How to Choose Funds for Your Retirement Account

Selecting funds for your retirement account can be frustrating. You’re faced with an overwhelming amount of financial jargon, paired with tremendous pressure to make the best decision given the importance of your retirement investments. Several of you have asked me to take this topic on directly, so let’s explore how to navigate retirement account fund selection!

Before we dive in: If you’d like a quick orientation to investing, explore how to start investing in four steps. And, if you’d like clarity on 401(k)s and IRAs, review this overview of the main differences in these common retirement accounts.

So, how do you choose funds for your retirement account? I’ll take you through four steps:

  • Decide how much of your retirement investments will be in stocks (versus other investment types)

  • Identify mutual funds that might meet your needs

  • Select the funds that are right for you (low-cost and with a strong performance history)

  • Invest (consistently and automatically) according to your asset allocation

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Let’s start with the first step - identifying the portion you’d like to invest in stocks. When you contribute to a retirement account, you need to decide how that money will be invested. This is referred to as “asset allocation.” How much will you invest in bonds (which are generally lower-returning but more stable)? How much will you invest in stocks (which tend to return more, but can be riskier)?

The asset allocation decision can seem overwhelming to many of us, who want to get the answer “just right.” However, like so much with investing, there is no perfect strategy. I suggest using one of two methods to derive your answer.

Rule of thumb. Many advisors suggest that subtracting your age from 110 provides the percentage of your portfolio you should keep in stocks. For example: If you are 29, 81% of your portfolio should be in stocks, and the remaining 19% should be in less-risky investments like bonds or cash. (Note: Advisors used to subtract from 100; I now see many shifting to 110 or 120 given longer lifespans.)

Online questionnaires. Financial institutions have easy-to-use questionnaires that help assess your risk tolerance, investment time horizon, and other elements in order to provide you with a recommendation. These questionnaires will provide a suggestion for you to consider regarding your asset allocation.

Note that most employer-sponsored retirement accounts will not permit you to invest in individual stocks. Instead, you can purchase large groups of stocks at one time by buying mutual funds. I generally like this limitation, as I do not believe the average person (or even most investment professionals) can outperform a well-designed, low-cost mutual fund. Therefore, once you determine the percentage you’ll be investing in stocks, you’ll usually be purchasing mutual funds (made up of stocks), instead of individual company stocks themselves.

Next, you need to identify the mutual funds available in your retirement plan that might meet your needs. Typically, most employer-sponsored retirement accounts limit your investment options, providing you with a list of mutual funds to select from. You can learn more about mutual funds here; since mutual funds allow us to buy many, many investments in just one purchase they are a very convenient way to invest.

When you are provided with a list of mutual funds, it will typically include the fund name and the ticker symbol, so you can easily research it. This is another step that can feel very overwhelming, and I recommend four steps to narrow your list of mutual funds down:

  • Look for index funds that mirror the market. I’ve mentioned before that my favorite mutual funds mirror a large, diverse market. One example is the Vanguard 500 Index Fund (ticker symbol: VFINX).

  • Avoid mutual funds that bet on an industry or sector. If you not 100% certain that a specific industry is going to over-perform all others, why would you place your valued money in that mutual fund? I avoid any funds that overemphasize a particular industry or region.

  • Explore target date funds if you like to keep things simple. Target date funds are designed to make asset allocation (which we discussed in the first step) easier. They are designed to get less risky as your retirement date nears, shifting from stocks to bonds. Note that, generally, their returns also drop over time (as they shift from higher-returning stocks to lower-returning, but more stable investments). Target date funds are named with the retirement year - so, if you’re 30 and plan to work until you’re 50, you add 20 years onto today’s date and select the fund with that year in the title.

  • Call your retirement account provider. Many retirement account providers (like Vanguard, Fidelity, and Charles Schwab) also offer support in identifying and exploring investment options. Taking some time to speak with them may provide additional clarity.

I suggest considering 3 - 6 mutual funds, with no more than two bond (or fixed-income) funds. Fewer funds reduces complexity and allows you to better understand what you’ve decided to invest in.

At this point, you have a list of several funds, and need to finalize your investments by checking costs and performance histories. Before investing, you should examine the 3 - 6 mutual funds you’ve identified to confirm they are low-cost and have a strong performance history relative to benchmarks.

I recommend you check at least three things; All should be available via your financial provider, but you can also search the funds on an industry site like Morningstar.

  • What's the expense ratio? This is how much the company that manages the fund charges you for their work. An average expense ratio is around .6% - meaning, for every $100 you have invested, the fund rakes in 60 cents. Sounds small - but tiny fees make a meaningful difference in your wealth over the long term. Vanguard’s average expense ratio is .12% - meaning, for every $100 you invest in a Vanguard mutual fund, they charge 12 cents. That’s much, much lower, and lets you keep more of your hard-earned money.

  • Are there other fees? It can be costly to create fancy, actively-managed mutual funds. So, look carefully for purchase or redemption fees, or 12b-1 fees (marketing or distribution fees.) Ask, ask, and ask again about fees before investing!

  • What's the 10-year return? If you’re investigating a stock fund, you’ll want to explore how it performed over the last decade, compared to the S&P 500. The S&P 500 is a very common performance benchmark because it includes the 500 largest U.S. companies. If the mutual fund seriously underperformed the S&P 500, it may not be worthy of your hard-earned money.

You’ll also want to compare each investment you are considering to one other; if an investment has a particularly high expense ratio, or low return relative to others in your short list, you may decide it isn’t worth investing in.

Finally, invest (consistently and automatically) according to your asset allocation. Remember your asset allocation? Well, now that you have your 3 - 6 total mutual funds, you will need to determine exactly how to invest across each fund.

Let’s say you have selected three funds, an S&P 500 index fund, a broader market index fund, and a bond fund. Further, let’s assume you’ve already determined you’d like to invest 10% in bonds and 90% in stocks. Then, your only remaining decision is how to divide that 90% between the two stock funds (the S&P index fund and broader market index fund) - as 10% will go to the bond fund. In a situation like this, my suggestion is keep is simple - so, start with a 50/50 split between the two stock funds, unless there is a compelling reason to do something different.

Most retirement account providers will allow you to allocate your investment dollars on a percentage basis. Typically, this is done online or by calling the customer service department. Importantly, unlike regular (non-retirement) investment accounts, employer retirement accounts aren’t subject to taxes when you change your investment allocations. For this reason, I suggest reviewing your investments at least once a year to ensure you’re comfortable with how your retirement money is invested.

I hope this overview helps you make your retirement account investment decisions faster and with greater confidence. Remember - there’s a lot of jargon that the financial industry uses - I’m here to help you cut through the clutter and grow your wealth!

xoxo,
Ms. Financier

How to Improve Your Credit Score

For many of us, our credit score is the number that we didn’t even know we needed to manage, until it’s too late. We wait helplessly as lenders pull our credit history to determine where to set the interest rate on our loan. Bad credit can hurt our future finances by increasing interest rates on credit cards and mortgages, a frustrating cycle that can result from too much debt, a spotty payment history, credit cards that have unpaid balances, and even student loans.

So - what can we do to improve our credit score? First, we need to understand that a credit score is a number intended to summarize our creditworthiness, or the likelihood that we will pay back money loaned to us from a bank or other institution. Our score is based on our credit report information, which is typically maintained in the United States by three major credit bureaus: Equifax, Experian, and TransUnion. Our score can impact the interest rate on our credit card or mortgage, whether a landlord decides to rent to us, and even our employment. (While employers can’t check an applicant’s credit score, they can access a credit history, or report, as part of pre-employment screening.)

The concept of a credit score was introduced as an effort to take bias out of lending. Before credit scores, lenders made character-based decisions. Stores and banks would determine which individuals they deemed worthy of credit. This system resulted in discrimination against women and people of color, who were often deemed risky (and therefore unworthy of credit) against the highly subjective standards of the day.

Statisticians Bill Fair and Earl Isaac worked to create a more objective, mathematical model to assess creditworthiness. Their score, the FICO Score, was developed by Fair Isaac Corporation, and is now the most common method used to calculate your credit score. However, the score - first introduced in the 1950’s - wasn’t widely used until the 1970’s, when modern credit reform legislation started to even the playing field in regard to credit access.

Today, credit scores range from a low of 300 to a high of 850. Generally, a score below 550 is considered bad, 550 - 649 is poor, 650 - 699 is fair, 700 - 749 is good, and a score above 750 is considered excellent.

If your score falls in the “bad” or “poor” categories - below 650 - you may have difficulty accessing credit, and may be charged very, very high interest rates. Similarly, if you are above 700 in the “good” or “excellent” categories, lenders will be very eager to do business with you.

There are other scores like the VantageScore, but they tend to be used less often and are generally in line with your FICO score. I recommend focusing on your FICO score as your primary measure, though you may also want to access other scores if you have the time to do so.

So, what should you do if your score is lower than you’d like? Follow my step-by-step guide below to start improving your credit score.

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Know your score. First, you need to know your score. You can pay for your score via the three major credit bureaus. When accessing your score, be careful to avoid ongoing “credit monitoring” offers - these offers are often served up to you automatically when you are pulling your score. As you check out, ensure that you’re only paying to pull your score, and not signing up for repeat charges. If your score is lower than the “good” or “excellent” categories, you may consider prioritizing areas for improvement.

Pull your credit report. Your credit report includes the data that contributes to your score, so ensure that you have a recent copy of your report to help you analyze your score. While legislation in the U.S. allows you to pull a free credit report each year, credit scores are not included in that free report; ensure you have both.

When you pull your credit report, look at it carefully for errors. Credit reports include a lot of data on your credit history, reported by banks and landlords, and can contain mistakes. Ensure that addresses are correct, that the accounts listed are owned by you (or were yours in the past), and that any late payments were, indeed, paid late.

Each credit bureau has a specific process to fix any errors on your credit report, so if you find an error, take notes of exactly what you’ve done to work with the reporting agency to fix the error. Unfortunately, consumers (and not the agencies) bear the burden of putting in the work to fix mistakes. Follow up until you are absolutely certain that the error has been fixed.

Evaluate what you can improve. Let’s get back to improving your score. Your FICO score is based on five primary factors, which have different weightings:

  • Types of credit in use (your credit mix): 10% of your score

  • New credit: 10%

  • Length of your credit history: 15%

  • Amounts owed (your credit utilization): 30%

  • Payment history (how you’ve handled your credit): 35%

The type of credit in use refers to the diversity of your credit sources. Do you have five credit cards, but no other loans? This tends to lower scores. Or, do you have a student loan, one credit card, and mortgage? This mix may raise your score, as it demonstrates using credit for different things, with different loan structures, versus a reliance on one type of credit.

This is a smaller portion of your score, so I do not recommend taking out more loans to improve your mix. You should limit your loans to what you truly need. However, if you have many types of the same credit (for example, many credit cards but no other loans) you may want to consider closing some cards. That said, any credit mix improvement will only have a modest impact on your score.

New credit looks at the recency of your accounts. In general, if you don’t have much new credit, your score will be higher compared to someone who has recently opened up several new accounts. New accounts may signal that you are over-extending yourself or aren’t able to pay your debts, which can lower your score. You can’t take proactive steps to improve this element, but you can stop opening accounts to improve this portion of your credit score.

Length of credit history is similarly something you have little control over. Generally, the best credit is old credit, and the factors in this category include how long your accounts have been open, how long since accounts have been used, and how long specific account types (like credit cards) have been open.

Like the new credit factor, there is little you can do to improve this element, though you can take steps to keep older credit, as long as it isn’t too costly to do so. For example, you can pay off a high-interest credit card that you opened in college, stop actively using it, but keep it open to improve your length of credit history over time. Note that this may only make sense if the card doesn’t include any other fees or costs.

If you’re new to credit, and don’t have credit cards or other loans, you may want to open one card and charge a single item on it monthly to start establishing your credit. Once a week, you can pay for your groceries on the card and immediately pay it off. I’ve struggled with credit card debt, so I understand why many avoid credit cards - but if you don’t have a credit history, it can be challenging for lenders to score your creditworthiness, and therefore you’ll end up with higher rates on things like auto and home loans in the future.

