What You Should Know About Unemployment Insurance

unemploymentWhen you lose your job, one of the first things you should do is apply for unemployment insurance benefits if you qualify. This is because unemployment benefits can provide you with a bit of income to help your family along while you are without work.

Even if you have an emergency fund, it makes sense to apply for benefits as soon as you can so that you aren’t putting the entire burden of your family’s income on your emergency fund.

Unemployment insurance is paid by employers; you don’t actually pay for these benefits. Your employer pays into a specific fund, and money is accessed by those who meet the requirements for eligibility.

Eligibility for Unemployment Insurance

First of all, it’s important to understand your eligibility. Not everyone who lost a job qualifies for unemployment insurance. Here are some of the things to keep in mind when figuring out if you are eligible for unemployment benefits:

  • How you lost your job matters – You have to have lost your job through no fault of your own. This means that you are laid off rather than fired. If you are fired because of your behavior or due to gross misconduct, such as theft or sexual harassment, you aren’t eligible for unemployment benefits. Additionally, in most cases, if you quit your job you are ineligible. There are times when you can make a case for yourself, such as quitting to escape a dangerous situation at home, or quitting because you need to care for a dependent with a disability. Talk with your state office and your caseworker to determine the possibilities.
  • Employed full-time or part-time in the past – You need to have had a job. If you are self-employed and you lose a major client, you are not eligible for unemployment benefits. You can only collect if you have been employed and you have recently lost your job.
  • An active job search is a requirement for benefits – Usually, in order to keep receiving benefits, you have to show that you are taking steps to find a new job, or that you are in training so that you qualify for a new job. You have to have this training approved.

There might also be other state requirements. Since unemployment benefits are administered through the state, you need to check with your state’s employment department to find out what the requirements are. Often, you need to register with your state’s workforce services agency, and follow instructions.

How Much Can You Get?

The amount of money you receive depends on how your state determines benefits. Usually, the state figures out how much you can get based on how long you have been employed, your salary when you were laid off, and other factors. States also receive aid from the federal government for unemployment benefits, so the amount of aid received also figures into the equation.

You should also be aware that unemployment benefits are not tax free. You are taxed on these benefits as though they are regular income. You can choose to have a portion of your unemployment benefits check withheld for taxes. This is often a good idea, even if it does reduce the amount that you end up with, since it can prevent a burden come tax time.

Understand, too, that in some states, your pension benefit (if your employer offered a contribution) might be reduced.

It’s never fun to find yourself in a position of dependence. However, unemployment insurance benefits are there to help you get back on your feet. Take advantage of them so that your family doesn’t suffer as much while you look for a new job.

What are your thoughts about unemployment insurance? Leave a comment!

6 Tools to Help You Pay Off Debt and Reach Your Goals

debtAt the beginning of this year, many made financial resolutions. One of the most popular resolutions made by Money Smart Life readers, as well as people all over the world, is to pay off debt.

If you want to pay off debt and become financially free, there are a number of tools that can help you reach your goals. From online applications that track your progress to great books that can serve as resources to help you create a plan, you can take control of your financial future and get on the right track.

The first step is learning about your situation and your options.

3 Online “Pay Off Debt” Applications

An online debt reduction application can help you see where you are, as well as create a plan to improve your situation. And, as you pay down debt, you can track your progress and celebrate your success.

1. Online Calculators

If you are trying to figure out which debt repayment route to take, Get Out of Debt Guy offers a handy Debt Plans Summary Calculator [Editor’s Note: This calculator seems to not be available at the moment. Try Todd’s Financial Mentor Debt Calculators.]. Evaluate where you are right now, and see what you can do to improve your situation.

2. SavvyMoney.com

Another option is to make use of SavvyMoney. This application helps you take a more active approach to debt reduction.

Enter all of your debt information into the appropriate fields and then create your debt payment goal. The application will help you put together a smart plan to help you save money on interest and pay off your debt as quickly as you can.

SavvyMoney keeps you on track and helps you visualize your progress. On top of that, you receive information on accelerating your progress so that you can pay off your debt even faster.

3. ReadyForZero.com

You can also use ReadyForZero, which is another way to track your debt progress. Much like you would with personal finance software, you can link your debt accounts to ReadyForZero so that you can see your progress as it happens.

