Vesting: The Achilles Heal of 401(k) Plans

401kEmployer matching contributions are one of the biggest benefits of 401(k) plans. You put money in out of your own paycheck to fund the plan, and your employer offers at least a partial match. The catch is that the employer match usually comes with a vesting provision. That’s a period of time – up to five years – which must pass before matching contribution are considered a permanent part of your plan. In this way, vesting may also be the Achilles heal of 401(k) plans. They don’t always pan out.

That may not be a pleasant thought to consider, but it is an unfortunate reality.

You May Never Be Around Long Enough to Be Vested

Employer matching contributions have been around since 401(k) plans were rolled out back in the 1970s. But back then job security was also a common feature of employment. You could start with an employer when you were in your 20s or 30s, and be reasonably certain of a career of 30 years or more at the same place.

Today’s employment landscape is much different – in fact, it’s a bit of a crapshoot. While there is still the possibility that you can spend 10, 20, or 30 years with the same employer, it’s at least as likely that you will only be there for a year or two.

If your employer’s matching contribution requires five years for full vesting, but you only work with the company for three years, the match may be completely worthless. You will lose it as soon as you leave your job.

Many companies offer a generous employer match on the 401(k) as an incentive to draw talented workers to them. And many employees are drawn to just such an arrangement. But if the vesting period is longer than the typical job at the company lasts, the employer match is more an illusion than a reality.

Don’t Count on the Company Match

The moral of the story: Don’t count on the company 401(k) match, no matter how good it may not be. One frightening reality is that some employers are revolving doors – employees come and go – either because they are fired or because they quit. The employer may be offering a generous match specifically to overcome employee resistance to joining the company. But if turnover is high, and the employer match rarely sticks, the incentive will be cost-free to the employer – and a complete bust for the employee.

When making your retirement plans, don’t count on your company match – at least not until you have satisfied the vesting period and the employer 401(k) match is a reality.

In the meantime, plan your retirement as if there is no company match. There are various ways that you can do this.

Make the Largest Contributions

Time is money when it comes to investing for retirement, which is why it’s critical that you maximize funding into your plan in the early years. Make the largest employee contribution that your plan allows.

Don’t figure the employer match in your contributions. For example, if your plan allows you to contribution up to 15% of your pay, make sure that you’re contributing the percentage. Some employees play with these numbers. For example, if the company gives a 50% matching contribution up to the first 10% contributed by the employee – effectively a 5% match – the employee may reason that they are contributing 15% of their pay by virtue of the fact that 10% is coming from them, plus another 5% from the employer.

But if the employer match fails for any reason, your net contributions – after the fact – will go back to nothing more than 10%. This is why you need to contribute as much as you are able, and consider the employer match to be a bonus.

Have an IRA or Roth IRA

This also makes an excellent case for having supplemental retirement plans, particularly an IRA – Traditional or Roth. By having an IRA, you’re not completely dependent upon the employer plan or the promised match. You’ll be accumulating money to both your 401(k) and your IRA, so that if the match doesn’t pan out you’ll be better off than if you had relied completely on the company plan.

An IRA is worth having even if it isn’t tax-deductible. The earnings in the account will accumulate on a tax-deferred basis, even if your contributions aren’t deductible. And when you do reach retirement age, the contributions that you made can be withdrawn without being subject to income tax. That by itself is a benefit everyone should have.

Have Non-Retirement Savings Too

Unfortunately, for many people their only savings account of any kind is the employer 401(k) plan. Now if you had to pick one single savings vehicle to have, the 401(k) plan is an excellent choice. But that also means that you’re completely dependent upon the company plan, not only for your retirement but also for your total entire savings strategy. That’s never a situation than anyone should put themselves into willingly.

Saving money outside of retirement plans is always important, but it’s even more important for any reason you cannot have an IRA account as well. And like an IRA, the savings that you accumulate in your non-retirement savings can offset an employer matching contribution on your 401(k) that never materializes.

How much have you benefited from the employer 401(k) match, either in your current job or in previous positions? Leave a comment!

Are You Prepared for an Emergency?

emergencySnowed in?

Right now, many people across the United States find themselves snowed in. I’ve been fortunate; even though we’re getting snow, it’s not really out of the ordinary for my region, and it’s not causing serious problems.

I live in a mountain valley in the west, so we don’t have ice storms and wet snow. We still have our power, which is something that my husband’s relatives can’t claim right now.

When these types of weather events interrupt our lives, it’s a good time to think about how prepared we are for emergencies. With traffic snarled for miles, you might not be able to get to the store to get food or extra water. With the power out, you may be without light. You might even be without heat.

The time to prepare for these emergencies is ahead of time. So, if you aren’t prepared right now, when this emergency passes, make an effort to prepare for the next. Here are some basic items to consider when it comes to emergency preparedness:

Food and Water

When you see images of frantic consumers raiding store shelves, one of the things missing most often is water. We all need water, whether it’s for cooking or washing or drinking.

