle by learning how to say NO yourself.
Why don’t more people do it?
Saying NO to yourself is hard. This is an effort in self-denial. Instead of buying the desires of your heart, you must simply walk away from them – at least if credit will be needed in order for you to buy them. To do this you need to have a higher goal, like getting out of debt – but it‘s usually not fun.
Saying YES to yourself is easy. It’s easy because you’re going with your impulses. You see something that you like, and even if you can’t afford it our of your paycheck, you will buy it because you still have room on your credit lines. No discipline or resistance is required to operate in this manner.
Saying NO to Others
Sometimes it isn’t ourselves that we can’t say NO to, it’s others. It may be our spouses, our children, our friends or even our coworkers. But if you can’t afford to buy things for others without using credit, you will be doomed to a life of indebtedness.
Why would you let that happen?
Saying NO to others is hard. Though you may have the discipline to say NO to yourself, saying NO to others who you love tears at your heartstrings. You may even feel an obligation to go into debt for the benefit of others. This can be even more extreme if your friendships are based on a certain level of spending, such as expensive outings and all-too-frequent dinners out.
Saying YES to others is easy. When it comes to relationships with other people, it’s always easier to say YES and then to just move along. You can buy them what they want, and participate in all those activities that you can’t afford without credit. But at least you’ll avoid uncomfortable confrontations over spending.
Living Beneath Your Means
Unless you’re already doing it, learning to live beneath your means is like going on a financial diet. But it’s the key to getting out – and staying out – of debt. Since you live on less than you make, you have no need to borrow money, and you have extra in your budget to payoff whatever debts you already have.
If living beneath your means is such a basic way to stay out of debt, why don’t more people do it?
Living beneath your means is hard. Once again, it’s all about self-denial. You have to avoid buying a certain amount of products and services, even if you have the means to afford it.
Living above your means is easy. It’s easy because it means giving yourself at least a little more than you can afford, and doing it on a regular basis. It’s always easy to get used to having more. It’s never easy to get used to having less.
Saving vs. Spending
Some people have a natural orientation toward saving money, but that’s certainly not the case with the majority of people. In order to be a saver, you have to be willing to prioritize saving above spending. That doesn’t mean that you never spend money on things that you really want, but it does mean that you always have a line item in your budget for savings. And when you have enough savings, you no longer need to rely on credit.
Saving money is hard. It’s hard because saving money has none of the immediate benefits that spending it does. You’re largely doing without, and moving the money instead into an account where it will collect and grow. In order to see the value of this, you have to have a strong orientation toward the future. That will mean doing with at least a little less in the present.
Spending money is easy. It’s easy because it requires no discipline, no self-control. You buy what you want, when you want, and there’s a certain undeniable liberation that comes from living that kind of lifestyle.
Until the credit card bills come due.
Paying Extra on Your Debts
If you are already in debt, the only way to get out is by paying more than the minimum to on your accounts. It may be only a small amount on each account each month, but over time it will make your debts disappear.
Why can’t more people do it?
Paying extra on your debts is hard. This really gets back to learning to live beneath your means, and dedicating the unspent cash to paying off your debts. It takes a lot of discipline, and saying NO to yourself, while others are saying YES.
Making the minimum payment is easy. A lot of people get so comfortable with monthly payments, that the biggest concern is for the monthly payment itself – not the size of the debt that’s attached to it. As long as they can handle the monthly payment, all is right with the world. No sacrifice or re-direction are required. It’s almost like functioning on automatic pilot.
Getting out of debt is hard. It will require a change in attitude and behavior. That’s why not everyone can do it. But it’s the only way out of the debt cycle.
The cost of incurring a traffic violation has gotten much higher in recent years. Fines in many jurisdictions have doubled, tripled, or even more. Even worse – because they are recurring – are the insurance surcharges that apply after most violations. And at the extreme, some violations can even result in jail time.