Amounts owed, or credit utilization looks at how much you owe (your balance) relative to how much credit you have available. This is a large factor of your score (up to 30%) and - good news - one that you can take proactive steps to improve.

Here, you can have a measurable impact on your score in a relatively short period of time. For example, if you lower how much you owe on “riskier” accounts like credit cards, your score will increase. FICO does not treat all debt the same, and mortgage, auto, and student loans don’t hurt your score in the same way that credit card debt does.

This is because credit cards have a balance that you control - your choices each month determine how much credit you’ll use, and therefore how large your monthly bill will be. In contrast, an auto loan has a fixed structure. Your auto loan was provided out for a certain amount, and you paying on a set schedule each month. This is a less risky proposition for lenders, who like predictability.

If you have credit cards with a balance, my recommendation to improve your credit utilization is to take out all of your credit cards, write down the balances you owe and the interest rate, and start paying off the highest interest rate cards first. This will save you money by lowering the interest you pay and eventually improve your credit score.

Similarly, you can call each credit card and request a higher credit limit. An increased limit means that you will be using less of your available balance. However, it is important that you aren’t tempted to use your credit cards more to take advantage of your higher limit.

If you keep your credit cards open when you pay them off, this can help your score (because you are using less of the total credit available to you). Again, this can be a balancing act with the first factor (type of credit in use) - but remember, that is a much smaller portion of your score, at only 10%.

If you don’t have credit card debt, but have other debt (like student loans or auto loans), you can also work to reduce those balances. The amount of debt you have left on these loans is also a contributing factor to your credit utilization, and paying off your loans faster than expected can also help your credit score.

Some auto, student, and home loans make it a little tricky to pay down your loan balance earlier. I recommend calling your lender to understand the preferred way to make extra payments, so they don’t accidentally apply it to your next month’s payment - which would help you next month, but would not lower your balance faster. Tell the lender you are interested in making an extra payment towards the principal balance of the loan, and then keep an eye on your next statement to ensure it was applied correctly.

Payment history is the largest single factor in your credit score, at 35%. This element looks at how you’ve handled the credit you’ve been provided in the past, which FICO has found is a good predictor of future behavior.

Payment history includes seven sub-components, including length of overdue accounts, amount of money in collections, and past due items. Negative items like bankruptcy or an unpaid account that went to collections can stay on your credit report for 7 - 10 years. Since this section includes historical information, there are limits to the proactive steps you can take to improve this section of your credit score.

That said, you can take steps tomorrow that will improve your score in the future - these include prioritizing getting up-to-date on any accounts that you are behind on and checking your report for errors as I mentioned above.

Managing your credit in the future. In addition to the steps above, you can take active steps to protect and manage your credit to it continues to improve in the future. Two of the most powerful steps you can take are only accessing credit when you critically need it and paying your balance on time.

If you only access credit when you critically need it, you are less likely to be tempted to fall into debt and will have a cleaner, tidier credit report. Women are often tempted by store cards that are offered by retailers when we’re shopping - I urge you to avoid these, as they are some of the highest interest-rate cards on the market, and also increase the number of credit cards you need to manage. Twenty percent off your purchase isn’t worth increased debt and stress.

Additionally, if you pay your balance on time, consistently, you are taking one of the best steps you can to improve your score. If you’re going to have trouble paying a bill, call your lender and work out an arrangement - many will accept a partial payment. Your lender reports missed payments to the credit bureaus, so you’ll want to work proactively with lenders to ensure they know your payment is coming, and don’t report a missed payment instead.

Finally, you may want to consider freezing your credit. This is a simple, effective, step you can take for a modest fee (often $5 or $10, and in some states, it is free). If you freeze your credit, no one can open up any credit without your confirmation first. This is a powerful step to protect yourself from fraud, which can have devastating effects on your credit report and score.

You can freeze your credit by contacting the three agencies directly. The last time I froze my credit I was able to complete the entire process for each agency online, in under thirty minutes. When you freeze your credit, you are given a PIN that you will unlock your credit should you need to apply for a loan in the future. Save this PIN in a safe place, and should you need a loan in the coming years, you simply contact the agencies and provide the PIN so the lender can pull your credit.

Candidly, I recommend a credit freeze over credit monitoring, because a freeze is more preventative. Credit monitoring tells you if something looks incorrect, which means you may have already been a victim of fraud. Additionally, credit monitoring often involves expensive, monthly fees.

I wish you the very best as you work to strengthen your credit! If you take steps now, you can move your credit score up, putting you in a more favorable position for your next loan, saving you a tremendous amount of money in the long run.

xoxo,
Ms. Financier

Why Women Must Make Money a Priority

I believe wealth equality is at the heart of gender equality. Wealth provides the holder with:

  • Security,

  • Options, and

  • Power.

Security can include modest expenses, like the ability to pay for an unexpected car repair with ease, or more life-changing costs like hiring an excellent lawyer to secure a divorce.

Options created by wealth similarly range, from taking weeks of unpaid leave following the birth of a child, to walking away from a sexist, toxic workplace knowing you don’t have to worry about paying your bills.

Power provided by wealth isn’t referring to power over others, but the power to pursue the life you want. This can include taking a vacation to Costa Rica to recharge your batteries, or self-funding your startup in early stages.

These benefits have been enjoyed by straight, white, able-bodied men throughout history. Those of us born into privilege and / or wealth have had a particular leg up, to put it lightly.

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Today, the wage gap across genders still persists, and is particularly punishing for women of color, particularly Hispanic women. Women that identify as LGBTQA make less than their straight peers and trans women face significant earnings gaps.

We also face an investing gap, as women keep more of our money in cash than our male counterparts.

The wage and investing differences factors compound our retirement gap, where women have often saved less than men. Frustratingly, we will need to save more than men for retirement. (Though partially for a good reason – we tend to live longer.)

This is why I see it as my mission to help women build wealth. We are in a more powerful position when we can leave a relationship without fear of finding affordable, safe housing. When we can stand up to everyday sexism at work without fear of going broke if we lose our job in retaliation. When we can make the choices many men have been making for eons, to follow their passion, without having to beg for pocketbook money to do so.

And, for those of us lucky enough to have created wealth, I believe it is our responsibility to send the elevator back down. By donating to nonprofit organizations supporting women and girls, providing career advice and mentorship, fighting back against the patriarchy, and sharing our experiences (failures and successes) we give more women a seat at the table.

Finally, this responsibility is shared by men. Amazing male allies can play a tremendous role in supporting wealth, and therefore gender, equality.

Join me in helping more women get comfortable talking about money. I’d love to hear how you’re improving your own financial footing, or supporting women in your life as they build wealth.

xoxo,
Ms. Financier

This post also appeared on the Top Money Hacks blog - which is focused on simplifying the complicated world of personal finance. Top Money Hacks shares short, practical tips for busy people.

Giving Up Coffee Won’t Make You Rich

Coffee is a hot topic in the personal finance world. I’m serious! Much ink has been spilled doing the math on how much we’re spending on our daily coffee order. If you Google “give up coffee to save money” you’ll see pages of posts, with particular judgement for those of us (like me) that indulge at Starbucks.

I’m here to confront this trope. I realize this is deeply controversial, so hold on to your hats!

There are three primary arguments supporting the myth that eliminating your daily coffee makes you rich:

  • Purchased coffee is an equivalent experience to home brew

  • Daily coffee is meaningful, in and of itself, as an item to cut out of your budget

  • Cutting small expenses is a good investment of effort in building wealth

First things first: purchased coffee is an equivalent experience to home brew. If you believe this statement, fine, give up Dunkin’ Donuts and bank the savings. However, many of us view our daily purchased coffee as an indulgence - a special, delicious treat in our routine. I represent those who see our local coffee shop, Starbucks, Costa, Tim Horton’s or Dunkin’ Donuts as a yummy delight.

If your daily coffee is more than just a caffeine boost, you surrender more than an “overpriced beverage” by giving it up. You lose a stroll to the coffee shop with a co-worker, friend, or mentor. You miss out on the social experience of sitting at the bar and enjoying a leisurely chat with neighbors that stroll in. You give up the opportunity to enjoy a creative (Wi-Fi connected) space to launch your side hustle.

You might argue that other places can offer the same experience - a library, for example. Possibly, though my library is less social than my local coffee shop. Don’t get me wrong - I adore my local library! But, patrons are often studying, researching for a project, polishing their resume, or quietly reading. It’s a different experience than a vibrant coffee shop.

I’m biased - I launched my blog from a coffee shop. It’s where I do some of my best creative thinking. And the coffee shops near my company offices have been host to some of my funniest, most insightful, meaningful career conversations. To me, that’s worth more than the cost of the drink itself. If your experience varies - that’s fine, but please stop coffee-shaming those of us that get far more utility out of our time at Starbucks, okay?

Next, let’s enjoy some math. Coffee-shamers insist that daily coffee is meaningful as an item to cut out of your budget. I argue that most of us have more significant changes that we can make before needing to cut our coffee habits.

Let’s make an aggressive hypothetical, and assume you indulge in a $4.50 coffee five days a week, or 260 days a year. This represents an annual expense of $1,170 ($97.50 monthly). While not chump change, here are a few other areas you could look for more substantial savings:

  • Car payments. The average monthly car payment in America is $493 (the average monthly lease payment is $412). And pricier cars are come with more expensive auto insurance payments. Average auto insurance payments vary, but range from $213 to $77, with an average across states of $125. If you can reduce your costs 25% below the average, you’d save $154.57 monthly. You could do this by buying a slightly less expensive car (say, 4 years used instead of 2 years, or used instead of new, or buy instead of lease), by shopping around on your car insurance, or increasing your insurance deductible. Further, if you can pay off your car and drive it for many, many years, you’ve saved the entire payment (though of course, you’ll have maintenance costs).

  • LIfe insurance. No, I’m not telling you to ditch your insurance. In fact, I’m a big fan of ensuring you’re managing your risk by being properly insured. But, I’ve found that many people struggle to understand insurance, and therefore may not have the right policy in place. Whole life insurance policies can be popular with agents that enjoy the hefty commissions many of those policies provide. However, many of us are effectively insured with less expensive term life insurance. In one comparison, a healthy 30-year old would pay $286.66 monthly for a $250,000 whole life insurance policy. That same coverage in a term life insurance policy costs $21, representing a monthly savings of $265.66.

  • The sneaky ways we spend more than we mean to. I’ve written an entire post on this topic, but I’ll summarize it in two words: Target and Costco. You know what I’m talking about, yes? Your store may vary, but many of us have places that we simply can’t leave without spending more than we mean to, on things we don’t really, truly value. After reviewing many, many household budgets I’ve observed that nearly every household has more than $200 in monthly savings on these unintended expenses.

The three categories above represent areas where you could look to trade off for more meaningful expenses, but there are countless others. If you value your daily coffee, track your expenses, and look for any areas that are far too high relative to what you value. Bam, you’ve found savings and get to remain caffeinated!

I’ve saved my favorite argument for last: Cutting small expenses is critical to building wealth.

Wealth is created in the gap between expenses and income. I wholeheartedly believe that increasing your income is the more important part of the wealth-building equation. The energy to focus on cutting daily indulgences you value, like Starbucks, would be better placed on developing your career, creating a meaningful side-hustle, or networking yourself into that new job you’ve been angling for.

It is easier to save and invest when your income increases; automatically transfer the additional funds to your savings accounts, investments, or biggest debts. You’re building wealth by mindfully putting this increase towards your financial goals, without having to walk enviously past your favorite coffee shop.

Further, expenses can only be cut so far; and while some choose to (or, importantly, have to) live on less, your income potential is theoretically limitless. Technology, social networks, and the increasing demand for quality knowledge workers lower barriers to innovation and entrepreneurship. Given limited time, I recommend you prioritize growing your income as a more productive long-term improvement (versus cutting modest expenses you get value from).

Despite what you might read, you don’t need to give up your daily coffee to get rich! Furthermore, if you value the experience and luxury of a regular coffee, purchased coffee is not an equivalent experience to home brew. As I outlined above, there are many other meaningful items to cut out of your budget if you’re looking to reduce expenses. Finally, we run up on reality - there’s a limit to cutting expenses, so placing extra energy on increasing income is a smarter investment of your limited time and resources.