I store old containers of water in my crawl space, out of the light, for serious emergencies. We also have purification tablets and bleach so that the water can be used for washing and some cooking. I also have bottled water for drinking.

Storing food is also a good idea. We store things that we are likely to eat, and that are easy to prepare. This includes pasta and sauce, chili, nuts, dried fruit, and frozen vegetables. Rotate through your supply so that the food doesn’t go bad. We usually eat part of our food storage in the regular course of meal planning, but we replace the used items with new items during a weekly shopping trip.

If you don’t have room for months of storage, at least try to get a week or two stored up so that you aren’t one of the thousands clogging the roadways and frantically trying to get what you need when the emergency is imminent.


Don’t forget about supplies.

We have several First Aid kits. We have our biggest and most complete kit here in the house. But we also have smaller kits in our cars, as well as in our 72-hour kits. Other supplies are those that you might find in your home every day, such as blankets and extra clothes.

We also like to keep flares on hand, as well as a hand-crank radio and hand-crank flashlights. That way electricity and batteries aren’t necessary. You can also buy hand-crank chargers for your phones and other devices. And, as a last resort, we also have candles and an oil lamp (make sure you keep the oil fresh and the wick in good order).

We have a camp stove, a hibachi, and a regular grill, and the gas to run them, for cooking in a pinch. And we also have an indoor-rated propane generator for heat. These items can be very helpful for heat when you don’t have other sources.

Another emergency preparedness tip is to always keep your car gas tanks at least half full. That way, you aren’t at the mercy of long lines at the gas station. You can (hopefully) clear the population center before you need to get gas.

With a little preparation, you can ensure that that you aren’t caught by surprise, no matter the emergency. What are your tips?

Are you in the middle of a blustery emergency? What have you done to prepare? Leave a comment!

What If You – Won’t – Have a Fat 401(k)?

401(k)In the financial world it’s generally assumed that you – and just about everyone else – will have a fat 401(k) plan by the time you retire. That plan will be the bedrock of your entire retirement strategy. But let’s play devil’s advocate here for a minute: What if you won’t have a fat 401(k) plan?

It’s actually more than a remote possibility. In fact, according to statistics the average American probably won’t have anywhere near enough in their 401(k) plans to be able to retire completely.

What are some reasons that might interfere with having a fat 401(k) plan by the time you’re ready to retire?

  • A poor 401(k) plan – let’s face it, not all 401(k) plans are good.
  • A career crisis, career change or prolonged job loss.
  • Being forced to make early withdrawals to deal with a more immediate crisis.
  • Less than expected investment returns (often due to having a poor plan).
  • A stock market crash or prolonged bear market, especially in the years just before retirement.

It’s not pleasant to contemplate these possibilities, but all of them are more than remotely conceivable, which is why we should have a plan.

Invest Outside Your Retirement Plan

A poor 401(k) plan is the first reason listed above for not having a fat 401(k) plan. One of the factors that will make a plan poor is a very low contribution rate. Though the IRS will allow you to contribute up to $17,500 ($23,500 if you are 50 or older) into your 401(k) plan at 100% of your earnings, most employers limit your contributions substantially.

For example, your employer might cap your plan contributions at 10% of your income. If you make $40,000 per year, this will limit your contributions to just $4,000 per year. Even if you are in your 20s, this won’t get you a fat 401(k) plan by the time you’re ready to retire.

For this reason, you should invest outside of your retirement plan. Any investment assets that you have can provide income in your retirement years, and they don’t have to be specifically included in a formal retirement plan.

Lower Your Cost of Living

One of the very best ways to deal with lower than expected retirement assets is to have a plan to cut your living expenses. There are various ways you can do this:

  • Plan to downsize your living arrangement.
  • Relocate to where life is less expensive.
  • Develop inexpensive (or free) hobbies and pastimes.
  • Keep a close lid on lifestyle inflation.
  • Become a bargain hunter – there’s almost always a less expensive way to do or buy just about anything.

Don’t make the mistake of assuming that you can make these changes just before retirement. Many of them are lifestyle choices, and the earlier that you adopt them, the easier it will be to incorporate them into your life.

There’s one other benefit to developing these practices now . . . . The less money you need to live on, the more you will have to save and invest for your retirement years. Consider the potential for that between now and retirement.

Get Out of Debt

Perhaps a single best way to lower your cost of living is to get out of debt. By eliminating car loans, credit cards, installment loans, and other debts, it’s possible to lower your living expenses by more than $1,000 per month. Do you think that will have an impact on your retirement planning?

And just as is the case with lowering your living expenses in general, the sooner you adopt this strategy the better off you will be by the time retirement rolls around. The money that you are not paying into debt between now and retirement could be invested so that you will have even more money available when you retire.

Plan a Post-Retirement Career to Supplement Your Income

Taking retirement no later than age 65 is just about the minimum goal most people have. The problem is that life doesn’t always cooperate with our plans. That means we have to have a certain amount of flexibility built in to whatever plans we have, including long-term goals like retirement.

