Financial Wellness: Tax refunds are wasteful, not windfall

They say the handyman’s house is the last to be fixed. In our family’s case, the accountant’s taxes are the last to be done.

Given his hectic schedule this time of year, I knew it would take my CPA husband a while to file our income taxes. I waited until early April to remind him they still needed to be done, as he’d requested.

And so about 10 p.m. one April Saturday, Craig pulled up the tax software on his laptop and set about entering our W-2s, 1099s and related paperwork while I watched “Die Hard” on the couch.

There’s no real rush on our end to file early, as we don’t expect a large refund. In fact, I was thrilled when Craig said we owed $180.

Then, he entered in our 2013 day care costs, and the figure changed. We had about $100 coming back.

“Aw, darn,” I said, diverting my attention from John McClane.

This makes no sense to people who relish getting a refund. But refunds are not smart money management. It means you’ve overpaid, and let Uncle Sam hold on to your money without paying you interest.

According to the IRS, the average refund for 2012 was $2,803. CNN Money reports the average tax refund paid out this year from Jan. 31 through March 28 was $2,831.

If that’s about the size of your refund, consider this: that money could have been in your paycheck all year long instead. It could have been an extra $235 in your pocket every month.

That $235 could have gone into a retirement plan, earning interest and growing. It could have built up an emergency fund, or been used to pay off credit card debt.

While many people view the refund as forced savings, financial professionals at the Village Family Service Center in Fargo point out in a recent blog post that “a once-per-year refund often results in a once-per-year splurge.”

There are better ways to save, and having that extra money throughout the year could reduce financial stress, the blog post also says.

It’s easy to capture that money. Simply request a new W4 form from your employer and adjust your withholdings, reducing the amount of money taken out of your check each payday. The website IRS.gov has a withholding calculator to help you determine the proper number of withholding allowances.

Once adjusted, it’s important to be intentional about that newfound money. Dedicate it to a financial goal. Increase your 401(k) contribution or set up an automatic transfer into a money market account.

Take your tax refund out of Uncle Sam’s hands, and put it toward your own financial health.

Sherri Richards is a thrifty mom of two and Business editor of The Forum. She can be reached at srichards@forumcomm.com

Financial Wellness: Breathing room important in balanced budget

Before we married, my husband and I had idyllic dreams of what wedded bliss would look like. They were contrary to how a lot of people probably imagine early career success.

As early 20-somethings, we didn’t picture a big house or fancy cars. Instead, we were excited to live like broke college kids, despite our newfound incomes.

These meager aspirations – ramen and all – set us on a good financial foundation going forward.

In order to live a financially well life, you need to spend less than you earn. CNBC TV host Suze Orman calls this “living below your means but within your needs.” The more space you put between what you need to spend and what you earn, the more peaceful you’ll find your financial life to be.

It takes discipline to not spend every penny you make, but it’s worth it. You’re able to weather the rainy days better. It also gives you the flexibility to spend more when you have the chance to bask in the sunshine.

One easy way to do this is to automatically increase your 401(k) contribution anytime you receive a raise. You won’t miss the extra money, and will automatically start building that cushion – both in future funds and your budget.

You may also want to take a deeper look at your overall financial picture – at what you really make, really spend and where those numbers should be.

A common guideline for budgeting is 80-10-10: Spend 80 percent, save 10 percent, give 10 percent. It’s a tried-and-true principle that creates financial leeway.

One model I really like was outlined in the 2005 book “All Your Worth,” co-written by Harvard professor and now Massachusetts Sen. Elizabeth Warren. It’s called the 50-30-20 budget.

In this model, half your net income is for needs, 30 percent is for wants (including clothing, vacations, dining out, charity and gifts) and 20 percent for savings (retirement, emergency and extra debt payments).

By keeping necessary expenses like housing, insurance, transportation, groceries and loan repayment to half your income, you’d still be able to pay the essential bills if one spouse was suddenly out of work or you had to go on unemployment.

