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The Money Talk

Isn’t it interesting? As women we find it easy to talk to our boyfriends or significant others about everything—everything, that is, except money. But with the divorce rate stuck on 50% largely due to money issues, this is the one topic that we should be talking about. And having the money talk as soon as possible in your relationship (before you get married is the best time) is a great way to build a money smart marriage.

So what exactly is the money talk? The money talk is a serious conversation about your money goals, beliefs, attitudes, and money management styles. It can be an eye-opening experience with some very surprising results. While I’m not advocating that you leave or choose not to marry someone simply because you don’t think the same way about money, you shouldn’t ignore that fact either. The money talk offers you the opportunity to discover things you have in common, set some ground rules, and work out compromises where needed so that you can not only have a happier marriage but you can also work toward financial security.

So where should you start? Start with the basics and then work you way into more complicated discussions. Here are a few suggestions for those contemplating marriage:

  1. Talk about your goals, including any specific financial aspirations.
  2. Discuss your feelings about credit and debt, and how you each think it should be handled. This is also a good time to share your credit reports* and discuss any outstanding debts you each have and how they will be handled during the marriage.
  3. Discuss ‘what if’ scenarios to get a better feel for how your partner would make money decisions in specific situations. (See also the Love and Money Quiz.)
  4. Discuss your money management styles, and how you each believe you should manage your money during the marriage. For example:
    1. Will you have one checking account that you both use? Or will you have three checking accounts — his, hers, and household? If you will have three accounts, how will the household account be funded?
    2. Will you manage your finances together, split up the tasks, or will one spouse be responsible for it all?
    3. Who will answer to whom about how the money is spent?
  5. If you are thinking about requesting a pre- or postnuptial agreement, discuss the subject as early as possible so you can give your partner time to think about how it might be beneficial for both of you. Some of reasons why you might want a pre- or postnuptial agreement include:
    1. You have assets such as a home, stock, or retirement funds that you want to protect
    2. You own all or part of a business and you want to protect your future interests
    3. You may be receiving an inheritance
    4. You have children/grandchildren from a previous marriage and you want to be sure that they will be taken care of after your death
    5. Your spouse-to-be is paying child support from a previous marriage
    6. You have agreed to pay for the professional education of your spouse-to-be and you want to be sure that you will benefit from the income that she/he will receive in the future

The ‘money talk’ can be intense, so don’t feel like you have to get it all done in one day. This discussion should be an ongoing dialogue. Communication is key to building a strong marriage and just talking about money is a great place to start. ps!

A Get Out of Debt Plan Ain’t Sexy…But

Having a get-out-of-debt plan ain’t sexy but it can have a huge impact on your future. If you don’t already have a plan, the best time to get started is NOW. Instead of waiting until the New Year, start now and beat the crowd. Sure it’s tempting to think that it will be magically easier in January than it is now but that’s not always your best option. In the meantime, you continue to pile up debt which only makes your situation more difficult.

So start the year off right with a plan that you have already started to implement. I know it’s difficult with all of things you want to do and buy during the holidays but try to step back and put things in perspective. Once you have a plan in place, you know what you have available to spend without busting your budget and putting your future goals on hold.

And to help you get started my new book, Squeeze the Most Out of Your Money, has a whole chapter devoted to debt reduction, and for a limited time you can download my 7-step plan to formulate a get-out-of-debt plan for free when you sign up for my mailing list.

Briefly, my 7-step plan includes:

  1. Putting an end to charging because you can never hope to get out if you keep charging,
  2. Making a real commitment to do what it takes to get out of debt and this may entail some sacrifices at least in the short-term.
  3. Reviewing your spending plan to see how much you have available to put toward paying off your debt.
  4. Creating a detailed picture of your current situation. In other words, how much debt you owe and who you owe it to.
  5. Negotiating with your creditors. This doesn’t always work but when it does, it can save you a lot.
  6. Deciding on a debt payoff strategy. The two main strategies that I advocate are paying off the creditor with the highest interest rate or the one with the lowest balance first. The key is once you decide on a strategy to stick with it.
  7. Implement your plan, monitor your progress, and celebrate your successes.

Don’t forget, sign up for mailing list and download the Squeeze Your Money 7-Step Plan to get-out-of-debt for free then let me know how your plan is going. ps!

My 5-Step Remedy to Avoid a New Year’s Debt Hangover

With high un- and underemployment many people are looking for ways to get through the holidays with less. If you’re considering going into debt to make up the difference, remember debt is just a temporary fix that will come back to haunt you in the New Year. Instead consider options that let you enjoy the holidays and start the New Year without a debt hangover. Here’s my 5-step remedy to squeeze the most out of your money and enjoy a debt-free holiday: (Caution: This remedy may be a little hard to swallow at times but it is good for your wealth!)

 Step 1:  Start with the end in mind. Make a conscious decision that going into  debt will not be a part of your celebration. In fact, hide your credit cards and pretend they don’t exist.

Step 2:  Determine how much money you really have available to spend during the holidays. Look at your income and expenses to see what is available. If you’re not happy with the amount you find, look for places where you can cut back, at least for a couple of months. Or consider looking for a part-time holiday job. In either case, the amount you have is what you have. Here are a couple of articles I found on Bankrate.com with even more suggestions to save money for the holidays –  http://www.bankrate.com/finance/personal-finance/7-uncommon-ways-to-save-for-the-holidays-3.aspx and http://www.bankrate.com/finance/personal-finance/10-ways-to-save-500-or-more-1.aspx.