There are a lot of variables when it comes to retirement planning, especially if it is many years into the future. None of us have any idea how the stock market will perform between now and then, to say nothing of inflation. There are also concerns about the stability of Social Security. The point is, we all need to have a backup plan.

One of the best backup plans when it comes retirement is a post-retirement career. You may need to cover any shortfalls in retirement income with some form of earned income, even if it’s only on a part-time basis.

And once again, a post-retirement career is probably not something you want to put off until the last minute. It may take you several years to develop the perfect post-retirement career, not the least of which because you will want to make certain that it’s something you actually like to do, and can do on no more than a part-time basis.

No matter how optimistic you may be about your retirement, it‘s always best to be prepared for contingencies. The time to do that is before problems happen. You’ve got plenty of time to develop those plans now, which is the best reason why you should.

Do you ever worry that your 401(k) plan won’t be quite what you hope it will be the time you retire? Leave a comment!

Why You Should Buy the Least Expensive House You Can Afford

less expensive houseThe housing market has changed a lot in just the past few years. The old philosophy of buying the most expensive house you can afford has become obsolete. There are far more advantages to buying the least expensive house you can afford.

Consider some of the following . . . .

Lower Down Payment and a Lower Monthly Payment

Every expense and cash outlay that you have in connection with a house rises and falls with the price that you pay to purchase it. That includes your down payment. For example, if you purchase a $300,000 house, and need a 20% down payment, you’ll need to have $60,000 upfront. But if you opt instead for a less expensive house, say $200,000, your 20% down payment will be only $40,000.

That will leave you with $20,000 extra after closing on the home. This is more important than it seems on the surface too. The down payment that you make on a house can be thought of as trapped equity. That means it is capital sitting in the property, but unavailable for other purposes.

The same is true with expenses. A higher-priced home will result in higher property taxes and insurance, and if the house is also larger, you’ll have commensurately higher utility and maintenance costs.

One of the fundamental problems with both the down payment and the monthly expenses in regard to higher-priced homes, is that you essentially locked them in at the time you purchased the home. There will be no opportunity to lower those expenses after the fact.

More Money for Living Life – Avoid Being ‘House Poor’

The more money that you have tied up in the house – whether in the form of a down payment or a high monthly payment – the less you will have available for everything else in your life. At the extreme, a high-priced home could lead you to be house poor – owning a nice home, but having little room in your budget or your bank account for anything else.

That can be a tough way to live, especially if it develops into a permanent arrangement. The best way to prevent it from happening is to buy on the lower end of your range of affordability.

More Money for Savings and Investments

Many homeowners and would-be homeowners confuse a house as an investment. While a house certainly does have certain qualities of an investment, or at least it did up until about 2006, it’s more of a place to live than anything else. The investment angle has largely been used by the real estate community – and by overzealous home buyers – to convince themselves to shoot for the works and buy the most expensive house they can. After all, if it is an investment, why not just load up on it and make a bigger “profit?”

The primary issue with this kind of thinking is that it violates one of the first rules of investing: always diversify. While owning a house can be a good investment, you should never pour most (and certainly not all) of your money into it. If you do, you’ll have little left over for more traditional investments.

Keep your investment in your home at a reasonable level, and be sure that you will have enough cash and extra income after the purchase to also invest in stocks, fixed income securities, and other investments. Keeping everything in your house is not a very good investment strategy.

A Mortgage That Can Be Paid Off Quicker

The less expensive that your home is, the lower your mortgage will be as well. This is important because the objective with a mortgage should always be to pay it off as soon as possible.

In recent decades, homeowners have overemphasized price appreciation as the primary investment return on their homes. But mortgage amortization and an early payoff can provide even bigger returns, especially in a flat or declining real estate market.

Whatever price level you are buying at, you should always have a credible plan to pay off your mortgage ahead of schedule. There is a strategic component to this plan as well. As we now know that real estate prices can fall, paying your mortgage ahead of schedule is more important than ever. Generally speaking, it’s not falling house prices that hurt homeowners nearly as much as declining equity. The best way to avoid that trap – in fact, the only way you have any control over it– is to accelerate paying off your mortgage.

That will be much easier to do on a lower-priced home, one that is beneath your maximum financial ability.

You’ll Take Less of a Hit if Property Values Fall

Let’s spend a little bit more time on this issue of declining house prices. By example, Homebuyer A buys a house for $300,000; Homebuyer B buys a house for $200,000 in the same community. In the next three years, property values in their community decline by 10%. Which homeowner will suffer the greater loss in both property value and equity?

Answer: Homebuyer A. The 10% decline in the value of his house resulted in a $30,000 loss in equity ($300,000 x 10%). Homebuyer B suffered only a $20,000 loss in equity ($200,000 x 10%).

Some would argue the inverse – that Homeowner A wins in the event that values rise by 10%. He gets a $30,000 gain in property value and equity, while Homeowner B gets only $20,000.