So, enjoy the experience of your daily skinny vanilla latte if it’s something you truly enjoy. See you at Starbucks...I’ll be the one chatting with the baristas while working away on my blog! Cheers.

xoxo, Ms. Financier

This post was originally written for Dirt Cheap Wealth, as part of her “Breaking Financial Myths” series, where Personal Finance bloggers challenge oft-repeated (yet seldom understood) personal finance concepts.

Talking About Women and Money with a Financial Planner

Certified Financial Planner™ professionals help clients align their finances with life goals. I prefer fee-based planners that have earned a CFPⓇ certification, and recommend you consider them if you’re selecting an advisor to help you with your financial plans.

If you’re like me, you probably wonder about the lessons these financial gurus have learned from years of serving clients. Is there secret perspective that they have gained from those experiences? What patterns and pitfalls do they see in their clients?

I had the opportunity to interview Mark Newfield, a Richmond-based financial advisor who started his financial planning career after a successful first career in consulting. Mark and his team shared their perspective on personal finance with me, reflecting decades of collective experience. Here’s a summary of our conversation.

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The question you should always ask a planner. I started our discussion with the basics, “Why did you get involved in financial planning?” In Mark’s view, this is the first question any prospective client should ask before engaging a planner. He noted that very few people ever ask him this, and his team always proactively shares why they are in this business.

Mark and Angela Lessor, Director of Investment Operations, both cited the personal satisfaction they get from helping others. During Mark’s first career as a consultant, he was always the person eager to talk about money and often shared personal financial advice and perspective. When he decided it was time to move on from consulting, but wasn’t ready to quit working, he, “...put two and two together,” and shifted into a second career focused on helping people with their money. Mark proudly shared, “I have a stack of notes on my bookcase from clients saying thank you for our efforts.”

Angela shared a similar sentiment. She noted that it is incredibly satisfying to help people, many of whom come in disorganized or overwhelmed with their financial situation. Developing a plan that clients can follow, helping them get their financial footing, and partnering with clients to see that their goals are achievable are some of her favorite things about the role.

This passion for helping others is a common thread among quality CFPⓇ professionals. I follow several CFPⓇ gurus on Twitter, and can feel their excitement in empowering and enabling clients to succeed. When you are working with a planner, I believe you should feel the same from them. If they talk only about beating the market, making money, and growing wealth (but with no reflection on their passion for your success, or appreciation for your goals), that’s a red flag to me.

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In general, what differences do you see between men and women in how they manage their money? While every individual is different, Mark and Angela noted that they have observed general trends across genders. In general, they observe women making many of the financial decisions in the daily running of the household. Mark noted, “It seems like people are finally starting to become aware of that, but that hasn’t changed in decades.”

Women tend to prefer more advice and consultation, and men generally like to see the numbers. Women often want to deeply understand where their money is going and what they’re about to invest in. Like many planners, Mark and Angela engage their clients in an initial assessment, which can identify where partners (same-sex or heterosexual) differ; these distinctions may or may not be gender-based, and every couple tends to differ in a few personal finance areas.

Taking a fact-based approach enables CFPⓇ professionals to help partners navigate tricky financial decisions. While the general observations Mark and Angela shared line up with much of the gender-based research on money and investing, I recommend looking for a planner that has a defined process to engage with you. This may include an assessment, detailed questionnaires about your spending and income, and a clear long-term plan to support you. This illustrates their commitment to your overall financial health and their desire to build a plan suited for you, versus a one-size-fits-all approach.

Many people struggle to talk openly about money. Why do you think that is and what advice do you have to start a money-related discussion with a friend or family member? I was curious to understand how a professional team that constantly discusses money can help us improve our comfort with the topic.

Mark and Angela shared that getting the emotion out on the table is a good first step. For example, if you’re struggling with credit card debt, you could say to your partner: “I’m worried about debt, and I think we ought to have a conversation about it. How do you feel?”

They acknowledged that most clients know intuitively whether they are in good financial shape (or not) and most aren’t as “disciplined” as they believe they need to be. This discomfort or shame can hinder communications. Mark shared, “We see people with high incomes, say an average of $300,000 annually, and yet the number of people who come in and feel wealthy are few.”

Further, Mark mentioned the relief that many clients feel when they start to discuss money openly and candidly. I can relate to this personally; when I had massive credit card debt I felt incredibly ashamed. Once I started addressing it openly with my partner, it was like a massive weight had been lifted off my shoulders.

I found these observations from Mark and Angela illuminating on several fronts. We often compare ourselves to others, assuming they are making smarter decisions with money, know something financially we don’t, or don’t have debt. The reality is, we all make money mistakes (I’ve shared several of mine), and many in the United States struggle with financial literacy. If we are brave enough to be vulnerable and share our concerns and emotions about money with others, we can engage in a more authentic dialogue.

Further, there is a perception that more money immediately equates to fewer money-related stresses. I’ll always have more empathy for those at the lowest ends of the income spectrum, even those with means struggle to consistently make the “right” decisions with their money. Removing the assumptions that some of us have, that money can solve all problems, can give those that earn more the opportunity to engage in financial improvement.

What are the top three "money mistakes" you see women make? I was very interested to see what patterns had emerged across their client base, since we all have room to improve with how we manage our money.

Budget - no one has one. Mark and Angela noted that they rarely see clients that have set up a budget, and many women spend first and try to save the reminder. They noted that this approach is often a “complete failure, except in the most disciplined people.”

They have found that they help women get serious about their budget once they illustrate the net available cash flow after required expenses (like mortgage payments and utilities). Usually, this cash flow is two or three times the amount their clients think they can save.

Ladies, this first one is good news - it means that most of us have an opportunity to save a lot more than we do today, simply by starting to track our expenses and save first, then spend (which I call “Scarcity Budgeting,” and use diligently.)

Having too many financial accounts. I wasn’t expecting this insight, but it makes a lot of sense. Mark regularly counsels clients to consolidate accounts, because “...the more stuff you have, the harder it is to manage.” He notes that many clients don’t even know their rates of return on their investments, because they have so many accounts and can’t easily keep on top of their money.

If your employer has a 401(k) or other retirement program, you are likely tied to that financial provider. Beyond that, you may have one other brokerage accounts for other investment purposes. I believe more than two financial institutions gets difficult for the average person to manage on a regular basis. If you have not done a financial inventory, it may be a wise first step to identify where your accounts are, and how you can consolidate and simplify your financial life.

If you’re partnered - be open and transparent about money. Mark and Angela noted that many women in significant relationships struggle to be open with their finances. This is related to the question above, as talking about money when you’re struggling with certain aspects of your financial life can be truly challenging.

However, surprises and secrets can be damaging and hurtful to a relationship. Both Mark and Angela advised an open discussion, and acknowledged that working with a CFPⓇ certificant can help partners be more open about money. Mark shared, “More often than not, we do counseling on our clients spending habits. We’ve had to help with where they want to live and other significant topics in a relationship.”

I agree that a professional can help guide these conversations, and believe partners should work towards becoming financially intimate.

What additional financial advice do you have for women? Before we closed our discussion, I wanted to understand what our financial experts would recommend to women looking to grow their wealth.

Mark jumped on this question, and shared; “You’re never going to figure out what you need until you figure out what you want. Financial independence - whatever that means for each client - is a set of behaviors. How do you want to live? Answer that first.”

I couldn’t agree more! We all have unique goals for the life we want to live; these goals may include travel, passion projects, ambitions for our family, career objectives. Getting crystal clear on those objectives will help us direct our money to serve (and not detract from) those objectives.

I hope you enjoyed this perspective from Mark Newfield and Angela Lessor! I’m always intrigued to learn from those that are lucky enough to help others with their money, day in and day out. Are there any tidbits from this discussion that surprised you? What other questions might you have for a CFPⓇ expert? Or, if you are a CFPⓇ professional, what would you add to this dialogue?

xoxo, Ms. Financier

What Successful 30-Year-Olds Do With Their Money

You’ve reached your 30s - congratulations! If your 20s are all about change (graduating college, starting a career, exploring new relationships, and living on your own), your 30s are about taking your life to the next level; accelerating your career, exploring the world, and making a difference.

Don’t ignore your finances in this critical decade. You have finally made a dent in your student loans, grown your paycheck, and started saving. There are six other things successful 30-year-olds do with their money to set themselves up for a more powerful future.

Grow your income. There are two primary levers to building wealth: reducing expenses and growing your income. Now that you have established years of experiences and accomplishments, build a plan to grow your income.

Women still face a wage gap relative to their male counterparts; this begins after college and persists throughout our professional careers. The average mid-forties male college graduate earns 55% more than his female counterparts.

Build your negotiation skills in preparation for asking for a raise or promotion. Here’s how to approach the conversation. Practice with a savvy friend and don’t get discouraged if you get an initial no; build a specific plan for what you need to demonstrate to secure a raise in the future. You may also want to read my experiences as a manager; the good, bad, and ugly when employees ask for a raise.

Save to spend. This sounds so easy, yet many in their 30s (and 40s and 50s...) spend first and then pay off debt. By your 30s, you should be setting aside money for future expenses, which include splurges like vacations and gifts as well as car maintenance and home repairs.

I recommend doing this automatically; set up a regular transfer from your paycheck into a “save to spend” account that you use for larger, irregular expenses. This is separate from emergency savings; a vacation to Puerto Rico in the middle of January does not qualify as an emergency!

Eliminate unnecessary expenses. You may have enjoyed an increase in salary across your 20s. If you’re like most of us, lifestyle inflation crept in; your spending increased as your paycheck grew. Enjoy the fruits of your labor, but not at a cost to your financial health.

Take the time to evaluate your expenses; you can use tools like Quicken, YNAB (You Need a Budget) and Mint to track your spending automatically. By keeping an eye out for the sneaky ways you spend more than you mean to, you can re-direct your money to align with your goals.

Invest for your future. In your 30s, you should be investing regularly. The number one regret of older Americans is not saving for retirement early enough. Set yourself up for a wealthy future by investing automatically, starting with your employer-sponsored retirement plan.

Investing is critical for women. Men are generally more confident about investing, while women are more goal-directed and trade less. Women tend to keep 10% more of their savings in cash than our male counterparts. Millennial women report a lower level of financial comfort. On average, we are less likely to feel “in control” or “confident” about our financial future. And, women generally have a smaller total invested when we retire - because we earn less.

If you don’t yet invest, then the best time to start is today. Here’s what investing in the market really means and how to start investing in four steps.

Manage risk. In your 30s, you may have accumulated assets, started a family, and purchased a home. You likely have insurance policies in place for home, health, and automobiles.

However, most Americans do not have a will; only 35% of us aged 30-49 have one. While wills are better than nothing, they do not afford the same protections as other important legal documents. A living revocable trust can allow you to more privacy (it does not need to be filed in court like a will) and healthcare and financial directives dictate who makes decisions regarding your health and wealth should you become incapacitated.

These topics aren’t easy to address; however, consider the additional stress you’d feel if your partner or family member passed and didn’t have this documentation in place.

Give back regularly. Finally, but importantly, in your 30s you should be giving back. Many Millennials are volunteering regularly; much has been written about the importance we place on contributing to the causes we care about.

Beyond your valuable time, set up recurring donations to the causes you support most. I recommend a monthly donation that you increase with every pay raise. Fundraising is a perennial challenge for nonprofits; your regular donations will provide a needed, predictable income stream for your favorite charities.

Strengthen your financial future by taking these six steps to emulate what successful 30-year-olds do with money.  If you have any other suggestions, I’d love to hear from you.

xoxo, Ms. Financier

This post also appeared on the Fairygodboss blog - I love their mission to improve the lives and workplace for women, through transparency.

How to Save Money In Your 20s

Your 20s are all about change; graduating college, starting a career, exploring new relationships, and living on your own. Many of these are tremendously exciting; I’ll never forget my first client presentation to six senior executives only a few months after starting my first job. I walked on air after impressing them with my research.