Here is a list of what are generally the most expensive traffic violations you can have, in no particular order:
1) Reckless Driving
Reckless driving is a broad category, that can be defined differently from one jurisdiction to another. Generally speaking, it is driving in a way that endangers yourself and other people on the road. It can involve speeding, but there’s usually some element of danger that goes well beyond it.
Fines for reckless driving are generally heavy, but may also depend upon the seriousness of the violation. In extreme circumstances, reckless driving can lead to loss of license and even jail time.
Insurance surcharges can cause your premiums to nearly double. Should that happen, you may find yourself unable to afford auto insurance, and therefore unable to drive. In that situation, you may also experience economic impairment – since you have no car, you’ll be unable to get to work, and will likely lose your job.
Speeding is probably the most common traffic violation, but it’s not always the most expensive. And how expensive it is will be a matter of degree. In most jurisdictions, there is a wide variation in fines between going 10 miles over the posted speed limit, and going say, 30 miles over.
Not only can fines be all over the place, but so can insurance surcharges. Much like fines, they are progressively higher the more you exceed the speed limit. Your insurance can rise more than 30 percent as a result of a single speeding episode. Multiple speeding tickets cause both the fines and surcharges to accelerate.
Though jail time is unusual in connection with speeding violations, if you accumulated several citations for speeding, your insurance company may drop your coverage after determining that you are an unacceptable risk. High-speed driving, after all, results in high-speed accidents. Those are usually the most extensive kind, the type most likely to result in serious injury and fatalities.
3) Driving Under the Influence (DUI or DWI)
This is generally the most expensive traffic violation you can incur. Insurance premiums can virtually double on a first offense, and fines can be prohibitive. Cancellation of insurance after a first offense, and certainly after a second, is hardly out of the question.
Once again there is the very real possibility of experiencing an economic loss as a result of this violation. Depending on the laws in your state, the loss of your license for a period of time is common. That can make earning a living very difficult, and even impossible. The loss of income will dwarf even the combination of fines and insurance surcharges – unless of course you are unemployed at the time of your incident.
This is not a violation to take lightly. Penalties are only becoming more severe as tolerance for drunk driving declines. As well, the loss of a job due to a DUI could end up being a career killing experience, that will leave your income permanently impaired.
4) Running a Red light
Like speeding, running a red light is a fairly common violation. This is particularly true given the confusion over right-turn-on-red provisions in many jurisdictions. Typically, you are required to come to a full stop before turning even where the turn is permitted. But it’s incredibly easy to forget to stop when you’re used to making such turns.
Unfortunately, the courts and insurance companies are not particularly forgiving over such a mental lapse. Again, the fines vary between jurisdictions, and can be particularly heavy in urban areas where there is a lot of pedestrian traffic. Insurance surcharges can easily run as high as 20%.
While it might be convenient to dismiss a right-turn-on-red violation, there is a fairly high rate of injury and even of fatalities connected with these violations. For that reason, jurisdictions are taking them more seriously all the time.
5) Careless Driving
Careless driving is the younger cousin of reckless driving. Where reckless driving is generally considered to represent a pattern of driving that is dangerous to anyone on the road, careless driving is more along the lines of a mental lapse. It could be something as simple as failing to use your blinker while changing lanes on a multi-lane highway.
Once again fines vary from one jurisdiction to another, and also by the fact that careless driving takes in literally dozens of offenses that range in severity. Insurance premiums to rise by 25% or more as a result of a single careless driving violation.
Though careless driving carries a much lighter cost than the other violations listed here, the combination of fines and insurance surcharges can raise your cost of driving considerably.
The best advice is to be more mindful of what driving activities rise to the level of violations, and do your best to slow down and stay in control. Getting a traffic ticket for something incidental and occasional is bad enough, but getting one that is the result of bad driving habits is something that you can and should control.
Many millions of people struggle with being in debt. No matter how hard they try, they don’t seem to be able to get out of it. Like yo-yo dieting, they go from one failed strategy to another, never able to get control of their debt, and to eliminate it once and for all. The problem may not be the strategy. It may have more to do with motivation. If you have a clear idea as to why you need to be debt free it might be easier to accomplish, no matter what plan you use. There’s a “miracle” of being debt-free, and if you can grasp that concept, the problem may very well take care of itself.