But in the event property value rise, both homeowners come out ahead – it’s a win-win. Losses, on the other hand, tend to be felt more acutely, especially when home equity is thin to begin with.

And if Homeowner B bought a less expensive house than he could afford, he’ll better be able to weather whatever financial consequences result from the decline in property values. Remember that just a few years ago a lot of homeowners were in a crisis situation because their homes were “underwater” – the property was worth less than the outstanding mortgage balance. That’s a situation that you should want to avoid at all costs, and the best way to do it is to buy the least expensive house you can afford.

Can you see any logic in buying the least expensive house you can afford? Leave a comment!

The Amazing Benefits of Rental Real Estate

RentalThe stock market closed out 2013 with a new high. There’s certainly a lot of buzz around the market right now, but often that’s one of the best times to start seriously investigating alternative investments. As the saying goes, what goes up, must come down.

That doesn’t mean that the stock market is headed for a fall, but record price levels tend to be difficult to sustain. That means that now may be an excellent time to get really serious about diversification. One alternative with amazing benefits is rental real estate.

A lot of people have soured on real estate as an investment since the housing and mortgage collapse a few years ago. But it is for that very reason that rental real estate is still well priced in a lot of markets. It’s still possible to buy rental real estate for a lot less than you could have before 2007. And there are a lot of reasons why you might want to.

Investing for Income and Appreciation

Fixed income investments provide income. Stocks – mostly – provide appreciation (high-dividend-paying stocks are an exception). But rental real estate provides both income and appreciation. You can earn an income from a positive cash flow by charging rent, while the property gradually rises in price over many years.

But rental real estate as an added dimension in the appreciation department, one that even high dividend paying stocks don’t have, and that’s leverage. Most of the purchase price of a rental property is provided through a mortgage. That may enable you to buy a $250,000 rental property with just $50,000 in cash. And even if the property doesn’t rise in value, amortization of your mortgage balance virtually guarantees that your equity will rise as the years pass.

Investing in a Real Asset

The world is awash in paper assets; but sometimes having an investment that you can see and touch feels better sitting in your portfolio. Real estate is just such an asset, which is why the very name includes the word real.

Paper assets represent claims on physical assets (in the case of stocks), or promises to pay (debt securities, like CDs, bonds, government securities, etc.). While the assets behind the paper may be real, the value of the paper can fluctuate wildly due to the fact that it trades on open markets. The price of a stock can crash to near zero and a debt security could fall all the way to zero if the issuer defaults.

But because real estate is a physical asset, it has value all its own. This is particularly true of rental real estate. The property will always have value for housing purposes, and the fact that it is investment property means it will alway generate cash flow from rents. Real estate is a real asset in much the same way gold and silver are, except that it also offers the possibility of producing income. In a sense, it’s the most real of all real assets.

Rental Real Estate Becomes a Cash Machine When . . .

One of the biggest advantages rental real estate provides comes when the mortgage on it is paid in full. Once it is, a far greater portion of the rental income will flow into your bank account. Though many people buy investments in hopes of making a short-term gain, rental real estate may be the very best long-term investment. Quite literally, as soon as the mortgage is paid off, the property becomes a cash machine.

Unless the property is located in an area with extremely high property taxes, the mortgage payment itself is almost certainly by far the biggest carrying cost in owning the property. It is conceivable that once it is paid off, the majority of rent from the property will become pure profit.

A Superior Retirement Supplement

One of the biggest enemies of retirement planning is inflation. Though stocks are very good long-term inflation hedges, they often perform poorly during periods of relatively high inflation, for the simple fact that the stock market hates the uncertainty that inflation creates. Real estate, on the other hand, tends to flourish in higher inflationary environments. That makes it one of the best investments you can own going into retirement.

Not only is there the prospect of greater price appreciation from inflation, but there is also the likelihood of higher rental income. Since rents tend to move in pace with inflation, it is likely that the income your property will provide will increase considerably over time. This will be especially important once you retire, since you will need investment assets that will provide you with some sort of hedge against inflation. After all, you won’t have an earned income to help you cope with rising prices any more. Rental real estate may be the single best investment you can hold in dealing with inflation, particularly once you retire.

A Cash Windfall When You Sell

One of the biggest benefits to owning rental real estate is that when you sell it you can collect a huge cash windfall. Sure, you can generate windfalls by selling stocks, but selling a house would generate a single very large gain that they can be life-changing. It is one that is almost certain to happen if you hold on to the property long enough to pay off the mortgage.

This can also have significant implications for your retirement. If you invest in rental real estate when you are in your 20s and 30s, by the time you hit your 60s the mortgages on the properties will be paid. The sale on those properties will then generate enormous windfalls that might fund your retirement all by themselves.

I’m not suggesting that you abandon fixed income assets and stocks in your investment portfolio. Only that you add rental real estate as part of your investment diversification strategy. It can provide financial benefits that no other investment can.

