Category: Money Management

Why rich people still keep on working?

Why rich people still keep on working?

Think you’d hand in your notice if you suddenly struck it rich? You’d be surprised.

When Keith, a Silicon Valley entrepreneur, worked at a technology company that went public, he became rich overnight. He was sure he’d never need to work again.

His pay-out from the initial public offering was well into the “tens of millions” of dollars, he says, a life-changing amount. It gave him the type of financial security that most of us can only dream of.

He stayed on at first, but soon stopped working. He spent a year travelling and spending money on “frivolous things” but found it difficult to enjoy his life, he says.

Like most people, Keith (who asked that his last name and identifying details not be used due to the personal nature of his story) had long believed he worked simply to make money. He was wrong. And so even with savings that would last a lifetime, Keith started another job search.

“I just felt unhappy at the lack of structure and not knowing what my purpose in life was. My skills were deteriorating and I was finding it difficult to interact with other people intellectually,” says Keith, now in his mid-thirties. “There’s a higher reason why we all go to work.”

Now, he’s back at work — and significantly happier than he was not working. You’d think striking it suddenly rich would be the ultimate ticket to freedom. Without money worries, the world would be your oyster. Perhaps you’d champion a worthy cause, or indulge a sporting passion, but work? Surely not. However, remaining gainfully employed after sudden wealth is more common than you’d think.

After all, there are numerous high-profile billionaires who haven’t called it quits despite possessing the luxury to retire, including some of the world’s top chief executives, such as Amazon’s Jeff Bezos and Facebook’s Mark Zuckerberg.

But it turns out, the suddenly rich who aren’t running companies are also loathe to quit, even though they have plenty of money. That could be, in part, because the link between salary and job satisfaction is very weak.

According to a meta-analysis by University of Florida business school professor Timothy Judge and other researchers, there’s less than a 2% overlap between the two factors. In the long run, we derive job satisfaction from non-monetary sources, which include positive peer relationships, the ability to work on meaningful projects and even leadership opportunities.

But, most of us take our jobs and the nonmaterial things they bring us for granted. We don’t realise that, though, until we’re faced with a situation of extreme wealth, says Jamie Traeger-Muney, an Israel-based therapist and founder of the Wealth Legacy Group who works with clients all over the world.

About 98% of her patients continue working in some way after they are financially secure, she adds. For some, it’s about a sense of purpose; for others it’s a way to keep a much-needed routine.

“Money is a much smaller driver of happiness and fulfilment from work than we anticipate,” she says. “There’s a difference between what they fantasise about and what actually feels meaningful, motivating and fulfilling.”

There’s another, more egotistical reason why some of us can’t stand not being in the game: status. Imagine the embarrassment of being so highly-accomplished, so associated with your work successes and then, as time passes, you can’t answer the question of “What do you do?” so easily, says Brooke Harrington professor at the Copenhagen Business School.

Going back to work — or never quitting — helps maintain an identity that’s derived from our professional achievements, especially if that identity has long been tied to our work, says Harrington.

“We lose status when we’re not employed in a job that can help others place us in the social hierarchy, and help us place ourselves [in the hierarchy],” she says. In short, it’s hard to know where you fit in when you’re not at least on the ladder.

As a serial entrepreneur, Karen Gordon, the founder of an employee engagement firm that she launched more than a decade after starting a telecommunications firm, decided that starting something new — and staying at work — was more important than spending her profits over the years.

“People enjoy accomplishment and enjoy [being] able to be competitive — and to win,” says Gordon, who is based in Austin, Texas in the US. She also craved the daily challenges that come with working as team, she adds.

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How Brexit could hit an ordinary UK citizen

How Brexit could hit an ordinary UK citizen

The UK has voted to quit the European Union – a decision that will bring change for currencies, trade rules, and the status of UK markets and regulations. It’s a transition that could take several years to play out in full, so what does it mean for the items on your average UK shopping list or household budget?

The value of the pound versus the euro, dollar and other currencies sank following the results and the outcome will likely mean a rise in inflation, albeit from a very low level.