That said, many of these changes are stressful and costly. I racked up a massive credit card bill right after I moved to Washington, D.C. for my first job. I thoughtlessly swiped my credit card to buy essentials for my first solo apartment, shop for a work-appropriate wardrobe, and splurge in D.C. bars and restaurants.

It can be tempting to put off saving money, but if you save small amounts early in your career, you create massive wealth for your future self. When you save and invest, your money makes more money on your behalf, and that’s an amazing thing! So let’s do this - here’s how to save money in your 20s.

Automate. Set up an automatic transfer to your savings account on payday. Start with the biggest amount you can - that might be $20, or $200. Increase this amount at least once every three months - even if only by one dollar.

Invest. Yes, you need to start now! If you work for an employer that offers a 401(k) or other retirement plan, sign up immediately. Some employers will match your contribution up to a certain percentage; if you’re lucky enough to have this benefit, take advantage of this free money! If you’re new to investing, that’s okay. Here’s a primer on all you need to know.

Bring your lunch. If you pack your lunch four days each week, you’re saving $10 a meal on average, or $40 weekly compared to someone that goes out for lunch every day. That gives you over $1,000 to save each year, compared to the cost of making lunch at home. Make a “bring your own lunch” date with fabulous brown-baggers in your office to stay motivated.

Talk about money. Seriously. Women are curious about money, but are often taught that it is a taboo topic. A Fidelity study found that 92% of us want to learn more about financial planning; that means nearly every woman in your life is interested in talking about finances. Start the conversation by sharing posts (like this one) and following financial gurus on social media. By sharing that you’re interested in saving money, you’ll get creative ideas from your girlfriends and hold one another accountable. Ban any shame and judgment from your money conversations and you’ll be amazed at what you can learn.

Stop comparing. President Theodore Roosevelt said, “Comparison is the thief of joy.” Social media gives us the amazing power to stay connected to friends and icons, but heavy use has been linked to depression. Scrolling through everyone’s life highlights can make us feel like we’re not enough - which can trigger emotional spending to make ourselves feel better, temporarily. Make a conscious effort to stop yourself any time you start comparing yourself to others; run your own race!

Track your spending. You work hard for your money and deserve to know where it goes. Popular apps like Mint, YNAB, and Quicken can help you understand if you’re falling prey to the sneaky ways we spend more than we mean to. Figure out where you’re spending too much, and divert those expenses to more important goals like your next vacation or your investment account.

I’d love to hear if you have any other suggestions to save money in your 20s. What tactics worked for you? If you make saving a habit now, your future self will be so pleased with all the wealth created when you were just starting out. You’ve got this! 

xoxo, Ms. Financier

This post also appeared on the Fairygodboss blog - I love their mission to improve the lives and workplace for women, through transparency.

How Many Credit Cards Should You Have?

Credit can be a beautiful thing – allowing you to safely make purchases and earn rewards. Managing credit cards responsibly can help your credit, which can make you a more attractive renter, get you a better interest rate, and can even impact your candidacy for a new job.

However, paying with credit cards disassociates us from the physical act of spending cash, making it easier to spend more money. Further, there’s a reason that card companies offer bonuses and points. The average American household has a credit card balance of $8,377 and has an interest rate that is greater than 12%.

While credit can be powerful, it can also be a nightmare; I’ve struggled out of credit card debt many times. I’m now out of credit card debt and have vowed to never rack up a balance again. One key to reining in my debt was properly managing the right number of credit cards. So, how many credit cards should you have? My answer is at least two, and no more than four.

Why do you need to have at least two cards? You may run into a situation where your card isn’t taken by a particular merchant. Select at least two cards and ensure at least one is a Visa or MasterCard; these are widely accepted. Discover and American Express can offer powerful benefits but tend to be accepted by fewer stores.

Why shouldn’t you have more than four cards? Because complexity makes it more difficult to manage your debts. Psychologically, it can be “easier” to spend if you have more cards – your Visa may have a $2,300 balance, but your Discover is paid off; so charging that new maxi dress to your Discover isn’t that bad…(Yes, it is!)

Beyond your two basic credit cards, add up to two more that allow for special benefits. For example, one of these might be a card tied to a hotel chain or airline that you frequent and provide additional value like upgrades or early boarding. One might be a card linked to a charity you support; this allows you to donate regularly to a cause via your regular spending.

What shouldn’t you do?

No store cards. I’m serious; store cards offered by retailers have very high interest rates and generate huge profits for the businesses that offer them. There’s a reason why every cashier asks if you’d like to save today by signing up – many are compensated to do so because of the revenue these cards generate.

Avoid cards with annual fees. There’s no reason to pay an annual fee for a card unless you’re absolutely certain it is a good value. One of my frequent traveling friends has an airline-branded credit card, with an annual fee of nearly $500. However, because she’s constantly on the road, the cost of the lounge access provided by this card is worth the high annual fee. She can grab free snacks, drinks, and a quiet place to recharge between flights; some lounges even have showers for post-red-eye refreshing.

No foreign transaction fees. If you travel, secure at least one card that doesn’t have a foreign transaction fee. Foreign transaction fees hover around 3% and are charged when you buy an item in a foreign currency. That can add up for frequent travelers.

Don’t add your partner to your card too early. Credit card debt accumulated on a joint card is the responsibility of both parties. If your partner racks up a $25,000 credit card bill on a joint account, you share liability for that debt. I would not add someone to my credit card account unless I had a legal agreement in place that dictated payment responsibilities in situations like this; (a cohabitation agreement or prenuptial agreement can cover this.)

Don’t churn cards for points (unless you have the time and are extremely disciplined). There are many stories about people who funded luxury vacations using the “free” points they got from “churning” credit cards (signing up for cards temporarily to take advantage of card bonuses.) Most of us don’t have the time and focus to keep track of the details needed to profit from this exercise.

If you have too many cards, start canceling them gradually. Your credit score may take a small dip, but it is worth it to avoid managing many cards. You could also cut up your cards and wait to close the actual account (unless there is a fee associated with the card, in which case I’d suggest canceling it right away.)

Sort your cards by interest rate and credit limit; keep those you've had the longest, with the lowest rates and highest credit limits. You may also elect to negotiate those before you cancel, if there’s a card you love to use but it has a very high interest rate, for example.

Don’t ring up a balance you can’t pay off. Get into the habit of paying your credit card debt off every month. As someone who has struggled with credit card debt, I have to put steps in place to ensure I don’t overspend. I only put expenses greater than $100 on credit cards, and I transfer the money immediately from my checking account to my credit card – typically the day I make the purchase.

Get your finances in order by getting the right number of credit cards in your wallet! There are many resources for you to compare credit cards and select the right one for you, including NerdwalletCredit Card Tune-Up, WalletHub, and Consumer Reports.

What are your credit card tips? Is there anything I missed? Let me know your thoughts - you’ve got this!

xoxo, Ms. Financier

This post also appeared on the Fairygodboss blog - I love their mission to improve the lives and workplace for women, through transparency.

My Money Mistakes: The Four Times I Accumulated Credit Card Debt

I’ve made a commitment to share my money-related mistakes. These financial lowlights aren’t my proudest moments, but I hope sharing my missteps can help remove some shame and embarrassment from the topic of personal finance.

My mistake with credit cards is a series of mistakes that repeated it four times. Unfortunately, I’m not alone in accumulating too much credit card debt. As of this writing, the average American household has a credit card balance of $8,377 and has an interest rate that is greater than 12%. Consumers typically have 9 credit cards and approximately 14% of Americans have more than 10 cards. (This is far more than the number of credit cards I recommend, which I’ll cover in the next post.)

Mistake #1: Credit card debt in college. I was thrilled when I got accepted into the University of Michigan, the only school I wanted to attend. (Go Blue!) When school started, I couldn’t believe how lucky I was to be attending a school in beautiful Ann Arbor, with fascinating classes, inspiring campus life, and creative, thoughtful students.

It was also my first exposure to those who appeared very wealthy. Some students had cars that cost more than my childhood home, parents that bought them an Ann Arbor house as “an investment property,” or spent their winter break in Switzerland. My sturdy Eddie Bauer backpack seemed out of place - many of the women in my classes carried their books in Kate Spade, Fendi, and Louis Vuitton bags, which I had only seen on Sex and the City.

By the time I reached my junior year, I had accumulated around $2,500 of credit card debt. This debt wasn’t for my books or school supplies, but all splurges I felt I had “earned.” You know, because I was working so hard in school...and “all” my peers had nice stuff, too, so...

To manage the credit card debt, I ignored it and headed off to my summer internship in Washington, D.C. One evening, I was walking to the Metro when my cell phone rang. It was the credit card company, frustrated by my lack of payment. The representative offered to “charge off” my debt. I happily accepted.

Once I returned to campus to begin my senior year, I checked my credit score. It was in the toilet because of my decision to ignore my debt. I worked out an arrangement to repay the debt, which modestly improved my score. My first experience with credit card debt was a double-whammy; I accumulated debt buying things I didn’t need and did a horrible job of managing the debt. I swore I’d never get into credit card debt again.

Mistake #2: Credit card debt after moving to D.C. After I graduated, I moved to the nation’s capital and promptly racked up another credit card bill, around $2,700. I thoughtlessly swiped my credit card to buy essentials for my first solo apartment, shop for a work-appropriate wardrobe, and splurge in D.C. bars and restaurants.

Further, if I had been shocked by the wealth I saw on display in Ann Arbor, D.C. was another level. I vividly remember going to “pregame” one evening at a colleague’s apartment, which had amazing views of the National Mall. He told me it was his parent’s second home, which he’d be getting when his trust fund kicked in. This started a conversation on provisions in trust funds; I finally understood how my peers could afford their lifestyle. Unlike me, they had another meaningful source of income beyond their entry-level job.

About six months into my new job, I got my act together, stopped spending thoughtlessly, and actively sought out friends that didn’t live a lavish lifestyle. I also earned a promotion (and pay increase); all of my extra income went towards my credit card debt. I promised myself I’d never get into credit card debt again.

Mistake #3: Credit card debt after buying a home. I’ve shared the massive size and wild terms of my first mortgage. When my partner and I moved in, we left a 500-square-foot studio apartment for a 3,000+ square-foot house.

There were plenty of things we needed (fire extinguisher, household tools, window coverings for our bedroom) and plenty of things we convinced ourselves we needed (brand new furniture). Together, we racked up over $12,000 in credit card debt. This was the largest amount yet; a massive mortgage and large credit card balance made me feel trapped.

In 2006, Mr. Financier and I created a goal to eliminate our credit card debt in one year, with two $500 payments each month, diverting any “found” money to debt, and reducing three household expenses. We paid the debt off earlier than planned; I kept a handwritten log next to my bed to track our progress.

This was the most significant credit card debt I’d ever paid off, and I swore I’d never get into credit card debt again.

Mistake #4: Credit card debt following a significant raise. When I started my consulting career, I set a goal to be a Director by the time I turned 30. Colleagues in this position were generally 35 or older, but my career ambition and desire to grow my income inspired me to put my nose to the grindstone and shoot for this lofty goal. I earned a promotion into the Director position the month after I turned 30; my base salary rose to $150,000.

In End Financial Stress Now, Emily Guy Birken writes about the windfall effect. When we receive a windfall - an unanticipated bonus, or a generous birthday check - we’re more tempted to frivolously, quickly spend it. Our brains tend to compartmentalize and we view the extra money as distinct from our paycheck (which we spend more responsibly). One study on the psychology of unexpected, windfall gains concluded, “...the unanticipated nature of windfall gains is responsible for their heightened proclivity to be spent.”

I had one hell of a windfall on my hands, so I did what all responsible adults do in that situation. I rewarded myself well before I had actually saved the money to do so. Yup, you guessed it - I racked up another $3,100 in credit card debt. After the high from my shopping sprees wore off, I felt sick to my stomach. How in the world did I end up in debt, again?

It was this fourth time in debt that forced me to break my pattern. I was ashamed to be carrying a balance on my credit cards (yet again) and my debt dulled the achievement associated with my promotion. I had more than enough in my emergency fund to pay the debt off, but refused to do so, forcing myself to pay the costly interest charges as penance.