Have you considered investing in rental real estate in the current market? Leave a comment!

Which Spouse Should Be the Stay-at-Home Parent?

stay-at-home parentIn most cases where there is a decision to be made about which spouse should be the stay-at-home parent, the choice favors the wife/mother. Instinctively, this seems to be the best choice, particularly when it comes to parenting. But there may be some objective factors that should be closely examined before making a snap decision.

There are even situations – increasingly common these days – where it might be better for the man/father to be the stay-at-home parent. Here’s a list of considerations.

The Spouse With Better Parenting Skills

For the benefit of the child or children, the spouse who should be the stay-at-home parent is the one who has the better parenting skills. Often, that’s the wife, but not always.

The couple should carefully consider who likely has the greatest amount of patience (an absolute requirement with children), the greater attention span (because kids have limitless energy), the best nurturing capabilities, and even the greatest ability to teach.

The complication is that most of us have all of these qualities to one degree or another, and while one spouse may be strong in some of them, the other may be equally strong in others. If that’s the case, then it may come down to personal preference – which spouse wants to be the stay-at-home parent more?

One major caveat though. There is another consideration that requires self-examination and complete honesty. Sometimes the spouse who wants to be the stay-at-home parent more is the one who hates their job the most. In this situation, the stay-at-home parent option becomes an exit strategy from the career world. This should never be considered a viable criteria, since the primary purpose will benefit the parent who wants out, and not the children in any way.

The Lower-Earning Spouse

It might be more accurate to say that the higher earning spouse is the one who should continue working outside the home. This will be an obvious benefit to the entire family, since not only will it result in higher income for the household, but it probably also means more generous benefits, particularly in regard to life insurance and retirement investing.

Another factor that may not be so apparent with income level is income potential. For example, if the lower-earning spouse is earning less because they recently came out of medical school, it might be best for the other spouse to be to stay-at-home parent, since the earning potential of the medical school graduate will be substantially higher.

The Spouse Who Has the Better Eye for a Bargain

While we tend to think of the stay-at-home parent as primarily being a caregiver to the children, budgetary responsibility tends to be thrust on the spouse by default. After all, not only does the stay-at-home parent have more control over their time (to pay bills and deal with financial complications), but they are also put into more situations that require making purchase decisions.

That being the case, you should also consider which spouse has a better eye for a bargain. It probably is not a good idea if a spouse who is a spendthrift is the one who becomes the stay-at-home parent. There will be dozens of purchase decisions to be made every week with children, and it will require a real eye for a bargain.

In a very real way, the stay-at-home parent becomes the guardian of the family’s finances. That should never be taken lightly. The increased financial responsibility by a spendthrift spouse could destroy the couple’s entire attempt to raise their own children at home.

The Spouse Who Has the Greatest Ability to Work from Home

This is an often overlooked consideration when it comes time to decide who should be the stay-at-home parent. It is a factor that can mitigate other considerations, particularly the question of who can earn the most money outside the household.

Let’s look at this question by example. Let’s say that Spouse A has a $50,000 job, and Spouse B earns $40,000. On the surface, it may look as if the logical choice is for Spouse B stay home with the children, and for Spouse A to continue working. But if Spouse A has the ability to earn $20,000 working from home (and Spouse B doesn’t), the family’s financial situation will be helped if Spouse A becomes the stay-at-home parent, and also earns money working from home.

Let’s say that Spouse B will continue to work earning $40,000 per year, but Spouse A will contribute $20,000 working from home. This will produce a combined income of $60,000 per year, versus just $50,000 per year if Spouse B comes home, and Spouse A continues working outside the home.

Some serious consideration of this potential should be given. And it’s not just a matter of producing a higher income. A family living on a single income is more at risk today than they have been in generations, due to the fact that employment is far less stable than its ever been. An arrangement that would allow both spouses to continue earning at least some income will provide a form of income diversification every family needs today.

Have you considered some of these issues in deciding which spouse will be the stay-at-home parent? Leave a comment with your situation!

3 Ways to Pay Veterinary Bills Without Going Broke

billsMedical costs for people aren’t the only healthcare costs rising. Veterinary care for our pets is rising too. Not only can large veterinary bills strain a household budget, but they can also force us into making tough choices. Do we go ahead with a life-saving surgery for our beloved pet, or do we decide that the cost is simply too high?

We don’t have to make such choices when it comes to people. After all there’s health insurance, and even if you can afford it, there’s the Hippocratic Oath that requires that you be given at least life-saving medical treatment even if you can’t afford it.

But what do you do if you’re faced with a large medical bill for your pet, and don’t have the money to pay for it? And perhaps more important, what do you do keep yourself out of a situation that may require you to make such a difficult choice?

There are at least three ways that you can deal with medical costs for your pet, but the catch is that you need to do something about it right now – before you have the need.

1. Pet Insurance

There are different insurance companies providing a variety of policies for pets. I checked out pet health insurance through a company called Healthy Paws. The quote that I got for my dog was about $50 per month, or $600 per year, for a plan that included a $250 annual deductible, and 80% reimbursement on any expenses above that.