Here are some of the components of the miracle of being debt free:
You’ll Be Free to Quit a Bad Job
How may times have you been tempted to quit your job, only to be stopped dead in your tracks by the realization that you can’t leave because you have debts to pay? That’s actually not an uncommon situation. In fact, it’s one of the main reasons why people continue to stay in jobs that are so uncomfortable that they become physically ill because of them.
It may not even be that the job is causing the ailments, but rather the perception of being trapped in an unsatisfying position.
Let’s look at the flip-side. Let’s say that you are in a bad job – a legitimately bad job, because of an overbearing boss, a weak organization, and even toxic coworkers – but you have no debt. In that situation, you probably won’t stay in that job long enough for it to ever take a physical toll. You’ll simply leave when it becomes clear that the job is beyond redemption.
That by itself can provide strong motivation to getting out of debt. Your ability to move between jobs will be so much easier if your life is not obstructed by debt.
You’ll Be Free to Start Your Own Business
One of the major reasons why people don’t start their own business is because of debt. The problem is that self-employment generally involves a period of time when income is seriously reduced. If you have large debts to pay, you probably can’t afford for your income to drop even as much as 10% per month before you will no longer be able to afford the payments.
It doesn’t matter if you have a brilliant business idea, and all of the skills necessary to make it a reality. If your fixed living expenses are too high, you might not be able to afford to risk a drop in earnings. That means that you are effectively locked into your current level of income.
If you do have plans to start your own business someday, one of the very best ways to prepare yourself for it is to begin getting out of debt right now.
You’ll Be Free to Make a Geographic Move
You have a dream to move to the mountains, to the beach, or even to a small town in farm country. But just as is the case with quitting a bad job or starting your own business, you can’t act on your desire because you have too much debt.
It often seems that big debts are part and parcel of the metropolitan lifestyle. This is because you need a metropolitan level income in order to make the debt service. But if the day comes when you want to step out of that metropolitan lifestyle, your debts will act like a chain-link fence around your life, preventing you from moving outside the pen.
Once again, if you have a dream to move into a different location – one where the income may not be so generous – one of the best ways to prepare for it is to get rid of your debt.
You’ll Probably Enjoy Your Work More
Have you ever seen that bumper sticker, the one that’s adapted from Snow White and the Seven Dwarfs, that reads something like this:
I owe, I owe, So off to work I go!
That’s kind of cute, wouldn’t you agree? But it’s also incredibly depressing. It implies that a debtor works mainly to pay his debts. What about working because you enjoy what you do for a living? Or because it enables you to live a comfortable life, and to do many of the things you want to do?
The sad reality is that when you’re buried in debt, work does become a burden. That’s because so much of your extra money is soaked up by debt, and that robs you of your ability to appreciate and enjoy your work.
My guess is that if you get out of debt, you’ll find that you’ll enjoy work a lot more. The burden will be lifted because you’ll have more control over your income. You’ll be working to create and live a certain lifestyle, rather than to service your debts.
You Can Live Life With One Less (Major) Worry
A debtor’s mind is never very far away from his or her debts. And if it ever is, the monthly bills that arrive faithfully are there as a reminder. Debt causes you to worry because it is an actual restraint. It limits your options to move forward in life, or even to solve short-term problems.
This can manifest itself in the form of constant worry, lack of sleep, permanent distraction, and even an inability to perform efficiently at work. The only solution to that problem is to get out of debt. And once you do, it will be something like getting a strike and knocking down all of the bowling pins of worry in life.
Debt is an option killer. The more of it that you have, the fewer options that you have. You can expand your options dramatically simply by getting out of debt. And you can seriously reduce the amount of worry that you live with in the process. If that isn’t a miracle, then I don’t know what is!
Are you motivated to get out of debt?