My fourth time in debt finally caused me to reflect on what habits I needed to change; there were four.

1. Watch out for life changes. I realized that I’m vulnerable to credit card debt during big life changes or times of stress. I’d feel like I “deserve” something nice and this emotional spending would push me into debt. This may not be unique to me, but since I’m conscious of this fact, I put my credit cards on lockdown when change is afoot and watch my spending even more closely.

2. Increase my save-to-spend account. I needed a cushion to fund the things I enjoy. My budget was so lean that I didn’t leave myself enough space for occasional splurges. I adjusted my automatic savings, increasing the amount going to my “save-to-spend” accounts to allow for the things I love, like shoes and dining out, that can tempt me into debt.

3. Change my shopping habits. I adjusted my shopping patterns to make myself less vulnerable to temptations. I stopped meeting up with girlfriends to shop - instead, we went to art galleries, parks, vineyards. I stopped browsing and only go shopping (online or in a store) when I have a specific item missing from my wardrobe. And, I unsubscribed from the many email lists I was on from my favorite retailers. If I missed out on a huge sale, so be it - I wouldn’t miss the possibility of subsequent debt.

4. Stop using credit cards by default. I changed my default card to my debit card, which pulled directly out of my checking account. Today, I only “allow” myself to put expenses greater than $100 on credit cards and I transfer the payment immediately from my checking to my credit card, so I can’t be surprised by large credit card bills.

I currently remain out of credit card debt and love getting zero-balance credit card bills in the mail. My money mistake with credit cards is one that I chose to repeat until I took the time to address the underlying issues. Have you struggled with credit card debt? Or, are you one of the lucky ones that excel at keeping your cards under control?

xoxo, Ms. Financier

How to Set Money Goals That Align with Your Values

Each of us has a unique set of values that we hold dear, even if we haven’t defined them. For example, I value security and exploration very highly; in the past few years, I’ve gotten better at consistently aligning my money with these values. As a result, I’m a happier person. Exploration includes mountaineering adventures, local hiking and kayaking, as well as traveling to new cities and continents. Therefore, I prioritize funding my travel budget; it is one of the six expenses I’ll never cut back on. I also prioritize donating to nonprofits that support conservation and preserve the beautiful spaces I enjoy exploring.

I recommend that each person (or couple, if you’re partnered) first take the time to define what they value. Financial guru David Bach says, “When your values are clear your financial decisions become easy.” I couldn’t agree more. Defining and recording your values may seem like an unnecessary step, but they serve as the foundation to your money goals. If you’re struggling with this step, watch David Bach and Marie Forleo have a candid discussion about this philosophy.

However, without goals, your values can go unfulfilled. The next step is to define goals to align your finances with your values. Otherwise, it can be terribly easy to spend on material goods that provide momentary joy, but don’t have a long-term impact on your life.

There’s a type of goal you should create, referred to as a SMART goal. These are Specific, Measurable, Achievable, Relevant, and Time-bound objectives that will define your plan and allow you to measure your progress.

My partner and I consistently use SMART goals in our financial planning. In 2006, we were in credit card debt. I had over $10,000, and Mr. Financier had over $2,000. We created a goal to eliminate that $12,000 debt completely in one year, with two $500 payments each month, diverting any “found” money to debt, and reducing three household expenses. We paid the debt off earlier than planned; having a SMART goal helped us stay the course and remain accountable.

I recommend you focus on no more than three SMART goals at any given time. Ideally, these goals have different time horizons, with one that you can accomplish in six months or less. For example – today, I have a goal to save for an upcoming trip (in the next three months) and another long-term goal to achieve financial freedom before the year 2027.

By recording and defining your values and creating SMART goals to align your finances accordingly, you’re taking a critical step to strengthen your future. What values do you hold dear? How are your money goals supporting those values? I’d love to hear from you.

xoxo, Ms. Financier

I also wrote about values-based budgeting in the She Spends newsletter. She Spends is a weekly newsletter and website created to close the wage gap, investment gap and board seat gap among women. I admire their goals and love their content.

Three Ways I Live Frugally

Being frugal gets a bad rap. It is often confused with its less forgiving cousin, being cheap. I love the distinction between the two in this article by Stefanie O’Connell: “Being cheap is about spending less; being frugal is about prioritizing your spending so that you can have more of the things you really care about.”

I experienced this in a recent conversation with my girlfriends; I mentioned something I didn’t purchase because I’m too frugal. My friend replied, “With those shoes!? You are NOT frugal!” But, frugality isn’t about always buying the least expensive item. Here are three ways that I live frugally:

Identify low-value budget categories to reduce (or eliminate). As I became more mindful about my spending, I identified several expenses that cost more than I was willing to pay. Your categories may differ; here is where I decided to reduce (or eliminate) spend. These changes freed saved me $540 monthly, creating another $6,480 annually to invest in financial freedom.

  • Cable Television: My television bill was over $100 and provided plenty of channels; In order to save money and give myself more free time, I cut the cord. I now watch far fewer shows, most of them on Netflix.

  • Dining Out: Restaurant meals had ballooned to nearly $400 of my monthly budget. I decided to break the habit of eating out regularly and instead treated restaurant outings like an event. Planning meals and creating easy options for breakfast and lunch contributed to my savings.

  • Housekeeper: My weekly housekeeping service was convenient but costly. My partner and I decided that we could roll up our sleeves and keep our own house tidy, investing a little extra time each week and saving significantly. I will occasionally splurge for their services, but not on a scheduled basis.

  • Expensive Cell Phones: Switching from a traditional cell provider to Republic Wireless allowed us to keep great connectivity, without confusing contracts and expensive plans. There’s a misperception that pay-as-you-go plans are less reliable; in fact, many run on the exact same networks as the big guys. Like all cell services, your coverage may vary, but I’ve been a very happy customer for years.

Optimize entertainment expenses. For anyone near a large city, the wide availability of shows, events, speakers, and entertainment can be a huge benefit. I really value these experiences and in DC area we are fortunate to have amazing entertainment venues alongside Smithsonian Institution museums that are completely free (though they welcome donations). Every now and then, I’ll splurge on tickets to an amazing Kennedy Center performance, but I’ve found that free and low-cost events fill my entertainment need without breaking my budget.

I’ve nearly eliminated some entertainment costs; I am a huge reader and intentionally use the services at my local library to reduce my spending on books and magazines. My library also offers great programming and workshops. I’ve taken free classes on everything from gardening to personal finance.

Local wineries in the metro DC area are also of increasingly high quality. Wine Enthusiast covered some of the leaders in Virginia’s wine scene and visiting local wineries is one of my favorite lower-cost outings. Many wineries allow you to bring your own picnic lunch, and after a few dollars enjoying a tasting, I select my favorite bottle and enjoy it with a homemade charcuterie platter.

Finally, I live frugally by learning new skills. There are two areas where this has helped me save money. First, I learned to cook! I actively rejected learning to cook for years because I had an irrational fear that it would make me too domestic. This all changed in 2015 when I got fed up with boring dinners and tried Blue Apron after a colleague’s encouragement.

My first recipes included Chicken Rollatini alla Cacciatore with Radiatore Pasta and Chicken Mole with Sweet Potatoes, Avocado, and Queso Fresco. These recipes intimidated me and initially took me forever to prepare. However, they were incredibly delicious and I kept customizing my deliveries and enjoying the satisfaction that comes with creating an amazing meal. Over time, I improved my confidence in the kitchen, became more skilled, and invested in a few key kitchen gadgets that made cooking a lot easier.

Learning to cook allows me to enjoy amazing meals at home, which means if I get a hankering for an amazing meal, I can often make it myself. My partner is a great chef but doesn’t enjoy eating out as much as I do, so it works out well that he can pitch in as sous chef (and do the dishes).

Additionally, my partner and I have developed our do-it-yourself skills. I grew up in a house where my parents tried to outsource as little as possible - so I was used to things like painting, wallpapering, landscaping, and installing tile. Mr. Financier often says the most valuable class he took in high school was a home improvement course, which culminated in each student building their own bathroom project, which included plumbing, electrical, and drywall.

When we moved into a house that we simply couldn’t afford (but bought anyway), being able to DIY saved us a tremendous amount. With so many fabulous resources available, we regularly build the knowledge and confidence to try ambitious projects. You can find a step-by-step tutorial for nearly anything. One of my favorites is House-Improvements, a YouTube channel and website run by an experienced contractor, Shannon, who is an excellent teacher.

When a home improvement project or repair doesn’t require the cost of labor, you can immediately pocket the difference, which can result in huge savings over time. You also get the priceless feeling that results from your own handiwork, something I feel anytime I look at the myriad of projects that Mr. Financier and I have completed around our home!

Those are three ways I live frugally, by reducing or eliminating low-value expenses, optimizing my entertainment spend, and learning new skills. I’m curious if you call yourself frugal...or if that’s a label you reject? If you are frugal, what tips would you share?

xoxo, Ms. Financer

Health Insurance Basics

Health insurance, something that is designed to reduce risk and mitigate costs, can be a source of stress and anxiety. Expensive plans, confusing coverage, and plenty of acronyms might cause you to throw your hands up in frustration, thinking you’ll never wrap your head around insurance.

Many Americans do just that. A 2016 survey indicated that only 4% of Americans can define the key terms that dictate how much they must pay medical costs; deductible, coinsurance, copay, and out-of-pocket maximum. That same survey found only a small difference (3%) between the knowledge of men and women; all of us struggle to wrap our heads around this topic. There is some good news: if you can grasp the very basics around health insurance, you can make big strides in your confidence in tackling this topic. The ladies at theSkimm, who produce a daily newsletter that makes it easier to stay informed, have put together a thoughtful, succinct guide on healthcare policy.

Currently, you must get health insurance in the US via your employer or independently during open enrollment (in 2017, this is from November 1 to December 15). However, if you become pregnant, or have another significant life event, and do not have health insurance, you are eligible to apply for a “Special Enrollment Period” that can allow you to add insurance at times other than open enrollment.

Once you have insurance, it is critical to understand is exactly how your policy works. I recommend using at least three sources to gather your information: your insurance provider, others that have the same plan (for example, your peers at work), and your medical providers (your doctors and preferred hospital).

Here are the questions you should answer; ask for documentation from medical providers and your insurer to confirm the details of your plan.

What type of insurance do I have? There are many types of health insurance. For example, Health Maintenance Organization (HMO) plans provide better coverage if you visit providers that are in their network but can cost you dearly if you go outside the network.

How does my insurance work, exactly? What health care costs are your responsibility, and which are covered by the insurer? Plans vary heavily and can include copays (where you pay a flat fee for certain services) or may require you to first spend a certain dollar amount on health care before insurance coverage kicks in.

What information can I access online? Today, many insurance providers have portals that will help you find doctors, examine your current coverage, and see how much you’ve spent towards your deductible (the portion of your health care costs that you are responsible for paying for). Taking time to understand the information you can access can save time and empower you to better manage your care.

Among the common insurance types – HMOs, PPOs, EPOs, high deductibles – what’s most likely to keep out-of-pocket costs down? What may come with hidden risks?

Health Maintenance Organization (HMO) plans are tightly linked to the network of providers that they have agreements with. If you have an HMO plan, your costs will be lower if every provider you visit is within the network. HMO plans usually require you to have a Primary Care Physician who acts as your health “quarterback” and refers you to other doctors/specialists. Speak with (and get documentation from) your healthcare providers about what happens in an emergency situation – is there any risk of you ending up being served by a provider that is outside the network?

Exclusive Provider Organization (EPO) plans generally do not require you to have a specific Primary Care Physician. However, similar to an HMO, they restrict coverage to providers in their network. Costs incurred out of network are often the patient’s full responsibility. There are some exceptions for emergencies, but each plan varies. EPO plan premiums are usually less expensive than HMO plans.

Preferred Provider Organization (PPO) plans generally have higher premiums than both HMO and EPO plans, but offer the patient more choice in health care providers. PPO plans rely on a network of healthcare providers; your costs (co-pays) are lower and coverage is better when you are served by providers that are in the network. However, unlike HMO plans, PPO plans may provide some level of coverage for non-network health care. I generally prefer PPO plans to all other options, if I can afford the premiums. PPO plans create cost savings through the network of providers, but aren’t as restrictive as HMO or EPO plans, nor do they require the highest deductibles.