The policy covers illnesses and injuries, as well as emergency care and genetic conditions. It will cover hospitalization, surgeries, diagnostic testing, and prescription medications for your pet. Unlike health insurance for people, reimbursement for services does not go to the healthcare provider. Instead, you will pay the vet out-of-pocket and be reimbursed by the insurance company, generally within two weeks.

There are certain exclusions. The policy will not cover pre-existing conditions, preventative or routine care, spaying or neutering, or office visit fees for routine exams. The policies are also limited to dogs and cats, so if you have other types of pets (for example, we have pet rats) they will be ineligible for coverage.

On the upside, there is no network of providers – they will cover services with any licensed veterinarian. There are also no limits on benefit payments, or on the number of claims that you file (according to the company’s website).

2. Dedicated Savings Account for Bills

If the idea of having health insurance on your pet doesn’t appeal to you, you can also set up a dedicated savings account that you can use to handle unanticipated healthcare costs.

We’ve already seen the how the insurance policy costs in the neighborhood of $600 per year. But should you decide to go without health insurance, you can put an equivalent amount of money into a dedicated savings account for your pet. This will be a form of self-insurance, so that you’ll have the money available when needed.

The advantage of this method is that if you don’t spend money, you can keep it and use it for other purposes. In fact, over the course of your pet’s lifetime, it could be a significant amount of money. For example, if you save $600 per year for 15 years, you’ll have $9,000 saved – plus interest. Of course, this assumes that your pet will be completely healthy during that time, and never have need for medical attention. Either way, it would give you complete control over the money that you have allocated and budgeted for potential medical expenses.

The downside of using the savings method is in timing. Let’s say that your pet needs to have a certain procedure will cost $2,000. But you only had your pet for two years, and in that time you saved up $1,200. You’ll still need an additional $800 to cover the medical costs.

Still another limitation is the fact that medical treatment costs for your pet can easily exceed the amount of money that you have set aside for that purpose. Much will depend upon how much you are prepared to spend on any given procedure that you might have done to your pet.

3. Care Credit

You may have heard of this company, either through TV or Internet ads, or you may have been offered a medical line of credit from a healthcare provider. The surprise here is that the credit line also extends specifically to veterinary care.

Care Credit is actually a trade name for a credit line program that is offered by GE Capital Bank. They have made this program available to healthcare providers so that patients can use the line to cover the deductible portion of a medical procedure. The most attractive benefit of this program – other than having a ready credit-line available specifically for healthcare purposes – is that it comes with an interest-free payback period, that can extend as long as 24 months. That makes it “as good as cash,” particularly when you don’t have the cash.

Of course, it’s always best to have money saved in advance of contingencies, but a credit line like Care Credit is the next best thing.

We had a line with Care Credit that we got as a result of my wife’s shoulder surgery about a year and a half ago. A couple of months ago, I got a promotional email from Care Credit that had some language referring to veterinary care buried in the fine print.

I called the company to verify this to be true, and it was. Then I called our vet to see if they participate in the plan, and they do.

You don’t want to use a credit line like this for routine veterinary care, but it can come in handy if you have a major expense, such as a surgery or multiple treatments. It’s one more option that you have to pay your medical bills for your pet. And best of all, unlike pet health insurance, you can use Care Credit to cover expenses on any type of pet that you have – including ones like our pet rats.

What is your contingency plan in case your pet needs high-cost medical treatment? Leave a comment!

What to Do if You’re a Saver and Your Spouse Isn’t

saver and spenderMarried couples can face financial stressors on various fronts. Maybe this isn’t even a stress – but a preference – but what do you do if you’re a saver and your spouse isn’t?

It’s actually a serious dilemma though, even if many would not consider it to be an actual problem. Some people have a deep emotional need to have savings. Others could care less. If you are in the ‘deep emotional need to save’ category, and your spouse isn’t, what can you do?

1. Give your spouse the lion’s share of household expenses.

This is the game of divide-and-conquer, applied to your household finances. Essentially what you do is allocate the bulk of households expenses to your non-saving spouse. This will ensure that the majority of their income goes to pay common and necessary expenses. At the same time, it will free up your paycheck to concentrate more heavily on savings.

While your spouse is tied down paying household bills, you can allocate money into short-term savings, long-term savings, and even a greater share in retirement.

On the surface this may sound unfair. But if your spouse has no inclination to save, this could reshuffle your budget allocations to make sure that common household expenses are paid and free you – the saver – to save money.

This will be a benefit to your non-saving spouse as well. They will benefit from the fact that household savings are increasing. In addition, the non-saving spouse will be participating in the savings process by freeing up more of your income for capital accumulation.

2. Have your spouse direct deposit money into savings.

One of the best ways to get a non-saver to save money is to take the savings decision out of their hands, and automate the process. You can do this through direct deposit payroll savings. You can establish or increase the amount of money that the non-saver direct deposits into savings, investment accounts, and retirement accounts.