ReadyForZero provides tips, reminders, and encouragement to help you keep on track. You can use this program to help you anticipate life without debt – a life that hopefully is in your near future!

3 Books to Help You Pay Down Your Debt

Tools to help you pay down your debt also include books. Many books include worksheets and helpful action plans that you can apply to your own situation. In many cases, it can help to read the right books before you set up your debt plan using the above tools. Some helpful get-out-of-debt books include:

1. Total Money Makeover

You may not agree with everything Dave Ramsey says (I don’t), but there is no denying that this step-by-step plan has served as inspiration for many over the years. You can follow the information in this book, and the accompanying workbook, and get out of debt and improve your finances.

2. The 1-2-3 Money Plan

Gregory Karp provides a practical guide to managing your money. Use this guide to help you beat debt and move on to the next stage of your financial development. A simple way to get started on the right path – no perfection needed.

3. Zero Debt: The Ultimate Guide To Financial Freedom

If you are in deep debt trouble, this book by Lynnette Khalfani-Cox is an excellent resource. Use this book as a tool to help you take control of your finances and dig out of the debt hole. Create your action plan with help from this valuable resource.

Editor’s Choice: Get Out of Debt Like the Debt Heroes

Our very own Ben Edwards partnered with Jeff Rose to gather an amazing collection of inspirational people and their stories on how they got out of debt. You’ll learn how people just like you escaped the debt trap!

Getting out of debt takes dedication and hard work. You need to be committed to that course of action if you want to succeed. The good news is that there are tools and resources available for you – many of them free or low-cost. Do yourself a favor this year and start on the path to debt-free living.

What are you using to help you get out of debt? Leave a comment!

This article was originally published on October 31, 2012.

How to Choose the Right Career Coach

Career CoachingAt some point in your life, you are likely to need to change jobs. You might need to switch career fields, or you might be trying to move up the corporate ladder. You might even be forced into switching things up due to a layoff. No matter the reason, one of the ways you can advance your career is with the help of a career coach.

Choosing a career coach isn’t a decision to take lightly. You want someone who can help you achieve your goals and improve your prospects. Here are some things to think about as you choose a career coach:

What Are Your Career Goals?

Usually, a career coach is most helpful when their services and techniques match your own career goals. Think about why you are hiring a coach, and what you want to accomplish. Do you want to change career fields? Do you want a promotion? Are you hoping to switch to a new company in your current career field? Are you looking for tips on how to ask for a raise? Are you hoping to get back into the workforce after a layoff or an extended absence?

The career coach you choose depends on your goals. When possible, look for a career coach with expertise in your desired field. The way an engineer searches for a new job is different from the way a teacher looks for a promotion. Try to match your career coach with your goals.

Look for Credentials

It can be difficult to find a career coach with the right credentials. States don’t usually license these professionals, and there is no “official” board. You can start out by looking for those with certifications through the Professional Association of Resume Writers and Career Coaches (PARCC) or through the International Coaches Federation (ICF). That will at least give you a baseline for quality, although it’s not a guarantee that you are working with someone that knows what they are doing.

You can also ask for referrals. Do you know anyone who has used a career coach? Were they happy with the coach? Sometimes, the best credential is a glowing testimonial from someone you trust. Remember, though, that career coaching is more about compatibility, and what works well for your brother-in-law might not work for you.

Interview Coaches First

Many career coaches will offer a short session for free. This gives you the chance to see if you can work with the coach. If someone “rubs you the wrong way,” it might be a good idea to move on, no matter how great others think they are. Any coaching situation is personal and requires a high level of trust. If you don’t get that, move on to the next candidate.

Also, realize that many career coaches do their work over the phone. In some cases, this is so that the coach isn’t swayed by your appearance. However, this works to your advantage, since it means you aren’t confined to your geographic area. You can cast a wider net to find a career coach that works for you.

At some point, you will have to consider the fee. While some coaches charge as little as $50 an hour, you are more likely to pay in the $100 per hour range. There are some career coaches that charge up to $400 an hour or more for their services. Be realistic about what you can afford, and what you need help with. Also, if you meet certain requirements, it might be possible to deduct the cost of your coaching on your tax return.

A good career coach can make a big difference in your job search, so if you decide to hire one, make sure that they are really as good as advertised.

Are you considering a career coach? What do you hope they can help you with? Leave a comment!