BBC Capital wanted to find out if and how a vote for the UK to quit the EU might impact the cost of the things we love, use and rely on every day – some might feature in your shopping basket, while others might be something your family spends on annually. This is an informed view of what could happen, but not a conclusive or definitive view as many drivers of prices currently remain unclear.
We have gone to multiple expert sources for the information contained in this infographic – trade bodies, unions, government organisations, think tanks, financial institutions and research organisations – some of whom have expressed publicly whether they believe the UK should vote in or out.

The Healthy Option

Nearly 90% of UK tomato imports come from the EU, mostly the Netherlands (40%) and Spain (35%). Higher import tariffs could raise prices. UK tomato production may step up to fill the import gap.

Wardrobe Essentials

The price of clothes and footwear might fall if Brexit allowed the UK circumvent import tariffs. Foreign retails would still be welcome on our high streets, local authorities are committed to free competition.

How Brexit could hit an ordinary UK citizen

Phoning Home

If the UK is no longer bound by an EU rule banning rooming charges from April 2017 consumers could continue to pay a premium to use their phone abroad. Phone companies may well be unwilling to put charges back up just for UK consumers.

Your Daily Vitamin C Shot

Citrus fruit is not grown commercially in the UK, 770.000 tonnes of fruit was imported in 2015, over 40% from Spain. Rising import costs could affect prices.

Booze Cruise

Current customs rules allow virtually unlimited amount of duty paid alcohol and cigarettes to be brought to the UK from the EU. ıf the allowance tightens, expect fewer booze cruises between Britain and France.

Bottoms Up…

French, Spanish and Italian wines could become more expensive if import costs rise. The EU currently charges a 32% tariff on its wine exports to non EU countries.

The UK is likely to negotiate a a better deal than this and would be free to remove existing import tariffs on ‘New World’ from countries such as New Zealand and California.

EU Budget Contribution

Likely to fall by around 25%, according to HM Treassury. Norway and Switzerland contribute to the UK budget, but a lower level than EU members. The UK would also be able to decide how to spend the money transferred back to it from the EU.

The Dinner Party Must-Have

Harvesting asparagus is highly seasonal, labour intensive work often performed by EU migrants, who made up 6% of UK agricultural workers in 2014. Labour shortages could hit UK production.

Half of UK farming income comes from EU subsidies. While a Brexit could could give back more control over spending, many are worried a lot of farmers would quickly go out of business without the support of the Common Agricultural Policy (CAP).

Your Fromagerie Habit

The UK import 62% of of its cheese, and 98% of this comes from the EU. If prices rise, consumers may be tempted to swap Gouda and Roquefort for Cheddar and Stilton.

The UK has its thriving cheese industry and higher initial prices may provide an incentive to increase domestic production, driving down prices in the long run.

Out-of-Office

If the pound falls, then foreign currency will become more expensive, according to the Association of British Travel Agents. For budget airfares to remain, the UK will have to negotiate access to the European Common Aviation Area (ECAA), which includes several non-EU mombers. Alternatively , the UK could try to reach a bilateral aviation agreement with the EU.

Changing Gear

Importing cars from Europe could take longer and cost more. Cutting EU red tape could affect pricing either up or down. The Euro could also fall, which would cancel out changes in the value of the pound for travellers to Europe.

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Lines of Credit and Other Types of Borrowing

Lines of Credit and Other Types of Borrowing

As suggested above, there are many similarities between lines of credit and other types of borrowing, but there are also many important differences that borrowers need to understand.

Credit cards

Like credit cards, lines of credit effectively have preset limits – you are approved to borrow a certain amount of money and no more. Also like credit cards, policies for going over that limit vary with the lender, though banks tend to be less willing than credit cards to immediately approve overages (instead they often look to renegotiate the line of credit and increase the borrowing limit). Also like credit cards, the loan is essentially pre-approved and the money can be accessed whenever the borrower wants, for whatever use the borrower intends. Lastly, while credit cards and lines of credit may have annual fees, neither charge interest until/unless there is an outstanding balance.

Unlike credit cards, lines of credit can be secured with real property. Prior to the housing crash, Home Equity Lines of Credit (HELOCs) were very popular with both lending officers and borrowers. While HELOCs are harder to get now, they are still available and tend to carry lower interest rates. Credit cards will always have monthly minimum payments and companies will significantly increase the interest rate if those payments are not met. Lines of credit may, or may not, have similar immediate monthly repayment requirements.