Those savings vehicles will then continue to grow virtually unnoticed by the non-saver. I’ve actually seen non-savers accumulate tens of thousands of dollars through direct deposit savings. It really works!

3. Set up accounts that require both signatures.

One of the basic issues of non-savers is that they have little regard for savings, even beyond the dislike for the process of saving money itself. For better or worse, some people view money as something to be spent, which opens up the possibility that any savings accumulated might be raided for some other purpose.

The best protection against this outcome is to set up joint accounts that require both signatures for withdrawals. This will mean that you’ll be alerted anytime the non-saver might want to access one of the accounts.

Also, if you give your non-savings spouse the lion’s share of household expenses, while you act in the role of designated saver, joint ownership will eliminate the fear your spouse may have that you are accumulating assets while they are “stuck with the household bills”.

Of course, you won’t be able to do this with retirement accounts as they are strictly individual vehicles. But that’s what you have direct deposit for. And as we all know, withdrawing money from a retirement plan is a lot more complicated than pulling it out of a savings account or even a non-tax-sheltered mutual fund.

4. Have your spouse max out retirement contributions.

Some non-savers will never be converted into savers. It may be too much to ask for them to fund multiple savings and investment accounts. You can get around that by picking just one account that the spouse can focus on funding. If you have to make a choice, that should be their personal retirement account.

There are numerous reasons why this is a natural choice – and why it will probably work:

  • Since it is funded by payroll deductions, it will be almost effortless to carry out.
  • Part of the funding will be covered by lower payroll tax withholding.
  • The account will specifically be in the name of the non-saving spouse (an example of “paying yourself first”).
  • They will be providing for your common retirement (most people – even non-savers – don’t want to get this wrong).
  • If the non-saving spouse is covering a greater percentage of retirement savings, it will free you up to concentrate on the rest.
  • Funding even one type of savings is better than none, and a real victory for a non-saver.

5. Create a goal that will make saving attractive.

Some non-savers simply lack the motivation to save. But you may be able to fix this problem by creating a goal that will make the process of saving money attractive. That might best be accomplished by making the savings goal something that’s fun.

For example, you can set the savings goal as something like one of the following:

No, none of these goals will accomplish anything more practical, such as saving money for a new roof, a new paint job on the house, replacement of the furnace or air conditioner, or even building an emergency fund. But we can never have all in life, and you probably can’t push a non-saver too hard.

If you can get a non-saver to at least fund their own retirement, and one or two common savings goals, you might just have to declare victory and call it a day. Change, after all, comes one step at a time. And for a non-saver, any of these changes just might be a revolutionary act.

Do you have a spouse who is a non-saver? What are you doing to get them to save at least some money? Leave a comment!

How to Start Saving for Summer Vacation – Start Now!

Summer VacationIt’s a time-honored tradition: When summertime comes around, it’s time to go on vacation. However, vacations can get expensive if you aren’t careful.

When I was growing up, most of our summer trips revolved around the great outdoors. With five kids, my parents weren’t too keen on flying us around. Instead, we did a lot of camping and short road trips – all relatively inexpensive vacations.

However, there was one summer that we took a serious vacation: A three-week trip traveling through the midwest. That trip took serious planning, since our 15-passenger van required a great deal of gas, and there were hotels to stay at and food to buy. My parents saved up for that trip for months.

As a result, I learned that the time to start saving for your summer vacation is in January or February.

How Much Will It Cost?

The first step is to estimate your costs. Will you fly? Will you drive? Where will you stay, and how much will that cost? How much will you pay for food?

My parents saved on food costs by buying a five-day cooler for perishables and bringing sandwich stuff and other items for us to eat. They replenished the cooler along the way by going into town to shop at grocery stores (less expensive than buying at convenience stores).

There are trip cost estimators that can help you estimate gas costs, based on your car and your route. You can save money by planning to buy your airplane tickets at certain times and by looking for discounts on hotel rooms. I also like to book airfare on Orbitz if I book in advance, since you can get a price guarantee. If the price drops lower than what you paid, you get a refund of the difference.

My parents estimated their costs – and then added 15 percent to the total. That way, they could be prepared for incidentals and the reality that everything costs more than you think it will.

How Much Time Do You Have?

Now you need to figure out how much time you have to save up the money. If you plan to take your vacation in July, and you start saving in February, you basically have five months to save up (going until the end of June). Take your total and divide it by five to figure out how much you need to set aside each month to get there. If your vacation is going to cost $1,000, you will need to save $200 a month to make it work.

Remember that in some cases you might need to pay earlier. If you are buying airline tickets or booking hotel rooms, you might need to stagger your planning, and spend some of the money as you get it.

Another strategy is to use a credit card to pay for things like airfare – since that is the most expensive thing to pay for up front for many families – and then pay off the card as you go along, hopefully paying it off before you start your vacation. If you can swing it, open a 0% APR card so that you don’t pay interest on your vacation-related purchase.