You are probably aware of some of the virtues of a Roth IRA. But there are at least five reasons why a Roth IRA is a must-have plan.
Tax Free Income in Retirement
This is the most obvious benefit of a Roth IRA, and it’s repeated in virtually any discussion related to the plan. Even still, this advantage is well worth reemphasizing.
Virtually every other type of retirement plan is a deferred plan. That means that the tax liability on the account – both your contributions and the investment income that the account earns – will be taxable when you start making withdrawals from the plan. At that point, the withdrawals will be added to your other retirement income, where they’ll be fully taxable at ordinary tax rates.
A Roth IRA stands alone as a retirement account from which you will be able to make withdrawals and pay no income taxes whatsoever.
Roth IRAs Are a Form of Retirement Tax Diversification
Most people probably never given this a thought, but the potential is very real that you can be in a higher tax bracket by the time you reach your sixties than you are right now. The reason will be multiple income sources. If you’re receiving income from Social Security, an employer pension, a deferred retirement plan, non-retirement investment income, or any income from continued employment, you may be earning much more money than you ever imagined.
The problem is that all of those income sources – including a percentage of your Social Security benefits – will be taxable in retirement. If you are earning $60,000 per year pre-retirement, and your income jumps to $90,000 when you retire, you may have a tax problem. You will have deferred income from a time of relatively low tax rates, only to pay higher tax rates in retirement.
This is where the tax-free nature of a Roth IRA really shines. While all of your other income sources will be creating tax liabilities, the withdrawal received from your Roth IRA will be completely tax-free. That will provide you with income tax diversification at a time when it will be badly needed. A Roth IRA is a way of making sure that at least some of your income will not create a corresponding tax liability.
Short-term Liquidity – Just In Case
Since contributions to a Roth IRA are not tax-deferred, you’ll have the ability to withdraw those contributions prior to age 59 ½ free from tax consequences. Since many people have the vast majority of their financial assets in tax-deferred accounts, this can be an important option to have.
A Roth IRA can give your portfolio some much-needed liquidity. It’s never a good idea to withdraw funds from any kind of retirement account before reaching retirement age. But it is still a good option a have. Life can be complicated, and it doesn’t always go according to our plans. A Roth IRA can give you the built-in flexibility that other retirement accounts can’t.
It Offers More Investment Choices Than an Employer Sponsored Plan
One of the frustrations that many people have with employer-sponsored plans is limited investment selection. For example, your employer-sponsored 401(k) plan may have only a half a dozen options, all of which are mutual funds. Those funds may not be anything close to the best performers in their classes. This can leave you stranded with nothing better than mediocre investment choices for the account that holds the largest amount of your money.
A Roth IRA is self-directed, just like a traditional IRA. That means that you can choose the trustee that holds the account. And in doing so, you can make sure that that trustee – typically an investment broker – provides the widest variety of investment options possible.
You can also make sure that the trustee provides the largest selection of low cost investment options. This is another limitation of most 401(k) plans. Not only do the plans themselves often have high investment expenses, but the limited investment options that you have within the plan also have investment fees that are above the norm in the market.
No Required Minimum Distributions (RMDs)
Virtually every other form of tax-sheltered retirement plan is subject to required minimum distributions, or RMDs. That means that once you reach the age of 70 ½ you are required to begin taking distributions from the plan. In fact, plan trustees are required to begin issuing RMDs when you reach 70 ½, so you won’t even have any choice.
They will take the balance of any retirement accounts that you have, and divide the balance by your life expectancy at that point in your life. You will receive distributions based on that formula, and it will apply to traditional IRAs as well as employer-sponsored plans.
There is no such requirement for RMDs for Roth IRA plans. You can literally keep your Roth IRA open and growing for the rest of your life. While other retirement plans are gradually depleting due to distributions, your Roth IRA can stay healthy and strong.
This can be an important part of an overall strategy to prevent you from out-living your money. Even as your other accounts are being drawn down by RMDs, you can allow your Roth IRA to continue growing so that you will have plenty of money in the later years of your retirement. With people now routinely living well into their eighties and even nineties, this can be an important asset preservation strategy.