High-deductible health plans (HDHP) incur the highest out-of-pocket costs, which mean you run the risk of paying more than other plan types. These are often intended for catastrophic situations, but I find many that select these plans do so for two reasons: HDHP plans have very low premiums and are often associated with a tax-free health savings plan. Health savings plans are often marketed as a fabulous way to save money, tax-free, for healthcare. However, there is no such thing as a free lunch and these savings plans are often paired with HDHPs because of the significant costs that are the patient’s responsibility. To be clear – a HDHP is far, far better than no insurance coverage. However, if given the option, I would strongly encourage new parents to invest in plans that they can afford with lower out-of-pocket deductibles.

In addition to the insurance options outlined above, Medicaid is available to provide health coverage to low-income citizens. Medicare serves a different community; focusing largely on senior citizens and providing support to disabled.

There’s certainly much more to explore on this topic, but I hope this helps you get started. What other health insurance resources do you recommend? I’d love to hear from you.

xoxo, Ms. Financier

How to Manage Money with Your Partner: Six Questions You Need to Answer

If you’re in a serious relationship and regularly share significant expenses, this post is for you. Money can be a major source of friction in partnerships and if you aren’t financially intimate, it is difficult to achieve your goals. Sharing financial details is a powerful start to financial intimacy. Next, you need to determine how you will manage money together.

Every couple manages their money differently and there’s no “one size fits all” answer. Further, the money management approach that works for your relationship today may need to evolve as responsibilities shift at work and at home in the future. That said, there are six questions partners can answer to determine the right approach for them. I’ll start with the more strategic questions first; answering these makes the tactical questions easier.

1. What are our biggest financial goals? Defining your top three joint financial goals provides motivation and clarity. I recommend identifying at least one goal with a short timeline (within the next six months). Record your financial goals, discuss them, and celebrate the progress you make. When you achieve a goal, replace it with a new objective to continue your momentum.

Start this conversation with your partner by defining your joint values, if you haven’t already. This is a common approach that financial planners and experts like David Bach recommend, because aligning your money with the things you value is powerful. For example, if you and your partner value security, you could focus on paying off debt or purchase a home you can afford to increase the security in your life.

2. How often should we check in on our money? Progressing against your goals is easier when you’re keeping an eye on your finances. Your money doesn't sit still when you ignore it. This can be wonderful (automatic investing growing your wealth faster than expected) or stressful (unattended credit card debt generating late fees and interest charges).

You should regularly check in on how you’re progressing towards your financial goals. Scheduling recurring “money dates” with your partner (at least once every three months) ensures you address problems and celebrate progress. Keep a running list of what you need to discuss; your top three financial goals should always be on the agenda. 

If the idea of a money date sounds painful, use the concept of Temptation Bundling in your favor. Temptation Bundling is when you link two activities together - one you enjoy and one you’d prefer to avoid. In this example, you may choose to reward yourself after a money date with a meal at a favorite restaurant.

3. How will we pay for joint expenses? Paying for expenses like housing, utilities, travel, and vehicles should be done equitably, so one partner doesn’t feel beholden to the other. 

First, define joint expenses. Some couples label anything spent by either partner as a joint expense, others put a certain limit in place where they need to “clear” the expense with their partner (say, over $200), and some decide that only certain expenses are joint responsibilities. My partner and I do the latter; we consider utilities, housing, maintenance, groceries, and life insurance to be joint expenses. In contrast, my shoes, evenings out with my friends, and conferences I attend are my responsibility.

Next, determine how you’ll fund joint expenses. My recommendation is to split joint expenses in proportion to income. Here’s an example: Ava is a journalist with a salary of $57,500; she recently married Dinah, whose job as an engineer brings in $125,000. Together, they enjoy $182,500 in gross income. Ava’s income is 32% of their household total, while Dinah’s contributes 68%.

Therefore, to pay their monthly mortgage of $2,500, Ava contributes 32% ($788) and Dinah contributes 68% ($1,712). They’re savvy women, so they signed a prenuptial agreement beforehand that outlines how they’d divvy up these joint assets in the event of a divorce.

4. How will we save and invest together? Investing and saving are critical to building wealth. As a couple, you should decide how much to save and invest. Your emergency fund is critical, but once that’s funded you should focus on retirement, save-to-spend accounts, college (for those with kids), and then investing beyond retirement. Here’s a four-step guide to getting started with investing.

Consider how evenly you are funding investment accounts. I’ve often heard women say, “My partner makes more, so we max out their 401(k) contributions. I can only afford to contribute a little.” If this is your situation, I urge you to consider a more equal strategy. Unequal investing can result in very different account balances; in the unfortunate event of a divorce, you may not receive a financial outcome you’re happy with. Even partners that don’t work outside the home are eligible for a spousal IRA to save for retirement.

5. Where will our money live? Managing your money becomes easier with fewer banks and accounts. When you address this question, consider where you’d like to keep your savings, daily checking, and investment accounts. For investing, I always recommend Vanguard; they have a low-cost strategy and are investor-owned.

Since my partner and I manage our money with a “yours, mine, and ours” strategy, our bank accounts mirror that. Mr. Financier and I have separate checking accounts for individual expenses. We also have a joint checking account for joint household expenses. Our savings and investments are set up the same way; some are jointly held (like our emergency savings account) and some are individual (like my investment account that I started before we were married).

6. Who manages the bills? Deciding who pays which bills will reduce bill-paying stress and ensure you’re not blaming one another for any late fees. Consistency can also help you catch errors. A few months ago, my internet bill unexpectedly increased by $15; I noticed the change because I always pay that bill. I called customer service and immediately received a correction.

It is important for both partners to provide transparency around joint bills. In our house, I am responsible for any joint bill (the mortgage, utilities, auto insurance). However, Mr. Financier knows how to access our mortgage account at any time and we review the statements together. This ensures we’re both aware of jointly-held debts and accounts.

You may elect to pay many of your regular bills automatically. I recommend that if you can schedule the payment from your bank to the service provider, versus giving the service provider permission to pull payments from your bank account. Your comfort level may differ, but I avoid giving my bank information to the cable company, mortgage company, or insurance provider.

Those are the six questions partners can answer to determine their money-management approach. It will take some time to create the right guidelines, but you’ll benefit tremendously when you find the methods that work for your relationship. I would love your feedback; which question was the most difficult for you and your partner to answer? Do you have any other big questions that you recommend couples address?

xoxo, Ms. Financier

Five Signs You Aren't Financially Intimate With Your Partner

In a strong relationship, you often feel compelled to share just about everything with your partner – your fears, goals, interests, and passions. As your relationship develops, your connection deepens, and you become even more intimate. But does your intimacy include the topic of finance?

Being financially intimate means sharing your financial status, goals, and struggles with your partner. Money is a tremendous cause of friction in partnerships and fighting about money is a top predictor of divorce in married couples. Many of us are raised not to talk about money or have shame about some aspect of our financial situation. But hiding information does not strengthen a relationship.

There’s some good news; one survey conducted by MONEY found that, “…couples who trust their partner with finances felt more secure, argued less, and had more fulfilling sex lives.” That sounds pretty good, doesn’t it? How open are you with your partner? Here are five signs that you aren’t financially intimate with your partner, in order of increasing intimacy.

You don’t know whether they save or invest. Do you know if your partner has an emergency fund? Are they investing in a 401k or other retirement plan? Saving and investing are necessary to build wealth and create financial stability, so you should know whether your partner is doing so on a regular basis. If you’re in a very serious relationship or married, you should have an understanding of how much is in their accounts.

You don’t know if they have debt. Does your partner have credit card, student loan, auto, real estate, or other debt? How do they feel about this debt; is it under control or is it a source of stress? Are they actively paying it off? How much debt is does your partner owe, in total? Debt is something that many of us take on to achieve other goals, but it can hamper financial freedom if not managed effectively.

You don’t know their credit score. How healthy is your partner’s credit? If it is weak, what steps are they taking to strengthen it? Before you merge finances, move in together, or get married, you should see your partner’s full credit report. Many of us have had credit issues; I’m no stranger to credit card debt myself. However, credit affects a wide range of financial decisions – credit card and loan rates, housing decisions, and even hiring decisions. Sharing credit reports can help you make better joint financial decisions and work together to strengthen them if needed.

You don’t know their salary and compensation. What is your partner’s base salary? What other forms of compensation are they eligible for (bonuses, company stock, profit sharing, etc.)? Women can struggle to address this topic with their partners because of the damaging and outdated “gold digger” stereotype. However, starting and maintaining an open dialogue about compensation ensures you can address joint finances productively.

You don’t know where their accounts are. Where does your partner bank? Where (and how) is their 401k invested? Which credit cards does your partner have? Yes, you should know where your partner banks. You might not have access to the funds in each account, depending on how you’ve set up your joint finances, but knowing where the money is located can be important in an emergency and promotes transparency between partners.

If any of these are knowledge gaps in your relationship, I suggest starting the conversation with your partner as soon as possible. Each couple addresses the topic of finance differently and to open the conversation, you can share this post, schedule a money date, or bring the topic up in the course of regular conversation.

Approach your partner with authenticity and remove all judgment. If you’re nervous about talking about your student loan debt and don’t know if your partner has debt, you could say: “I’m nervous to talk about my student loan debt, but it is very important to our relationship that we can openly discuss money and personal finance. I haven’t shared the details with you, but I have $52,300 of student loan debts to pay off. I’m working hard to get my smallest loan paid off in the next few years. I’m curious - do you have any student loan or credit card debt?”

By sharing your emotions about the topic, giving your partner information about your status, and then asking a neutral, non-judgmental question of your partner, you’re starting the dialogue in a productive manner. Give your partner some slack; they may be nervous, scared, or worried to talk money. On the other hand, your partner may be relieved about the chance to share what they’ve been working on, or a secret personal finance nerd that has a lot of knowledge to share.

Good luck in building even more financial intimacy with your partner. I’m curious about what topics you and your partner have tackled together to build your financial intimacy; let me know!

xoxo, Ms. Financier

Five Money Lessons From My Childhood

I am lucky. I grew up in a household where we talked about money. I was raised in a middle-class, Midwestern suburb, and I credit Momma and Papa Financier for so, so much, particularly when it comes to my relationship with money. 

In the 80’s, we faced times where my father’s work (tied to the Detroit auto industry) slowed down, and that often meant my parents worked more while the entire family tightened our belts. We’d look for creative ways to find money - which included me taking on babysitting jobs and my siblings and me biking to local construction sites and picking up pop cans. (Cans could be returned for a ten cent deposit in Michigan, famously exploited by Kramer in a Seinfeld episode.)

When we wanted to buy the Nintendo Entertainment System, the money generated from our pop can-foraging expeditions contributed greatly. Transparency around costs and wants (like the NES) and needs, helped me understand how money worked as a little tyke. Here are five money lessons that stemmed from my early childhood.

1. All money is not created equal. My parents had a large glass jar on our wet bar that was full of spare change. At four years old, I would gaze at it in awe, thinking it contained the riches of the world. One day, my babysitter and I counted the money - we started with the copper coins and had over 100 of them. I’ll never forget the heartbreak I felt when she said, “One hundred pennies means we have one whole dollar!”

I remember thinking, “ALL of those pennies equal ONE lousy dollar?!” My shock must have shown on my little money-minded face. Next, my sitter explained that I only needed four of the large silver coins to make one dollar (much more palatable). Even better, we had a few Kennedy half dollars which added up quite quickly.

This lesson taught that all currency is not created equal. Today, I can apply today to other categories of finance, like mutual funds and ETFs. Simply because they are in the same category does not mean they have the same value, risk, or cost.

2. Doing the things no one wants to do can get you paid. We had an apple tree in our backyard, which was a superb climbing apparatus. However, every fall it also dropped loads of apples that my dad had to gather in order to cut the grass.