It’s long been my family’s goal to live off one income and save the other. That’s what allowed me to cut my work hours after our children were born.

Even as our salaries have gone up, we’ve worked to keep our obligatory spending low, dedicating extra money to our mortgage and retirement funds.

Instead of increasing our standard of living, we’ve increased the breathing room in our budget.

That’s worth a little ramen.

Financial Wellness: Pay attention, but don’t obsess over your pennies

A lot of my frugal ways seem to be ingrained, habits I’m not always aware I have. Recently I realized I don’t approach the store checkout lane the same way others do.

I prefer to find a lane that isn’t completely empty. I want enough time to unload all my cart’s contents onto the conveyer belt before the cashier starts ringing me up. That way I can watch the price of each item as it pops up on the register’s screen to make sure it’s correct.

It’s a learned behavior. As a child, I remember my mom doing this.

I suppose it’s not as necessary nowadays, considering the advances in bar codes, scanning and point-of-sales systems. But you’d be surprised how often something doesn’t ring up at the proper price, especially if it’s on sale.

A month or so ago, a clearance Christmas gift set that had been slashed an additional 50 percent didn’t ring up with the extra discount. The cashier was able to manually adjust it when I pointed it out. My husband bought a dress shirt a couple of weeks later that didn’t register at the promised half-price. Again, the sales clerk changed it.

Sometimes the price discrepancy is my mistake. Maybe I grabbed the wrong item or didn’t meet the purchase requirements to trigger an advertised discount.

By paying attention, I make sure I don’t spend more than I intend.

Being attentive to your money, even in these small ways, adds up big. It’s like the saying, “if you watch the pennies, the dollars take care of themselves.” But that doesn’t mean you should obsess over every penny. I don’t think that’s the way to financial health.

Instead, analyze your spending while making your saving automatic. Monthly bank transfers from checking to retirement and savings accounts ensure we’re preparing for a solid financial future. It’s called paying ourselves first.

All of our fixed expenses – the mortgage, utilities, etc. – are paid automatically, too, meaning I don’t have to worry about missing a payment. That just leaves those variable expenses – including money spent at the grocery or discount store – for me to concentrate on, one register at a time.

Financial Wellness: Identifying our needs vs. wants

After a slow start finding his words, my toddler son has started talking like a mini grown-up, seemingly overnight.

“I need coffee, Mama,” 2-year-old Owen said the other morning as he emerged from his bedroom and joined me in the living room. I made him a cup of hot cocoa, or “Owen coffee” as it’s called in our house.

His groggy demand reminded me of his big sister, Eve, now 6. As a toddler, she neeeeded everything, too: apple juice, her music CDs on constant repeat, Elmo on YouTube.

The “need” verbiage is classic toddler language, understandable given their limited world view. In their minds, they do need whatever they’re requesting, like when Owen said, “I neeeeed ice cream” the next day.

I like to repeat these requests back to my children, using the word “want” instead. It’s one way I hope to instill the important distinction between the two early in life.

Identifying our needs from our wants – and prioritizing our resources accordingly – is a crucial step in maintaining a balanced budget. Because the odds are you’ll never have enough money to afford all your wants.

I was thrilled when Eve brought home a kindergarten worksheet this month about needs and wants. She’d circled all the true needs (food, clothing, shelter, family), and put an X through the wants (a TV, a bike). Concept mastered!

That’s something not all adults have achieved.

Most of us could stand to re-evaluate what we consider necessary in life. Odds are you’ll find a few luxuries masquerading in there.

It’s more than a pencil-and- paper exercise, though. It’s about attitude, including the words we use.

How often do you talk or think about the things you “need” to buy or own? How often are those things actually a “need” – something impossible to survive without – versus a mere want?

When we say that we “need” whatever new fashion or technology or experience has us drooling, we begin to confuse the two, subconsciously at least. We’re convincing ourselves that we are somehow deprived if we don’t procure that need/want.