Lines of Credit and Other Types of Borrowing

Loans

Like a traditional loan, a line of credit requires acceptable credit and repayment of the funds, and charges interest on any funds borrowed. Also like a loan, taking out, using, and repaying a line of credit can improve a borrower’s credit score.

Unlike a loan, which generally is for a fixed amount, for a fixed time, with a prearranged repayment schedule, there is much greater flexibility with a line of credit. There are also typically fewer restrictions on the use of funds borrowed under a line of credit – a mortgage must go towards the purchase of the listed property and an auto loan must go towards the specified car, but a line of credit can be used at the discretion of the borrower.

Pawn Loan / Payday Loan

There are some superficial similarities between lines of credit and payday loans, but that is really only due to the fact that many payday loan borrowers are “frequent flyers” that frequently borrow, repay, and/or extend their loans (paying very high fees and interest along the way). Likewise, a pawnshop or payday lender does not care what a borrower uses the funds for, so long as the fees/loans are paid/repaid.

The differences, however, are more considerable. For anyone who can qualify for a line of credit, the cost of funds will be dramatically lower than for a payday/pawn loan. By the same token, the credit evaluation process is much simpler and less demanding for a payday/pawn loan (there may be no credit check at all) and the process is much, much quicker. It is also the case that payday lenders will seldom lend the amounts of money often approved in lines of credit (and banks will seldom bother with lines of credit as small as the average payday or pawn loan).

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Why you shouldn’t borrow money from friends

Why you shouldn't borrow money from friends

Need some money? Don’t ask your friends or family. Find out why.

For many people, there comes a time when it becomes absolutely essential to borrow money to pay important expenses or make bills. If you are late with a lot of bills, you could end up facing huge costs for late fees, utility shut-offs and other penalties. You could damage your credit and you could end up facing eviction or the repossession of your car.

Unfortunately, many people go through these kind of financial problems at some point in their lives and they need to find somewhere to turn for help.

If you are facing any kind of financial problem, from unexpected home or car repairs to being unable to pay bills, you may be tempted to turn to your friends or family members in order to get the money that you need for your bills. The reality, however, is that this is almost always a terrible idea.

Borrowing money from friends and family should be an absolute last resort only after you have exhausted other possible loan options that may be available to you. There are myriad reasons why you should never even borrow money from friends or from family members unless or until you have exhausted all possible other resources and are in a truly emergency situation.

Why you shouldn't borrow money from friends

Some of the many reasons why you don’t want to borrow from family and friends include the following:

You could put your family or friends in an uncomfortable position

Many people in the United States today are living paycheck to paycheck and your friend or family member that you ask for money may not actually have any cash to spare to give you, even in a temporary basis.

When you ask them for money, you’ve thus put them in a very uncomfortable position. They might have to admit to you that they are also facing financial struggles, which could be something that they don’t really want to say to you.

If they are a close friend or a close family member, they may also feel too badly to say no to your request especially if they know that you really need the money.

The result could be that your friend or family member lends you money that he or she doesn’t really have to give and thus you could drag someone you love into a bad money situation.

You could ruin the relationship and be uncomfortable whenever you spend time together

Owing someone money can make you feel very beholden to that person, even if they don’t say anything and are gracious about giving you the loan. You could feel uncomfortable and no longer like the equal of the person that you borrowed money from. This can undermine your relationship and make it less fun for you to be around a person who is important in your life.

The person who you borrowed money from could also become resentful of the fact that you took the loan, especially if they see you spending cash on something else or if they feel that you are taking too long or not trying hard enough to pay them back. You do not want to take a chance on alienating the people in your life who you care about because of a financial transaction.

You could end up being unable to pay the loan back

People generally do not borrow money with the intention of defaulting on the loan and not paying it back (especially when they borrow from a family member or a friend).

Unfortunately, sometimes life gets in the way of your best intentions. Even though you have every intention of paying back the person that you borrow from, you could end up simply being unable to do so.

This is likely to make you feel a tremendous amount of guilt and it is likely to make your friend or loved one feel resentful and possibly feel financial pressure as a result of the bad loan.