If you have an opportunity to take a Roth IRA you should absolutely do so. There are just too many benefits that make it one of the most important investment plans that you’ll ever have.
Technology has come to the classroom, or – maybe more to the point – technology is moving people out of the classroom. There is an explosion of online courses, whether included in a college degree program, or as part of continuing education. There’s good and bad in taking online courses, but either way, they offer an excellent alternative to traditional classroom based courses.
The Good of Taking Online Courses
Having taken a few online courses myself, I’m a big fan of them. Here’s what I’ve found to be the biggest advantages.
You can take them from home. Since home is where you are most comfortable, it could also be the perfect environment for learning. After all, it’s most likely the place where you’d be doing your homework, so why not also take the course from home?
No on campus or commuter expenses. If you’re taking college courses, there’s usually a fee associated with taking it on campus. And even if there isn’t, you will still have the cost of commuting to and from the school. Since you can take online courses at home, there will be no campus fees, and no commuter costs. Not to mention wear-and-tear on your car, or the time and aggravation of spending time commuting either long distances or in heavy traffic.
They’re easier to fit into a busy schedule. Since you have control over when you take an online course, it will be less of a scheduling challenge. You can take it any time of the day, evening or even weekend that you want. And if you’re a night owl, you can even do it at night when the rest of the world is asleep. In fact, you can take online courses any time it’s convenient for you. That will allow you to build the course around your life, rather than being forced to build your life around the course, as you would have to do with an on-site course.
You can work at your own pace. This will allow you to spend less time on less challenging course material, and to linger longer on areas you’re struggling with. That arrangement will probably make it easier for you to master the course work. If you are moving particularly fast, you can even decide to complete the coursework early.
They’re a godsend if you learn best on your own. Some people learn more easily through self-study. It may have to do with the previous benefit of working at your own pace. If you are the type who can master a course without oversight, online courses will work better for you.
They work especially well with easier courses. Some courses lend themselves better to self-study, so online courses may be a way to lighten your schedule by taking the easier courses that you can blow through in less time and with less effort.
The Bad of Taking Online Courses
Alas, taking online courses isn’t a perfect situation, and certainly not for all people. Here is some of the bad side of taking online courses.
You have to be self-motivated. As in really self-motivated. Not everyone is capable of keeping pace in a learning environment that’s less structured. As well, the fact that it’s done from home could cause you to underestimate the amount of work that you need to put into the course.
It may not work if time control isn’t your strong suit. Online courses work very well in helping you to juggle a busy schedule, but that’s only if you have the time control thing working in your life. If you don’t, you’ll never have the time needed to make the course work. The casual nature of online courses can make it easy to keep them as a low priority, routinely putting them at the back of your schedule when ever you get busy with other things.
No everyone can learn from self-study. Some people need generous amounts of structure in their learning environment. They need a teacher to set the agenda, impose a schedule, enforce completion of assignments, and provide critical feedback. If this is your learning style, taking online courses could be a complete waste of time and money.
Direct support is limited. More specifically, this means that there’s no teacher readily available for face-to-face meetings on a regular basis. Some students need that more than others. If you’ve ever taken an online course, you’re probably aware that direct support is no better than limited. It’s usually email support, or very limited telephone contact, and it’s not always easy to come by.
There are no classmates to “compare notes with”. Some people learn better in group environments. Not only does it create a kind of synergy to feed off of (think study groups), but it also gives you a chance to work with other students when you miss an assignment or need extra help on a one-on-one basis. Depending on the type of course you’re taking and where you live, there may be no one else taking the course within hundreds of miles of where you live.
It’s easy to let online courses slip. For any of the above reasons, it’s entirely possible that you might simply let the course slip. You may get busy with other things, find that you can’t learn in an informal setting, or simply get hung up on certain course work, then quit the course.
Online courses aren’t for everyone. But they can be a real advantage if you understand all that’s involved and are prepared to make them work.