If we feel deprived, we’re more likely to make poor financial decisions than when we approach purchases from a place of satisfaction and abundance.

A financial adviser once shared with me an illustration of how a want can spiral into a “need” in our minds, until we buy it. Pretty soon, another want catches our eye. It’s a cycle that’s often repeated futilely in search of happiness.

But when we find contentment in the realization that our base needs are fulfilled, the wants we are able to splurge on responsibly are pure gravy. It’s so satisfying to obtain something you want when you know you can truly afford it, thanks to proper planning and patience.

Achieving that mentality may require stepping back from our consumer-laden society. It definitely means not trying to keep up with the Joneses. It likely will take some reframing of your thoughts, as well as your words.

Language is powerful, from the mouths of babes to our inner voice.

Sherri Richards is a thrifty mom of two and Business Editor of The Forum. She writes a weekly personal finance column. Contact her at srichards@forumcomm.com

A financial cleanse: dealing with debt

Much like physical health, if you want to achieve financial wellness, you need to remove the toxins from your life. When it comes to your finances, that means dealing with debt.

Owing money for past purchases hamstrings your future. Accumulating interest eats away at your income.

An analysis of household debt at NerdWallet.com shows Americans owe the most on mortgages, and an increasing amount on student loans. Credit cards are the third-largest source of household debt.

But in most cases, that’s the debt you should tackle first, as it’s more likely to fall into that “toxic” category. Interest rates are typically higher. There are no tax deductions, as is the case for mortgages or student loan interest.

Also, the smaller balances mean you can get rid of that debt faster – allowing you to then snowball your payments toward that student loan debt, and lastly, your mortgage.

NerdWallet’s analysis shows 46.7 percent of U.S. households have a credit card balance. The average U.S. household credit card debt is $15,252 among households that owe money. Spread across all households, that number drops to $7,115. And the median debt (the amount in the middle) for indebted households is $3,300 in consumer debt, a very manageable figure.

If you’re ready to deal with your debt, here are some tips for tackling credit card debt:

  • Balance your budget. It’s Adulthood 101. You’ve got to live within your means. You’ll never stop the debt cycle unless the money going out is more than or equal to the money coming in. You’ve got two choices: reduce your expenses or increase your income.
  • Stop using your cards. You can’t pay down debt while also racking it up. Plus, if you carry a balance on your cards, your grace period – the time from you make the purchase and that purchase starts accruing interest – goes away. That means you’re charged interest on new purchases right away, increasing the cost of everything you buy.You don’t necessarily need to close the account (unless that’s the only way you’ll keep your fingers out of the credit cookie jar). Just cut up the card, lock it up or freeze it in a block of ice, whatever it takes to stop using it.
  • Pay more than the minimum. That minimum payment you owe your credit card is just that: a minimum. Depending on your interest rate, that amount may not even cover the interest you’re accruing, meaning you’d never actually pay off the card.If you’ve got debt on several cards, focus extra payments on one balance until it’s paid off. Most financial experts would tell you to pay more on the card with the highest interest rate first. An alternate tactic is to pay off the smallest balance first.
  • Call your credit card companies. If you’re in over your head, credit card companies may be willing to work with you, for example, by reducing your interest rate. They’d rather get something than nothing. You need to ask, though.Another option to reduce your interest rates is to transfer your balance to a lower-rate card. Read all the fine print, though. Balance transfer fees could eat away all your savings. That low interest rate could expire quickly, leaving you with an even higher rate.
  • Seek debt management – not debt consolidation. Financial guru Suze Orman does a great job distinguishing between the two options.Debt consolidation companies will tell you to stop paying your credit cards and will ask for payment upfront, as well as a percentage of the discount they negotiate for you. It ruins your FICO score. Don’t go this route.Rather, talk to someone with a debt management organization. These agencies can help you look at your financial situation and get you on a plan to pay off your creditors in three to five years. Their services cost you very little. One example locally is The Village Family Service Center. You can find other reputable services at www.aiccca.org or www.nfcc.org.