Papa Financier hated picking the apples up, and I offered to do it for a penny an apple. Any apples that deemed “very gross” were worth five cents, though I had to be ready to show them to my dad for inspection (they had to be rotten, or crawling with bugs and worms).

I'd tear around the yard with my apple bucket, excited because we didn't ever get paid for chores like these. Dad must really hate this task to pay me for it (or, I was very, very cheap labor)!  

Taking this approach as an adult can help generate extra income or create opportunities. One of the things I encourage new employees to do is find something that you can get good at, ideally that no one else wants to do. Take it, own it, kill it and make more income from it than I did with my buckets of apples.

3. Your money can make you money. I referenced this briefly in my introduction; one of my very early financial memories. I was five years old and my dad explained that the bank would pay me interest in exchange for my savings. This blew my mind - money without having to work for it!

At the time, U.S. savings bonds were earning 7.5%; as a comparison, the current rate through October 2017 is 0.10% (yes, only ten basis points.) The idea that I could put one dollar in the bank and earn more than a nickel by the end of the year was miraculous. This concept made saving money both compelling and tangible. I could see that free nickel from the bank with every dollar I got my hands on.

This concept is at the heart of financial freedom, which is the point at which our assets (investments and income from real estate, for example) produce enough regular income to cover our expenses. It’s also at the heart of the most powerful element of investing - compound interest.

4. Save at least half of any unexpected income. Starting as early as I can recall, my parents suggested I save at least some of the gifts I would receive for birthdays or other celebrations. They didn’t require it, or take it from me, but they’d remind me of the power of saving...versus spending it all.

Nearly 30 years later, I still remember a girlfriend who got three beautifully crisp $20 bills in her Easter Basket when we were 8 years old. The Financier household had fun, sugar-fueled Easters but our bunny hid candy, not cash. My friend showed me those three Jacksons and immediately started rattling off what she was going to buy. My heart hurt that not one dollar was going to the bank!

When we receive a windfall - an unanticipated bonus, or a generous birthday check - we’re more tempted to frivolously, quickly spend it. Our brains tend to compartmentalize and we view the extra money as distinct from our paycheck (which we spend more responsibly). One study on the psychology of unexpected, windfall gains concluded, “...the unanticipated nature of windfall gains is responsible for their heightened proclivity to be spent.” Emily Guy Birken also writes about this concept in her book, End Financial Stress Now

Don't let windfall gains slip through your fingers! I see this today. In management consulting, I'd see folks at bonus time rattle off the vacations, cars, treats they'd be buying with their bonus...and rarely hear folks talk about how excited they were to invest or save some of it. Today, I usually treat myself with at least one splurge when bonus season comes around. But most of it goes to longer-term financial goals, like saving for travel, debt payoff, or my Vanguard Financial Freedom account.

5. Anything worth buying is worth saving for. In the 80s and 90s, many retailers offered something called “layaway” where you could pick an item out and the store would set it aside for you; you could pay the store over a period of time, and receive the item once you’d submitted enough money to pay for the item. Importantly to me, Toys ‘R Us had this service.

When I outgrew my first bicycle, I started saving (along with my parents) for a pink and purple Huffy bike. This bike was absolutely outstanding. It even had a matching bag that attached to the handlebars, so I could carry my He-Man and She-Ra characters around the neighborhood with me. Sweet, right?!

To pay for this bike, I'd save up money and go with my parents to the customer service counter, present our funds, and get a ticket showing me exactly how much we had left to submit before the bike was mine to take home. What an amazing illustration of how to save up for a specific item!

This taught me to save first, spend next. When credit cards came into my life, I forgot this lesson and paid for it dearly. Now that I finally have my credit card debt under control (more on that later), I use a “layaway” approach for big purchases, from new Charlotte Olympias to appliance replacements, home improvement projects, and vacations.

I'm so grateful that I grew up with these five lessons. And while they didn't prevent me from making money mistakes they've certainly given me a strong financial foundation.

What about you? Are there money lessons you learned when you were little? I’d love to hear from you.

xoxo, Ms. Financier

Three Answers You’ll Get From “End Financial Stress Now”

One of the most fabulous things about exploring the world of personal finance is meeting other money-minded gurus. On Twitter, I follow loads of personal finance bloggers, advisors, and money mavens. There’s the practical benefit; a constant flow of interesting perspective on money and there’s also the benefit of being part of (and contributing to) a community. 

One of the finance writers I’ve had the chance to meet (virtually) is Emily Guy Birken, author of End Financial Stress Now, The 5 Years Before You Retire, and Choose Your Retirement. Emily shipped me a copy of her latest book, saying, “While [my new book] is not specifically feminist, it is geared toward helping people manage their financial stress at all income levels. (I hate that most PF books are clearly geared toward upper middle class readers). Thought it could be a good fit for you if you're interested...” I devoured End Financial Stress Now in just a few days; here’s my review and the three answers you’ll get from Emily’s book.

I’m overwhelmed with life and money, where should I start? I could imagine this book being particularly useful for those going through a big life change. New high school or college graduates, someone who is recently separated, or a person with a brand new job. Emily doesn’t shy away from the fact that money can be a stressor, damage relationships, and make us feel not-so-great.

Emily pushes us to first understand our relationship to money, so we can improve it. Her book starts with a section on Redefining Money and the first chapter asks, What Does Money Mean to You? She includes common feelings about money: shame, respect, security, freedom, success, love, time and encourages us to determine what money means to us. I found this section to be particularly powerful; as women, many of us are encouraged explicitly to be good, helpful, and kind - but not powerful or successful. This can hamper us from having a productive and respectful relationship with money.

Later, Emily encourages us to explore our money scripts. She writes, “A money script is an unconscious core belief about money. Such scripts inform everything you do with money.” Chapter seven explores four money scripts; avoidance, worship, status, and vigilance. She briefly describes the positive and negative characteristics of each and outlines the tactics you can employ to ensure your money scripts aren’t creating financial stress.

There’s also a short quiz you can take to quantify your relationship to the four scripts. Mr. Financier and I took it together, which started an interesting conversation. We both scored highly on Money Vigilance, but I also scored highly on Money Worship. This didn’t surprise me; I always have to remind myself money isn’t the answer to all my problems. As a couple, our joint tendency towards Money Vigilance has caused friction. At one point, our budget was so restrictive it created stress for both of us, because we were denying ourselves too many experiences we valued. Emily’s quiz helped us re-visit this topic in a really productive way.

How does human behavior relate to personal finance? Throughout the book, Emily explains powerful, academic concepts down using simple language. For anyone that has a curious, nerdy, academic streak - you’ll find these portions fascinating! Many of us are really interested in human motivations and Emily’s exploration into common biases and behaviors is really interesting.

Two of my favorites are restraint bias (explored on page 86) and the loss aversion (page 91). Restraint bias acknowledges that most of us think we can resist temptation, even though we often fall prey to it when faced with something tempting. I’ve been in credit card debt at least six times in my life. Each time I’ve paid off a balance, I swear, “I’ll never, ever use my cards to buy something I can’t afford.” But then, an email hits my inbox advertising a fabulous shoe sale at Neiman Marcus, and I let myself to splurge, racking up debt on my card again! Emily explains you need to know your weaknesses and plan for them; in my case, I have to unsubscribe from Neiman Marcus emails and avoid going to the mall “for shopping,” because I’ll be far too tempted.

Emily devotes an entire chapter to loss aversion, a term that describes how humans feel loss more acutely than gain. For example, finding a $5 bill on the sidewalk provides a momentary burst of happiness; but misplacing $5 that you just know you had in your coat pocket is more painful. I believe that women can particularly benefit from this chapter; we are often in the role of managing all the “things” in our home - buying gifts for others, decorating, shopping for clothes for our family members. If we better understand and combat loss aversion, we’ll save more money and avoid cluttering our lives with things we don’t need.

What practical, easy-to-follow financial advice can I adopt immediately? While understanding our biases and human behavior is critical, End Financial Stress Now includes plenty of practical tips. I particularly enjoyed the last part of the book, Achieving a Stress-Free Financial Life, where Emily digs into budgeting, managing expenses, and self-discipline.

I’m a big fan of negotiation (see my thoughts about asking for a raise). On page 161, Emily highlights a series of expenses we should be negotiating (and provides tips on how to do so.) Many women were taught to follow the rules as little girls; a nice sentiment, but the rules of commerce are often unwritten. Everything is negotiable. That doesn’t mean we’ll always get what we want, but I find women are more anxious than men to ask for lower prices or different payment terms. Researchers have found similar gender differences, particularly around initiating a negotiation. What is the absolute worst that will happen? Your offer will be declined and you’ll be where you are now, in the status quo. Let’s start negotiating, ladies!

The very practical section on budgeting is entitled, Budgeting with Your Psychology in Mind. I absolutely love this approach, because what works for one person might not for another. I’ve shared my approach, scarcity budgeting, but have come across many other approaches that work well for others. This section includes worksheets that help you think through what to include in your budget, as well as a variety of suggestions on how to budget. If I could copy one section and give it out to the women in my life, it would be this chapter!

Emily Guy Birken’s book is incredibly accessible and thoughtful. As someone who has read a lot of personal finance advice, I found her take to be a unique blend of human behavior and practical advice. If you’re in a book club, I love the idea of suggesting End Financial Stress Now as a way to open up the topic of money with your friends. Or, grab a copy for yourself and lend it out liberally as a way to gently broach the topic of money with important people in your life.

As a bookworm, I’m curious to understand some of your favorite financial books. What are your go-to favorites? Is there another that you would recommend I read and review? Let me know! 

xoxo, Ms. Financier

My Money Mistakes: The Wild Terms (and Size) of My First Mortgage

Money mistakes - we all make them, don’t we? Some are bigger than others. This one's a doozy.

In late 2004, Mr. Financier and I got swept up in the housing bubble. We were in the Washington, D.C. area and struggling to afford this expensive city. So, we did what every young couple should do - buy a home. (Please read that with the full sarcasm with which it was intended.) 

Colleagues, friends, and the media concurred; while D.C. housing was expensive, real estate prices never, ever dropped. So, if we didn’t buy now, we’d never get on the property ladder. We started looking and were promptly floored by the prices. We’re Midwesterners and grew up in areas where $250,000 could buy you more house than you could ever need. In D.C., we blew right past our $300,000 maximum after a weekend of looking for properties. Shortly, we found a beautiful, obscenely sized home perfect for a couple barely out of college. (Again, sarcasm.)

Along the way, my gut told me it was all too good to be true. Yet, I was reassured at every turn. The real estate agent pointed to the rising prices, reinforcing that housing was the safest financial bet one could make. A family member encouraged me to stop investing in my 401k, because my house could become my retirement account. The lender’s very first question was, “How much do you want to borrow?” Colleagues talked excitedly about the massive tax deduction that a house provides. “Everyone in D.C. has a massive mortgage,” they assured us.

Our first mortgage had terms that make me cringe. Our combined gross pay in 2004 was $105,000; Mr. Financier has an engineering degree and I have a business degree. We were lucky to secure excellent jobs after graduation. But, our total housing debt was $607,430. We didn’t put a penny down. The mortgage was creatively assembled, as so many were in the heydays of the boom leading up to the 2008 financial crisis.

The primary mortgage was a 5/1 LIBOR interest-only loan for $472,500 at 4.75%. Interest-only meant we were only required to pay the interest during the initial five years of the loan. Regular payments we made wouldn’t decrease our outstanding balance. After five years, our loan would amortize for the remaining term and the rate would adjust. (In layman’s terms - the payment would go WAY up.) LIBOR loans are tied to the London Interbank Offered Rate, which serves as a benchmark for interest rates that banks use to loan themselves money.

The remaining debt was a home equity line of credit provided by National City. (Subsequently, National City was hit hard by the financial crisis and was acquired by PNC.) The $134,930 line of credit started with an APR of 5% but fluctuated, as lines of credit do. The rate steadily rose during the time we had this mortgage; our initial payment of $562.65 grew to $668.37 in less than a year; an increase of 18.8%. 