What to Do if You’re Declined for Credit

declined for creditBeing declined for credit is no fun. It can be demoralizing, whether you are being turned down for a credit card, a car loan, or a mortgage. Here is what to do if you have been turned down for credit:

Find Out Why You Were Turned Down

When you are denied credit, the creditor has to explain why you were turned down. You will receive an adverse action letter soon after you are turned down. This letter will tell you why you were turned down, and include information on the credit reporting agency that provided information about your credit history.

You are entitled to a free credit report from the agency that provided the information, as well as free access to the credit score that was used in determining your credit worthiness. Write to the credit reporting agency and ask for a copy of your report and score.

The adverse action letter should tell you why you were turned down – whether it was an income issue, or a credit issue. If it was a credit issue, you should go through your credit history to see what could be holding you back.

Work to Remedy the Situation

If your problem is an income issue, you will need to find a way to make more money if you want to be approved the next time you apply for credit. In some cases, the issue is that you already have a high amount of debt relative to your income. You might still have a good credit score, but the creditor might be uncomfortable straining your income with another debt payment. Paying down some of your debt can help in this instance.

When your problem is credit, though, you need to boost your credit score. Check over your free credit report. If you think that you should have good credit, look for mistakes on your credit report, as well as evidence of fraudulent accounts that indicate that someone has stolen your identity. You can clear up these problems and see improvement in your credit score.

Sometimes, though, your credit history is legitimately problematic. In those cases, you will need to take steps to improve your habits. The best things you can do are to make your payments on time and to reduce your debt load. After a few months, you should see some improvement in your credit score, and you can try to apply for credit again.

You can also get a form of credit that is easier to obtain, such as a secured credit card or a loan with a co-signer. These types of loans can help you rebuild your credit – as long as you are careful to make your payments on time and in full.

Should You Apply for Credit Again Right After Being Turned Down?

Some consumers turn around and apply for more credit right after being turned down. You have to be careful in these circumstances. Several inquiries in a short period of time can be a red flag that you are desperate for credit. It does take a few days for a credit inquiry to show up, so you might find success if you are quick about applying another time.

Really, though, you are probably better off trying to address the problem, rather than hurrying off to try to qualify for a loan again.

If you are applying for a larger loan, especially if you plan to apply for a mortgage, you will be better served by planning ahead and looking at your credit before you turn in the application. That way, you can catch problems ahead of time and fix them before you are turned down.

Have you ever been declined for credit? Leave a comment and tell us how you worked around it!

This article was originally published January 15th, 2013.

Socially Responsible Investing for Beginners

socially responsible investingChances are that you feel strongly about certain issues confronting society today. Perhaps you strongly believe in environmental protection. Maybe you think stem cell research is wrong. From support of human rights to opposition to the gambling industry, there are a number of political policy positions to hold.

However, no matter how much support you verbally express for a position, there is a chance that you are undermining the very things that you stand for by investing in a way that gives money (and increased power) to the causes that you want to fight against.

What is Socially Responsible Investing?

If you are interested in putting your money where your beliefs are, you can become involved with socially responsible investing.

Socially responsible investing is all about being conscientious about where you invest your money. You think about your ideals and priorities, and then invest in companies and assets that reflect those ideals. At the very least, you make it a point to avoid investing in ventures that are in direct opposition to your closely held beliefs.

How Do You Know Whether Your Investments Reflect Your Values?

Once you decide that you want to invest in a socially responsible manner, you need to figure out which investments are in line with your priorities – and which probably ought to be dumped.

One of the first places to look is in your mutual fund holdings. You might be surprised to find that the mutual fund that you invest in has holdings in companies you might not agree with. Someone devoted clean energy projects might be horrified to find that many mutual funds invest in big oil companies.

Likewise, those against tobacco might be shocked to discover that their investment dollars are supporting Philip Morris, a popular company amongst mutual funds.

If you are looking for funds that are likely to match your particular values, you can look at the USSIF web site, as well as visit SocialFunds.com. GreenMoney.com provides a look at companies that support sustainable practices, and environmentally friendly investing.

If you are more interested in Christian/Bible based investing, New Covenant Funds provides you with the opportunity to help charities, and invest in line with the Presbyterian Church and GuideStone Funds offers a variety of Christian-based mutual funds.

If you are interested in investing according to the principles of Catholicism, there are the Ave Maria Funds, and if you are follow the Islamic faith, there are Amana Funds.