These are just a few of the many reasons why you do not want to take a chance of borrowing from a family member or from a friend. Instead, consider all other possible sources of loans available to you.

Even people who have bad credit may be able to obtain a car title loan from a trusted provider like TitleMax.com or a loan through a bank or other lender. Apply for loans and exhaust all options available before you ever even consider asking someone you love or care about for money.

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What a President Trump might mean for your personal finances

What a President Trump might mean for your personal finances

Donald Trump became the presumptive Republican presidential nominee this week, casting a more serious light on the policy proposals he has put forth during the GOP contest. Here’s a quick look at how some of Trump’s economic ideas could broadly affect your finances should he prevail with both voters and Congress (keeping in mind that his plans are likely to evolve as he prepares further policy speeches and chooses his running mate).

Your purchasing power

The hefty tariffs on imports Trump has proposed include many goods we take for granted and don’t have the capacity to produce within our own borders, said Mark Hamrick, Washington bureau chief and senior economic analyst at Bankrate.com. “Certainly agricultural sources in Mexico, they either become more expensive or unavailable,” Hamrick said. “Good luck eating dandelion greens for four months of the year.”

The threat of a 35 percent tax on auto imports from Mexico troubles Sam Stovall, U.S. equity strategist for S&P Global Market Intelligence. “That’s certainly going to hurt, because basically everything is imported, either in U.S. or foreign-made cars,” he said. And tariffs often spark retaliation, affecting U.S. exports as well.

On the other hand, if the tough talk succeeds in wresting concessions from partners, it could improve our trading position, Stovall said.

Your job

If Trump’s tariffs were enacted, including a 45 percent levy on Chinese goods, it would badly damage the economy and cost a lot of jobs, said Mark Zandi, chief economist at Moody’s Analytics. And if his tough immigration stance were put in place, Zandi warned, “it would be, to steal a phrase from him, a disaster.”

“If Trump could deport even a fraction of the 11 million immigrants, it would be very disruptive to business,” he said, creating a hole in an important sector of the labor force and removing a lot of consumers from the economy. “If he deported all 11 million, it could lead to a recession. It would be a mess.”

Your investments

Repatriating foreign earnings and possibly enacting some corporate tax reform, as Trump has discussed, could bolster stocks and benefit investors. Companies have twice as much cash on their books as they did 10 years ago, Stovall noted, and a lot of it is overseas. If they get more favorable tax treatment in the U.S. and bring that money back, they “will have additional money with which to do dividends, do share buybacks, and it could help companies looking to build new plants and equipment.” That, he said, could bring “better performance of the shares of the companies that we’re invested in in our 401(k)s.”

But a repeal of the Affordable Care Act “would do nothing but throw the health-care industry into a tailspin,” Stovall said.
A recent change in the candidate’s views on the minimum wage would affect such industries as retail and restaurants. Trump said earlier that he would not raise the wage but now says he is “open to doing something” with it, though Stovall doesn’t think he would go as far as $15 an hour.

There really is something to the maxim that Wall Street dislikes uncertainty, said Hamrick. It weighs on financial markets and the performance of the economy. “That Trump is unpredictable is quite distasteful for many people trying to price in risk and opportunity,” he said. “Certain businesses are going to be cautious about making investments until they have a bit more clarity, and that includes clarity on how the leadership of the Congress is determined. There’s a lot of cash sloshing around in the system, but it’s not being put to work.”

If a business is booming, the uncertainly is less of a factor, he said. “If you’re a business on the margin, however, and wondering if you should take a risk, you might be more risk-averse.”

Your taxes

The Tax Policy Center, which analyzed Trump’s proposal to reduce marginal rates for individuals and businesses while boosting standard deductions, says the plan would provide an average tax cut of $1.3 million to the top 0.1 percent of earners. It could also mean $9.5 trillion less in federal revenue over its first decade, the Center figures. If huge spending cuts don’t come with it, the group said, it “could increase the national debt by nearly 80% of gross domestic product by 2036, offsetting some or all of the incentive effects of the tax cuts.”

The proposal is in flux, however. Trump told CBNC this week that “when you put out a tax plan, you are going to start negotiating.”