Initially, we were swept up in home buying excitement and assured by the encouraging chorus around us (real estate agents, lenders, media buzz, family, and friends). It wasn’t until we were in the home for a few months that we appreciated how incredibly stupid our mortgage was. We stressed as we saw the line of credit payment increase, rising steadily as the interest rate changed.

In 2005, we scrambled to find a loan officer that could refinance this ticking time bomb of a mortgage. Mr. Financier and I worked our tails off at work, trying to increase our income to both make us more attractive to lenders and reduce the balance on our interest-only mortgage.

We got very, very lucky - in October 2005, we refinanced into a more stable mortgage. Our new loans were a $520,000 first mortgage (30-year fixed at 5.75%) and a $90,000 second mortgage (20-year fixed at 7.13%). We were lucky because we refinanced before the economy imploded. Also, our rising income made it possible to secure the new mortgage - by that time, our gross income had grown to $135,900. I also give a tremendous amount of credit to my family - my parents realized what a bind we were in and offered to lend us some money to help with the payments on our new, more expensive, mortgage until we could afford it on our own. (This resulted in another money mistake; stay tuned.)

For those of you keeping track of the numbers, you noticed that our second set of mortgages was higher than the first. No, we didn’t take any cash out; the increased mortgage covered the fees associated with refinancing. We bought for $607,430 and our second set of mortgages was for $610,000 (a difference of $2,570). In the eleven months that we had our wild first mortgages, we did pay off some principal.

The first painful part of this money mistake is the $25,730.48 we paid to our lenders during the time we had the 5/1 ARM and line of credit. Much of that was interest, of course, and is money that we never got back. As I write this, well over a decade later, I still feel sick at how much stress our original mortgage added to our lives. And I feel ill thinking about what would have happened if we hadn’t been able to move to a “better” mortgage before the housing bubble popped.

The second part of this money mistake is the fact that we bought a house we couldn’t afford at a very early point in our lives. We dedicated our twenties to furiously growing our incomes in order to pay our mortgage and build our savings. Because the housing market collapsed shortly after we refinanced, we didn’t attempt to sell the house. D.C. housting was also negatively impacted by the crash and we were underwater on our home for years, which meant we were stuck.

You might be interested in what’s happening today. We are still in the same home and completed what I hope is our last refinance in 2012. We currently have a 15-year fixed rate mortgage at 3.375%, and I recommend everyone consider a 15-year mortgage when purchasing a home. Mr. Financier and I aim to eliminate our mortgage in the next five years and regularly make extra payments. 

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Whew, that was a painful money mistake to relive! But, we learn from the mistakes of others. I share this story as an example of why you should listen to your gut and resist getting caught up in the frenzy created by others, particularly when making big financial decisions. We’re so, so lucky we didn’t lose our home (or jobs) and got through the financial crisis ok. However, luck is not a sound financial strategy. 

Have you ever had a loan with wild terms or one that you regretted? What other money mistakes have you made?

xoxo, Ms. Financier

How Do You Budget? Scarcity Budgeting Works Best for Me.

Wealth is created in the space between your income and expenses. If you’re interested in growing wealth, I suggest you grow your income and manage your expenses. If you’re like me, you enjoy increasing income more than reducing costs. But, if you don’t keep an eye on your expenses it is very easy to over-spend. 

I believe the most efficient way to manage your expenses is to find a budgeting method that works for you. If you’re partnered, you need to determine how to blend your approach with your partner’s - but we’ll explore that in a future post. 

The budgeting approach that works best for me is something I call scarcity budgeting. At a high level, the idea is to set up your finances such that you do not have excess money in your checking account. By creating scarcity, you don’t have the ability to comfortably over-spend or let your money sneak away from you.

Here are the four steps to scarcity budgeting:

1. Track your expenses to understand what you’re currently spending. Then, based on your actual expenses, decide what you want to reduce, change, or keep the same. For example, you might be appalled that you’re spending $1,250 monthly on food, drink, and eating out. Or, you may be disappointed that you aren’t investing enough for your future or donating enough to the charitable causes that matter most to you.

2. Automate your finances. I do this by having separate accounts for things that aren’t daily expenses. Travel, fun money to splurge on shoes or gifts, and boring necessities like car maintenance are funneled into different savings accounts. Each payday, a certain amount of money automatically transfers out of my account and into these savings accounts. Same for charitable contributions, regular bills, and investing; money is sent to those organizations on a defined schedule.

3. Spend only what’s left. After my money is whisked away, I’m only left with enough to buy gas, groceries, household items, and restaurant meals in accordance with my budget. I keep an eye on my checking account and don’t give in to putting things on credit cards to “tide me over” until my next payday.

4. Save or invest any excess. This is the fun part of scarcity budgeting! (Yes, I’m serious). If my checking account grows too large (because I haven’t been spending that much on regular expenses), I save or invest. This “found money” contributes to my other financial goals and gives me an unexpected financial boost. 

That’s my approach to scarcity budgeting in four steps. For me, this budgeting approach has worked wonders. Because I do not have excess money in my checking at any given time, I am not tempted to spend. Importantly, I rarely use credit cards because I have struggled with credit card debt in the past.

Do you use scarcity budgeting? Is there another approach to budgeting that you prefer? Or, are you one of the financial unicorns who doesn’t budget yet still manages to build wealth? Let me know!

xoxo, Ms. Financier

Financial Planners: How to pick the right one for you

If you've decided to work with a financial planner, selecting the right person (or team) for you will take some effort. Remember, financial experts come in many forms. Source recommendations from family and friends. If they’ve had a great, long-term advisor you should add that expert to your list. Other professionals in your network, like attorneys, insurance agents, and physicians can also be a good source for recommendations. But don’t forget to explore the CFP® Board’s directory of Certified Financial Planners (CFPs). These individuals have achieved a specific certification that includes hands-on client work, educational requirements, and standards of ethics.

Once you have developed a list of 3 - 6 planners you’re interested in, I suggest you consider three elements to narrow down your possibilities.

Credentials - what expertise do they have? I clearly prefer Certified Financial Planners, but your potential planner may also have other certifications or designations. Some to keep an eye out for include CPA (Certified Public Accountant, or an expert in the tax code) and CFA (Chartered Financial Analyst, or the equivalent of a master’s degree in finance.) Explore where they have studied, what continuing education they pursue, and whether they teach seminars or classes - this will help you understand their expertise.

Increasingly, you’ll find planners that have social media accounts. I follow several CFPs that provide fabulous advice and insight, and the CFP Board also shares advice from those that have achieved certification. By scanning social media profiles, you can get a sense of a planner's personality, interests, and whether they might be a good fit for you.

Incentives - how do they make money? If you’re hiring a professional, they need compensation for their services. Generally, there are three models of payment: Fee-only means they charge for their advice, often hourly or in set packages; Assets under management means they charge a percentage of the fees that they invest and manage on your behalf (this is typical of investment/wealth managers, and not something I recommend for most); Commissions means they get paid by banks and financial services firms for selling certain financial products (like annuities) to you.

Your financial planner’s incentives should be in line with your incentives, which is why I never, ever work with commission-based advisors. My strong preference is for a fee-only advisor with an hourly rate. If they provide great advice, you’ll recommend them to others and use them again - which will make them more money. Thus, your incentives are aligned.

Fiduciary - is your financial planner a fiduciary? You may be thinking, “What the heck is a fiduciary?” In short, it means that advisors must both disclose conflicts of interest and consistently put their client’s interests first. This is not legally required, even though many assume it is. The suitability standard is required by law, which only asks advisors to consider whether investments are suitable. In my opinion, suitability is a very subjective standard.

You will not be surprised that I think a fiduciary is non-negotiable. Ask your advisor, and don’t take their word for it. Get it in writing and ask for documentation. If you hire CFP, their certification ensures they are acting as a fiduciary.

In addition to those questions, plan to “interview” at least 3 planners in a more detailed discussion to find the right fit for you. Money magazine provided a set of 10 questions to ask. I particularly love the last two: “Why did you become a financial planner,” and “What five important financial or investment books have you read?”

Some of you have asked me what I do; I largely self-manage my money, with a check-in every now and then with a fee-only advisor. However, several years ago, that fee-only advisor did a huge comprehensive review of my finances which was very helpful and illuminated a few blind spots for me. I’m happy to recommend the group I use - they work all across the United States via video/teleconferences with clients and do a very thorough job. (I do not receive any referral fees for recommending clients to them.)

What else would you recommend to those considering a financial planner? Do you have any other questions I can help with? Good luck finding the right advisor - it takes time, but can be very well worth it.

xoxo, Ms. Financier

What’s a Financial Planner? Answers to Three Common Questions

Personal finance can feel overwhelming. An insightful article in The Atlantic explored financial literacy and reported, “While Americans are not expected to manage their own legal cases or medical conditions, they are expected to manage their own finances.” I’m curious - who do you trust for financial advice? Are they knowledgeable, experienced, and on strong financial footing themselves?

The wealthy often teach positive and valuable money habits to their children. But what about those of us that didn’t grow up rich? What about women that grew up in families where it was taboo, rude, or stressful to discuss money? How can we ensure we’re making the right steps with our money?

One option is educating yourself and managing your own money. There are fabulous financial education resources available; between books, podcasts, and personal finance forums, we can become very money-savvy. But sometimes, we want an expert that can specifically examine our unique situation, and answer questions about our goals and challenges. This can be a role for a financial planner.

What can a financial planner do for me? Fair question - because of the lack of regulation around titles and designations, services can vary. Broadly, planners work with you to build a financial plan that supports your goals. A financial planner can analyze your current situation, help you set financial targets, recommend changes to meet your objectives, provide advice, and measure your progress. A quality plan will evaluate and include your entire financial landscape, including sources of income, expenses, debts, investment accounts and holdings, life insurance, and more - comparing your current state to your goals.

One portion of financial planning is investment planning; examining your specific investments, recommending how much of your portfolio should be in certain mutual funds or ETFs. But financial planning is wider than your investment strategy. If you’re just looking for investment advice - great, but a planner offers wider support. Fee-only financial planners change an hourly rate, and often offer an initial consultation for free.

Where can I find a financial planner? I suggest starting in two places. First, ask family and friends for referrals. Ask if they’ve had a productive, positive experience that has improved their financial situation over the long term. Second, explore the CFP Board’s directory of Certified Financial Planners. These individuals have received a certification that includes completing practical and theoretical financial education, passing a rigorous examination, gaining years of hands-on experience, and upholding a high standard of ethics. Importantly, they put the client’s financial interests ahead of their own. (Importantly, this is not true of all “financial planners” or “financial advisors.”)

A good financial planner can be hard to find. Many are salespeople “veiled” as planners, others are only able to offer a limited set of financial products due to the firm they work for, and others may trade in relationships - versus quality financial advice. I’ll be clear - my bias is always towards fee-only financial planners that have attained a CFP certification. Be prepared to have introductory meetings with at least three before you select one that is right for you.

What other financial advice is out there? Accountants that are CPAs are very specifically educated about the U.S. tax code. Some CPAs achieve the Personal Financial Specialist credential (PFS); these accountants are well versed in aspects of financial planning including estate planning, investing and retirement planning. While financial planners are generally well versed on taxation, they are not required to be tax experts. So, many women choose to work with both a CPA and a financial planner, to ensure their financial plans are tax-efficient. CPAs have various fee structures but typically charge an hourly rate.

Wealth managers are also available and come in many forms. In general, wealth managers work in firms that provide financial planning, tax advice, and they will actually manage your investments on your behalf. Wealth managers typically charge by taking a percentage of “assets under management,” or how much money they are managing on your behalf.

One percent is a typical rate for wealth management services; if your wealth manager oversees your $1.2M portfolio, you’d owe them $12,000 annually. This is on top of investment fees (typically expense ratios, sometimes commissions) associated with the investments themselves. I used a $1M+ example because many wealth managers have a large investment minimum. As you can likely guess from my prior posts, I do not believe most of us require a wealth manager. A 1% fee sounds small but will eat away at wealth over the long term.

In the next post, we’ll explore how to pick the perfect planner (if you’ve decided you need one!) I’d love to hear your comments on this topic. It took me years to figure out the right balance of money professionals and everyone’s need (and desire) for advice differs.

xoxo, Ms. Financier