If you are planning on a great summer vacation, start saving now. You’ll avoid the debt trap, and you’ll have peace of mind as you travel.

Where are you going this summer? How much will it cost? Will you be able to adequately save for this vacation? Leave a comment!

Why You Might Need to Set Smaller Goals in 2014

goalsThis is the season of resolutions, as in New Year’s resolutions. But resolution is mostly just a fancy word for goals that we trot out at the beginning of each year as a way of raising our commitments to achieve them.

If you’re like most people however, you have more than a little bit of difficulty in translating your resolutions – goals – into reality. If that’s the case, it may be that you need to set smaller goals in 2014. Smaller goals are simply more achievable, and it’s only when you can achieve small goals that you’re ready to take on the bigger ones.

Here are some examples of smaller goals that might put you on a path to achieve larger ones as the new year unfolds:

1. Pay off one debt.

Paying off debt is a pretty typical goal for just about anyone who has debt. We tell ourselves this will be the year that I will become debt free so that I can get on with my life. But becoming debt-free may be too tall a proposition to accomplish in a single year. A better approach may be to set a smaller goals, like paying off just one debt.

Pick any debt you like – the largest, the smallest, or the one with the largest monthly payment – and make a goal to pay it off this year. It may seem like a relatively small act, but it is a form of the divide-and-conquer strategy, in which you breakdown a large task into smaller parts. You may not be able to pay off all of your debts this year, but you can almost certainly pay off one.

2. Don’t join a gym – yet.

Getting in shape is another typical goal for a lot of people, and the onset of a new year is often a catalyst. Unfortunately, many plans to get in shape end up being abandoned, and fairly early in the year.

What makes it worse is that this resolution is often accompanied by a gym membership. And since those typically come with a contract that runs anywhere from one to two years – complete with monthly payments – you could be wasting a lot of money if you sign up and stop using it after few months.

This may be a classic example of setting a goal that’s too high. If your past track record on getting in shape is kind of spotty, you might be better off setting a more achievable goal. Rather than taking out a gym membership, thinking that it will motivate you, you may be better off starting with some low-impact workouts.

Walking or jogging are good starts. Biking and in-line skating can take it up a notch. Start with a light exercise program that won’t cost you any money. The idea is to prove to yourself that you’re committed to getting in shape, and only adding a gym membership once that becomes the obvious next step.

3. Increase your retirement or savings contributions by just $20 per week.

If you haven’t been on top of this up to this point, there may be a desire to go-for-broke to try to make up for lost time. But retirement contributions are a drain on your budget, which may be a large part of the reason why you haven’t been so conscientious with this in the past.

It might be better to set the more doable goal, such as increasing your retirement savings by an affordable amount, such as $20 per week. With just that small contribution, you can add an additional $1,000 per year to your retirement savings. That won’t bring overnight retirement success, but it will get you moving in the right direction. Next year, and the year after that, you can make similar increases.

4. Read one new book.

Books can truly be life transforming – if you’ve ever read Tim Ferris’s The Four Hour Workweek then you know what I’m talking about. There may be several such books that you would like to read, but simply don’t find the time to get to.

Rather than having a list of books, pick just one new book to read this year – even on a limited schedule you can probably get that much done. Just make sure that whatever the book is, it’s one that has the potential to make a real difference in your life. Just one influential book read each year for 10 years could help put you on a different course in life.

5. Improve one relationship.

Conflict seems to be a built-in part of the human condition, and most of us have one or more troubled relationships in our lives. It could be with parents, siblings, aunts or uncles, cousins, long-term friends, or even with your spouse or adult children.

While it may be noble think you can improve all of your relationships this year, that could also be overwhelming. But pick one troubled relationship – one that’s particularly important – and resolve to improve it this year no matter what. The upshot is that if you can improve one relationship, you’ll probably feel empowered to fix a couple more.

6. Pick the dirtiest, most dreaded task you have and get it done it now.

Okay, I’ll admit this probably is not a goal on most people’s New Year’s resolutions list. At the same time, most of us have a project or task – one that’s particularly intimidating – that we’ve been putting off for as long as we can remember. Decide to get that task completed and behind you this year. Now will be even better!

Here’s the point: The dirtiest, most dreaded task that confronts you is probably interfering with other areas of your life. For example, let’s say that you need to make a job change. You know it, and you’ve actually known it for a long time – maybe for a year or longer. But you’ve been putting it off because the job hunting process makes you feel uncomfortable. However, while putting it off you’ve been accepting an undo level of stress that’s affecting everything else that’s going on in your life.

While it won’t be pleasant, make that your first goal to be accomplished this year. By putting it behind you, you will free up your mind and your emotions, and that will make it easier to do just about anything else that you want to do from now on.

Do you have large goals for 2014 that you are worried about accomplishing? Do you see how breaking them down into smaller parts can be an advantage? Leave a comment with your thoughts!

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