    Sherri Richards is a thrifty mom of two and Business Editor of The Forum. She can be reached at srichards@forumcomm.com

Financial Wellness: Don’t let #yolo ruin your financial future

The young professionals downing drinks and nibbling small plates at Fargo’s fine dining establishments always have confounded me.

It’s a rare occasion I splurge on a $9 martini or an artisan cheese plate. I couldn’t understand how peers could afford to do so regularly.

Then it hit me: They can’t.

They might argue with me. “Sure, I can afford it. I have $40 right here.”

But do you have money in an emergency fund?

Do you save 10 to 15 percent for retirement?

Is your credit card completely paid off?

A “no” to any of those means no, you can’t afford it.

I suppose that kind of thinking makes me a stick in the mud. It certainly doesn’t align me with the current #yolo crowd: those who post their reckless antics to social media, proclaiming them acceptable because “you only live once.”

More than an acronym, it’s a philosophy, one that seems centered on shirking responsibility. Because what the heck? You only live once.

The problem with #yolo is you’re also likely to live a long time. And if you don’t want to eat cat food in retirement, you need to think about the consequences of your spending now.

By becoming more aware of your money during those #yolo years, you have the opportunity to leverage the amazing ability of compound interest.

Every dollar invested when you are 25 will be worth $21.90 when you’re 65 (assuming an 8 percent rate of return, and not adjusted for inflation).

Wait until you’re 40, and each dollar will grow to only about $7 by retirement age.

Now, take that $40 you would have spent on a night out once a month, and invest it each and every month.

If you start when you’re 25, you’ll have more than $130,500 stashed for retirement, just by staying in one night a month.

There’s more to life than money, your #yolo status screams. But money has a profound influence on our lives, present and future. It provides the security to chase the dreams that really matter when you only live once.

Spending it on martinis and cheese plates now, instead of dealing with debt and contributing to retirement funds, means you are quite literally (after digestion runs its course) flushing your future down the toilet.

Calculations preformed at americanfunds.com

 


Sherri Richards is Business Editor of The Forum and a thrifty mom of two. She can be reached at srichards@forumcomm.com

Parenting Perspectives: ‘Sweet spot’ in sight, just not there yet

My baby sits on his haunches and lines up his toy cars in a neat row.

No longer a baby, I think, noticing Owen’s big boy haircut and longer frame that finally fills out size 2T clothes.

It’s a moment of peace in our normally chaotic house. Big sister Eve is off entertaining herself. Owen and I talk about fire trucks and racecars and choo choo trains. I try to convince him the green car is actually green and not red.

I’m in the sweet spot, I think.

And then one of the little ones starts crying or screaming or needs a diaper changed or throws a glass of milk on the floor because it’s in the wrong cup.

OK, I’m not there yet.

But it’s close, that sweet spot where we’re past the toddler tantrums and whining and neediness, but not yet to the pre-teen drama.

I see glimpses, when Owen asks politely for juice. When he picks up those toy cars. When I take him into a gas station bathroom and he doesn’t escape under the stall door, forcing me to chase him before I’ve pulled up my pants.

And they are so sweet, those moments. It feels more like living than surviving.

We went to my niece’s birthday party in late January at an indoor play center. The kids scampered up ladders and through tubes and down slides, and rolled around in a ball pit. I was able to watch and talk to people and even sit down.

I later told my sister-in-law it was the first time I’d taken both kids to an event by myself that hadn’t been a completely stress-filled experience.

But then we regress. Like the infamous bowling outing of February 2014.

My husband’s office organized a Saturday night of pizza and bowling for the employees and their families. All day Owen was excited to “go bo-ing.”

We’ve taken to driving separately to these kinds of events, the extra car providing an escape plan in case of emergency (atomic meltdowns, diaper shortages, etc.) For a moment, I contemplated us taking one car that night.