Have you taken online courses? What has your experience been?
When people accumulate a little too much credit card debt, there’s always a strong temptation to work out some sort of debt consolidation that will make the plastic go away in one fell swoop. On the surface this can seem like an excellent idea. But debt consolidation is really about converting debt from one type to another – without actually paying it off. There are all kinds of riskS to this maneuver, but especially when you use your house for the consolidation.
Here are five reasons you shouldn’t use your home equity to pay off your credit cards.
1. Increasing the Mortgage Puts Your Home at Greater Risk
Anytime you increase the amount of money you owe on your home, you also increase the risk of owning it. This is especially true if you use a home equity line of credit (HELOC) to payoff your credit card loans. A HELOC is really just a credit line secured by your house, and you’ll be moving your revolving debt from unsecured status to secured – by your house.
But that’s not the worst of it.
HELOCs typically come with variable rates, which is part of the reason they have lower closing costs than a traditional mortgage. Since the HELOC is secured by your home, the rate on it is generally lower than what it is for credit cards. But since it’s variable, it can change – meaning increase.
Nothing constructive will be accomplished if you consolidate a bunch of 10% credit card debt into a 5% HELOC, if two years later the rate on the HELOC is up to 10% – or higher. A large HELOC balance at much higher interest rates could threaten your ability to make the monthly payment on the home.
2. It May Not Be As Easy to Sell or Refinance Your Home With a Higher Mortgage
Whether your credit card debt is consolidated using a HELOC or a straight up refinance of your first mortgage, you will be increasing the indebtedness on your home. That will make it harder to refinance or to sell, should the need arise.
This can be a serious problem should the value of your property fall as it did in much of the country after 2007. A 25% drop in the value of your home could leave you “underwater” on your mortgage, if your indebtedness reached 80% of the original value. That could leave you trapped in the home, unable to sell or refinance it.
Even if values don’t fall, the increased indebtedness could leave you with less equity after a sale, and that would leave you with less cash to put down on your next home.
3. You’ll be Converting Short-term Debt to Long-term Debt
Credit card debt is short-term debt. But when you consolidate it on your home, it becomes long-term debt. You may be converting unsecured revolving debt to a 30 year mortgage on your home.
If your credit cards happened to contain – among other short-term purchases – last year’s summer vacation costs, then you will be paying for that vacation for the next 30 years. You may also be converting last years Christmas gift purchases, last weeks dinner at Olive Garden, and a whole bunch of Starbucks latte’s to semi-permanent debt. That’s a bad trade off, no matter how much you’re saving in interest costs.
4. Refinancing Your Mortgage Costs Money
Should you refinance your first mortgage to payoff credit cards, you will incur costs as a result of the refinance. These costs are generally between 2% and 3% of the new loan balance. On a $200,000 loan, you may pay $5,000 for the refinance. That means that the credit card consolidation was accomplished at a very high cost. For example, if the refinance was mainly to consolidate $50,000 in credit card debt, you will have paid 10% of that amount to make the refinance – up front!
The problem is compounded if you reset your mortgage term. For example, let’s say that you have 25 years remaining on your 30 year mortgage. In order to consolidate your credit cards, you refinance your first mortgage back to a 30 term. The payment may be lower than what you were paying for your old first mortgage plus the credit card payments, but you will have added an additional five years of payments to the back end of the loan.
5. One Debt Consolidation Will Beget Yet Another
We can categorize this this one under “moral hazard”. If you use your home to accomplish one credit card debt consolidation, you’ll use it again. That’s because the consolidation makes it easier to get into – and out of – credit card debt. Refinancing your home is a way to get out of credit card debt without actually having to repay the debt.
Anything that’s easy is something you’ll do again. Nothing is learned about the negatives of running up large credit card balances, because fixing the problem was so easy.
At least part of the reason so many people lost their homes in the housing and mortgage meltdown was because they engaged in serial refinancing for debt consolidation purposes. Sure, their homes increased in value over the years, but they consistently borrowed the equity out to cover non-housing expenses. Eventually, the perpetually rising mortgage balance outstripped even the sizeable gains in property value.