 Step 3:  Get ‘buy ins’ from your family and friends.  The taboo on talking about money is slowing lifting so talk to your family and friends. Tell them about your decision to have a debt-free holiday and the reasons you are doing it. Getting your circle of family and friends to agree and possibly even follow suit or at least set different expectations about what they will receive from you during the holidays can make the process smoother and more enjoyable for all. Even kids can be amazingly resilient if they know the reasons why so don’t keep them in the dark either.

 Step 4:  Get creative. Depending on how much money you found in Step 2, you may really need to get creative. But before you think it’s impossible, think back to the olden days when people had a lot less and they still managed to enjoy the holidays. There are so many low cost possibilities so use your imagination. Here are 10 suggestions to get you started:

  • Use layaway for gifts so you can pay as you go.
  • Draw names in your circle and give one nice gift.
  • Set gift amount limits.
  • Give homemade gift certificates for gifts of your time or talents or even special favors for the kids such as staying up one hour after bedtime.
  • Get crafty and make gifts for your circle members.
  • Share expenses – invite friends and family over for pot lucks.
  • Plan family projects, games etc. that everyone can participate in. We are often so busy that we just don’t have the time to really enjoy our families.
  • Encourage your kids to do extra jobs to earn money for gifts or things they want.
  • Give to others – donate old toys and clothes or volunteer at a shelter. This is a great gift that you can give to others and it only costs a little of your time.
  • Celebrate the spirit of the holiday. So many of us have moved so far away from the real purpose and made it about material things. Use this opportunity to really reconnect with the true meaning of the holidays and keep the spirit alive all year.

Step 5:  Plan for the holidays all year long. I’m a big fan of planning for large purchases and I consider the holidays a large purchase. Once you have an idea of what you want to spend for the holidays, plan to set aside a portion of that each month in a special account like a high-yield savings account. INGDirect.com and           SmartyPig.com are just two examples that don’t require a minimum deposit to get started. Then when the holidays roll around again, you will have the dollars to spend anyway you like.

Remember, it’s not written in stone that you have to go into debt to enjoy the holidays so just say no! ps!

What’s Your Net Worth?

To chart a path to financial independence, you need to know where you are now.

The best tool to determine your starting point is a net worth statement. Your net worth is essentially a snapshot of your general financial condition at a given point in time. As you increase your net worth, your overall wealth base also increases so it is a good idea to set goals to increase your net worth each year.

Your net worth consists of everything you own minus everything you owe. To calculate your net worth, add up everything you own (assets) and subtract everything you owe (liabilities). The result is your net worth.

 

Assets include cash on hand (checking accounts, savings, certificates of deposit (CDs)) stocks, bonds, mutual funds, your house and cars, the cash value of life insurance policies, retirement plans, annuities, real estate and business interests, household furnishings, antiques, jewelry, coins, and artwork. In other words, anything of value you own that could be sold. When estimating the value of your assets, don’t worry if you don’t have the exact dollar amounts. Simply write down the amount you think you could reasonably sell each item for today or the ‘fair market value.’ 

Liabilities include outstanding loans (student, auto, installment), mortgages, credit cards, unpaid bills (medical, utilities, etc.), and taxes you owe (income tax, real estate taxes, etc.).

If you have more assets than liabilities, you have a positive net worth, and that’s a good thing. It means that you have a good base to start with. If on the other hand, your liabilities are greater than your assets, you have a negative net worth, and while that is not the best thing, it’s important to know so that you can determine areas you need to work on to grow your net worth and your wealth.

Once you complete your net worth statement, consider any changes that might be occurring in the next year that could impact it, and then project your net worth for the coming year. For example, paying off a current debt will decrease your liabilities and increase your overall net worth. After you factor in all of the possible changes, set a goal to increase your net worth, either by a specific dollar amount or a percentage and develop a plan to get there. This last step is important because it means that you are being proactive in managing your money and setting goals to increase your wealth.

Common ways to increase your net worth include increasing your savings, increasing the return on your investments, decreasing your debt, or a combination of these so look for ways to incorporate these strategies into your overall financial plan.

Remember, conducting a net worth analysis each year not only points out where you are but it gives you a consistent way to track your wealth as it grows! ps!

Click here to calculate your net worth

Don’t Forget About the Power of Compounding

It’s easy to get busy or get caught up in all that’s going on today and forget about a basic tool that has worked since forever — compounding! Fortunes have been built with this simple concept, but it does take time and patience because it doesn’t happen overnight.

Here is a story to illustrate how the concept of compounding works:

 This is a story about two students – Susan and Jason. At age 18 Susan invested $2,000 and she invested another $2,000 each year for three more years for a total of $8,000. Jason on the other hand, didn’t start investing until age 30 and he invested $2,000 each year for the next 35 years for a total of $70,000. Here is my question to you, “If they each earned 10% annually, at age 65, who has the most money?”

Almost without exception, people choses Jason. But the real answer is Susan and it is due to the power of compounding. (Check out the chart below to see a year by year account.) Basically, compounding is when your interest earns interest and the longer that has to work, the more your money grows. So even though Susan invested less she had more time for the power of compounding to work.

Click here to see the details of Susan and Jason’s investments

The moral of the story: Start investing as early as possible, even if you only have a small amount. For all those people who say “I will start investing when I pay off my bills or when I get a raise,” I point them to the story of Susan and Jason. Simply put, waiting costs you money.

P.S. – It’s rumored that Albert Einstein said that compounding was the 8th wonder of the world. If this impressed Einstein, it’s probably a concept worth keeping top of mind when it comes to saving and investing. Check for yourself. Here is a link to the Compound Savings Calculator on Bankrate.com or use the Squeeze Simple Savings Calculator. See how your money can grow. ps!

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