Thank goodness we didn’t.

Owen and I clocked about 53 minutes at the bowling alley. He screamed for 48 of them.

He didn’t want to eat the pizza. He wanted to “go bo-ing.”

He didn’t want to put on the bowling shoes. He wanted to “go bo-ing.”

And when it was finally time to bowl, he didn’t want to wait his turn. He didn’t want us to help him. He didn’t want to stay in one lane. He didn’t really even comprehend the concept of lanes, wanting instead to catapult the ball across them instead of down one.

He also didn’t want to leave when we finally said “enough” and I bundled him up against his will, leaving Craig and Eve to bowl in peace.

Not so sweet.

But we persevere, relishing in those brief sweet spot moments, knowing it’s getting closer while still driving two cars.

And I try not to think about Eve’s propensity for girl drama, how those tween years will arrive sooner than later.

It will have been sweet while it lasted.

Sherri Richards is mom to 5-year-old Eve and 2-year-old Owen, and business editor of The Forum. She can be reached at srichards@forumcomm.com

Financial Wellness: Another kind of wellness in focus

Beginning March 3, my Money-Savin’ Mama columns have a new name and space. They will now run weekly on the Business pages of The Forum, under the name Financial Wellness. I’d love to hear your feedback and ideas.

Wellness goes far beyond the physical elements like diet and exercise.

We talk about our emotional wellness, how we cope and feel. Spiritual wellness is gained by finding meaning and purpose in life. We’re cognizant of our social wellness, a sense of connection and belonging.

Financial wellness, however, is a topic many still shun.

“It’s not polite or proper to talk about money,” you say. “Numbers are boring.” “I can’t budget.” “I don’t have time.” “It’s depressing to look at my finances.”

All are excuses that lead to out-of-whack money management.

The way you live your life financially affects other aspects of your wellness.

Being stressed out about money takes a physical toll.

When you don’t have a firm grasp on your financial situation, you may feel pressured to spend beyond your means in social situations.

And it’s hard to climb Maslow’s hierarchy of needs toward self-actualization when you’re stuck on the second tier worrying about your resources.

On the other hand, taking control of your finances allows you to understand how much you can comfortably spend and share. It frees you from a lot of stressful worry.

So what does living a financially well life look like?

It’s spending less than you earn.

It’s being debt-free or following the path to get there.

It’s saving money for your future, whether next month, next year or 30 years from now.

It’s feeling content with what you have while planning and working for what you want.

Since 2011, I’ve written a monthly column in The Forum called “Money-Savin’ Mama,” sharing practical suggestions to spend less and save more. My goal has been to get people to take personal finance more personally, to see themselves in my family’s situation and to inspire them to do better.

Based on the feedback I’ve gotten, the message seems to be making sense – and cents – for a lot of readers.

So we’re taking it a step further, rebranding the column and publishing it weekly in the Business section with the hopes of reaching a wider audience, from young professionals to retirees.

My goal remains the same: to make money a topic of conversation.

To counter a culture of über consumerism.

To encourage financial wellness.

Sherri Richards is the Business editor for The Forum and a thrifty mom of two. She can be reached at srichards@forumcomm.com

Money-Savin’ Mama: Be cautious when ‘saving’ equals more spending

A sale sign lured me from the mall’s wide corridors last October. Everything in the children’s clothing store was $16.99 or less, it promised.

I don’t normally shop at Gymboree, its regular prices out of my wallet’s comfort zone. But beneath that sign were tulle-lined holiday dresses, regularly priced around $60 each.

The saleswoman confirmed the dresses were included in the inventory-clearing sale. I bought three – one for my daughter, Eve, and early Christmas presents for two nieces – paying less total than one would have cost.

I stayed within my gift-giving budget for the girls, and bought Eve a new outfit for not much more than I usually pay for a used dress.

And, because I spent more than $50, I received bonus “Gymbucks” for $25 off a future $50 purchase, valid from the end of January into early February.