You have a chance to prevent that outcome, by not using your home as a debt consolidation scheme for your credit card debt.
One of the unfortunate realities of today’s workplace is that we’re usually not given advanced warning about an upcoming job loss. Many employers would have us tool along thinking everything is fine, right up until the day we’re asked to leave. But even if there is no formal notification that your job is in jeopardy, there several ways to know if it is.
Here are several strong clues…
1) You’ve Just Had a Bad Review
You can virtually assume that you are on probation if you have just had a bad performance review. Even if your employer doesn’t tell you as much, you will most likely be gone if you don’t begin showing measurable improvement soon. But a bad review can be an even bigger marker if you’re pretty certain that it isn’t true. Some employers will use a bad review as an unofficial warning, or as an attempt to push an employee out the door.
Do your best to improve your performance after a bad review, but it’s also a good time to start considering other options. You can never be entirely certain that it’s really about your performance, or maybe about something much bigger.
2) An Important Function (or Two) Has Just Been Taken Away From You
Everyone has one, two, maybe three, critical functions that substantially defines their job, and justifies their existence on the payroll. If one of these functions has been taken away from you – without your consent – there is a better than even chance that you are being demoted, even if your title and pay aren’t degraded.
It’s generally a sign that either your employer has lost confidence in your ability to perform that function, or they think that someone else can do a better job. Unless the removal of the function has been accomplished to free you up for a more important function, it’s probably best to assume the worst.
3) You’re Company Has Been Bought Out
If your company has been bought out by a larger organization, there is an excellent chance that you – and many of your coworkers – will lose your jobs. It may not happen immediately, but there’s an exceptional chance that the axe is being sharpened.
Most companies involved in mergers will dedicate a lot of ink, emails, and stage presentations to assuring all staff that their jobs are safe. But don’t bet on it. One of the major reasons why businesses merge is to take advantage of economies of scale. That is, they will merge operations and eliminate excess staff from one or both entities.
If your company has been bought out, make sure that your radar is up, and that you’re now approaching your job as though you are a rookie who has to prove himself all over again.
4) You’re Increasingly “Out-of-the-Loop”
If you have recently noticed that there are a lot of closed-door meetings and private conversations going on your department that don’t involve you, you may be a short-timer. This is particularly true if you have previously been part of the loop in most information exchanges.
All employees are excluded from a certain amount of information, but if you find that it is more common than not, something is getting ready to happen that you won’t be informed of – until it’s too late.
Sometimes information exclusion can affect an entire department. That probably means something negative is coming down the pike, and layoffs are a distinct possibility.
5) You’ve Been Re-assigned to a Job You Didn’t Ask For
Employers sometimes reassign employees in the hope that they will “take the hint” and leave the company. This is especially true if you have been with your employer for several years. The employer may be trying to engineer the voluntary resignation, rather than being put in the position of having to fire a long-term player, who may have the respect of her coworkers.
On the other hand, if you approve of the change – even though you didn’t request it – it may be an opportunity to thrive in a different capacity. If that’s the case, sit down and discuss the situation with your superiors, making it clear that you’re perfectly happy with the new position and harbor no ill feelings over the transition.
6) You’re Employer Is Losing Money – A Lot of It
These days, employers won’t sit much longer than two or three quarters in red ink before throwing the layoffs switch. If your employer is losing money, particularly a lot of it, you should never ignore this. This is especially true if the company becomes obsessed with cutting expenses, even little ones. I’ve seen companies go from cutting back on the coffee service to large-scale layoffs in less than six months.
This doesn’t mean that you should panic and prepare to jump ship at the first sign that the company is losing money. But it does mean that you should be aware that the situation has changed, perhaps radically, and you may need to have your parachute in good working order.
None of these events mean categorically that your job is in jeopardy. But if any is particularly severe, or you see a combination of several, it will be time to prepare yourself and your finances for whatever may happen.