With a little research, you can get an idea of which companies and funds reflect your most important values, and choose to invest in those assets. Whether you are interested in fighting poverty in Jewish communities, or whether you want to support efforts to develop clean energy, there are funds and individual companies that can help you invest according to your values.

Doing Your Due Diligence

It’s important that you perform due diligence before you make any investment decision. Even if you really want to support a cause with your investment, it’s vital that you do a little background check. Read the prospectus for a mutual fund before you invest, and read up on it. If you want to invest in a company, check the financials, and use a stock screener to double-check performance and other factors.

There are plenty of scammers out there willing to prey on your desire to make the world a better place with your investment. Don’t invest in something someone else approaches you with. Instead, go out and find a legitimate company or fund with solid prospects to invest in. With a little research, you can ensure that you aren’t profiting from positions you find morally untenable.

What other socially responsible funds do you like? Leave a comment!

This article was originally published January 24, 2013.

What to Do After a Layoff

Deciding what to do after a layoff is tricky because there are so many things to think about at once when you’re laid off. You worry about how to pay your bills, find a new job, handle your expiring benefits, find health insurance, tell your friends and family, and relaunch your career.

To help you know where to start I put together the “5 Hour Layoff Kickstart” that walks you through what to consider and what to do right after a layoff. You can get the report by calling me, toll free – 1-844-2NEWJOB.

A layoff feels devastating not only because it’s so unexpected but also because it can turn your whole life upside down. It’s not just your job that’s been rudely interrupted – it’s your ability to pay bills, provide benefits for your family, and even pursue your life plans. It feels like everything changes in just a few minutes after that brief phone call or layoff meeting.

The rest of this article talks about some important steps to take after a layoff but if you’d like more in-depth information about surviving a layoff and a plan for hour-by-hour & day-by-day action then submit your email below or call me at 1-844-2NEWJOB:

It’s important that you take immediate action when you are laid off. Here are the things to do right after a layoff:

1. Find out about your severance package.

Ask the human resources representative about your severance package. With a layoff, you might receive full or reduced pay temporarily. You might also have access to healthcare benefits and other benefits for a set period of time after your layoff.

However, it’s important to realize that some of these benefits might cost more. COBRA, for example, is very expensive. You will have to plan for the reality after your layoff.

2. Apply for unemployment benefits.

Next, apply for unemployment benefits. If you are eligible for these benefits, they can help you provide for your family as you look for another job to help you get back on your feet.

You should also find out about other public assistance programs that might be able to help you along while you are looking for a job. If you qualify for certain programs, it makes sense to take advantage of them while you look for another source of income. Remember: It’s more about providing for your family than your pride.

3. Prioritize your expenses.

You need to take a hard look at your budget. To tell the truth, it’s better if you have looked at your expenses and prioritized them before your layoff.

Take a look at where your money is going, and prioritize the spending. Cut out the items that you don’t need, and that can drain your bank account. You can also look at where you can cut back by saving money on energy, groceries, and in other categories. Consider using frugal tactics to help you make changes with your budget so that your dollars stretch further.

4. Brush up your career paperwork.

If you haven’t kept your resume up to date, now is the time to clean it up. You should also tweak your cover letter.

Let your network know you’re looking for work. Someone might be able to point you in the right direction. It’s better if you have maintained a career network over time, but if you haven’t, you should work to remedy that lack as quickly as possible.

Attend networking events, and participate in workshops designed to help you improve your resume and your interview skills. Many cities and states have workforce service departments. You can receive help with your career paperwork by making use of these resources.

5. Consider alternative ways to make money.

Now that you are squared away with your unemployment benefits, and you’ve reformed your budget and done what you can for your career, it’s time to consider alternative ways to make money.

Hopefully you have an emergency fund that can provide you with a little help remaining financially solvent. However, even supplemented by unemployment benefits, your emergency fund isn’t going to last forever. You can get a little help for your situation by looking for other ways to make money.

Start a side gig, or see about some other type of income. You can sell items you aren’t using any more, or do odd jobs. Find ways to make a little extra money so that you aren’t relying entirely on the emergency fund and the unemployment benefits.

Who knows? The side gig you start while looking for a new job might turn into a true primary source of income, and you may not need to go back to work.

Have you been the victim of a layoff? How did you survive? Leave a comment!

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!

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