So a few weeks ago, I wandered back into the land of kiddy chic. Happily, many of its racks were on clearance, discounted 30 percent to 60 percent.

I picked out itty-bitty shirts and pants as a gift for my newborn nephew, a skirt and top for Eve, and an adorable hat for one of my nieces.

With the clearance prices and the $25 coupon, my bill came to $32.18, a far cry from the $125 the original price tags totaled.

I celebrated my money-saving prowess, but warily.

Because, had I really saved any money at all?

It’s a dangerous trap to think you’ve saved money when in reality, you spent.

It’s an issue I struggle with as I see frugal blogs touting ways to score major discounts on tank tops, kids’ toys and toiletries.

Yes, you’re paying much less than the suggested retail price. This is great when they’re items you need or gifts you’d be buying anyway.

But did you have that money in your budget to spend for those items? Did you need those tank tops or toys or toiletries?

I found myself falling into a similar scheme a few weeks later. Several friends have had good luck purchasing items from Zulily.com, a daily deal site geared toward moms. A Facebook ad lured me into the “shopping destination.”

There, I found a discounted pair of My Little Pony pajamas, a perfect birthday present for Eve. Several pairs of shoes caught my eye, and I took a chance on a pair of black wedges, as my current go-to black flats each have a hole in the sole.

At the checkout, I hesitated, realizing the shipping costs would eat away at my savings, but after some quick calculations, clicked buy.

A congratulatory note for my first purchase popped on the screen, along with an offer of free shipping on any additional purchases made through the weekend.

Free shipping? Well, I should probably take advantage of that …

I started to scan the site for more “deals.”

And then I stopped.

None of these deals would mean more money in my bank account.

They’d just mean stuff I don’t need at my doorstep.

That’s no deal.

Sherri Richards is a thrifty mom of two and employee of The Forum. She can be reached at srichards@forumcomm.com

Money-savin’ Mama: No wrong way to start saving

The picture of a coin-and-bill-filled jar started making its way around social media a few weeks back. It accompanied a 52-week money challenge chart that, if followed, would result in $1,378 in savings by the end of the year. The idea is to start by saving $1 in week 1, and then increase that by a dollar every week to gradually ease into the saving habit.

Soon counter-posts criticizing the method filled my Facebook wall. They put a large red X through that challenge chart.

If you don’t have $52 a week to save now, you certainly won’t come next December, they said, advising instead that you start with $52 and taper by $1 a week. That way, you’ll harness the motivation you feel right now, and be rewarded with having saved a couple hundred dollars in a matter of weeks, instead of several singles.

Then there were the even-keeled kind who proposed a different approach. Why don’t you just save $26.50 each week all year long to reach that $1,378 goal? And why not do so through automatic transfers into a bank account, instead of keeping a big, tempting jar of cash in your house?

So, Money-Savin’ Mama, what’s the best way? Answer: Whatever works for you.

Truth is, there’s no bad way to start saving.

A math teacher I once met said he tells his students there are many right ways to solve a problem. Some make the problem quicker to solve, others are roundabout ways to get there. But finding the right answer is what matters.

Even if you choose the most roundabout way to reach your savings goal, it’s better than doing nothing.

For example, most financial experts will tell you, when it comes to paying off debt, you should put more money toward the debt with the highest interest first (then, once paid off, add that payment to the second-highest interest debt). But others, including Dave Ramsey of Financial Peace University, say to pay off the debt with the lowest balance first to earn a sense of accomplishment (and then add that payment to the second-lowest balance).

While I fall in the interest-first camp (it will save you more money), any extra effort to pay off debt more quickly is working to solve the problem.

If you’re motivated by the satisfaction of paying off a bill quickly and it will keep you on the road to being debt-free, pay off that $300 balance first (and then add that payment to the … you get the idea).

The key is to start. Just start. Whether it’s $1, or $52, or $26.50.