Your plan

The smartest move you could make right now, amid the election year’s sound and fury, is simply to focus on building your financial future, said Kate Warne, investment strategist at Edward Jones. With so much uncertainty on both the domestic and foreign fronts, that means owning both bonds and stocks, especially international stocks while the dollar is strong, and diversifying both across and within asset classes.

And no matter what the candidates say, remember that the U.S. is running a budget deficit, so you need to prepare for the possibility of higher taxes, Warne said. Investing in tax-free municipal bonds and taking advantage of any tax-deferred accounts, such as IRAs and 401(k)s, is a great way to start.

In short, she advises, pay less attention to the political discourse and more to what you need to do now. Certainly don’t sit on the sidelines, she said. “Stocks don’t wait,” Warne said. “So you shouldn’t wait either.”

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3 Social Security myths debunked

3 Social Security myths debunked

Social Security is a complicated program, so it’s not surprising that there’s a lot of confusion among the millions of Americans who rely on the program for their retirement income. In particular, several myths have arisen about Social Security, and many people still erroneously believe them to be true. Let’s take a look at three of them and work at debunking these misunderstandings.

Myth 1: Social Security benefits will disappear in the future.

Many Americans are aware of the financial challenges that Social Security faces. The program’s trust fund is expected to run out of money in 2034, according to the latest projections from the trustees who manage that fund. Many people believe that once the trust fund is exhausted, then Social Security will stop paying benefits to all recipients.

In reality, Social Security doesn’t work that way. Every year, the Social Security Administration collects revenue to help pay benefits. Most of the revenue comes from payroll taxes on wages and salaries, but there are some other sources, including interest on trust fund balances and the income taxes that some Social Security recipients pay on their benefits. The SSA then figures out how much it needs to pay in benefits. If payments exceed revenue, then the SSA taps into the trust fund.

After the trust fund runs out, the SSA projects that revenue will be enough to pay about three-quarters of all benefits owed to retirees and other eligible beneficiaries. That means that even in a worst-case scenario, Social Security recipients can still expect to get about 75 cents on the dollar after 2034.

Myth 2: You should always take Social Security benefits as soon as you qualify.

Due in part to this misconception about the future of Social Security, many people believe that claiming Social Security as early as possible is the best solution in all cases. More people still claim Social Security at age 62, the first year of eligibility for retirees, than at any other age, despite a trend that has seen an increasing proportion wait before claiming benefits.

For some people, claiming early is the best option. However, for many, it’s not. If you would prefer to get larger monthly payments later in life even if it comes at the expense of not getting any benefits in your early or mid-60s, then putting off Social Security until as late as age 70 can give you the best fit with your financial goals. Waiting until you stop working to take benefits can keep you from dealing with Social Security’s forfeiture rules, which can cause you to lose benefits if you earn more than certain threshold amounts. Between life expectancy, quality of life, and other financial and nonfinancial factors, making a smart Social Security choice involves much more than just grabbing benefits at your first opportunity.

Myth 3: What you do with your Social Security has no effect on your family.

In making decisions about Social Security, single retirees with no eligible family members to claim related benefits have the least to consider. They can look solely at their own needs in making a smart choice about their Social Security benefits.

Others, however, have to consider impacts on family members. For instance, survivor benefits for your spouse and eligible children are based on the retirement benefits you receive. In particular, if you claim retirement benefits early, then your survivors’ benefits will also suffer the same reduction after your death that yours did during your lifetime. Similarly, career decisions that you make that will increase or decrease your average earnings in calculating your eventual Social Security benefit will affect not just retirement benefits but also spousal and children’s benefits, along with any survivor benefits that apply.

Sometimes, taking your family members’ needs into account won’t change your decision. But in other cases, it will, and it’s important to ask the question.

Social Security is complicated enough that numerous myths about the program have become part of the collective consciousness. By knowing why these myths aren’t true, you’ll be in a better position to assess your Social Security rationally to make the best choices possible.

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Top 5 financial decisions you’ll regret forever

Top 5 financial decisions you'll regret forever

Financial regrets. We’ve all had a few. But there’s a big difference between making an impulse purchase that you second-guess the morning after and making a major decision about your money that could haunt you for a lifetime.

We reached out to dozens of financial planners and personal-finance experts for their views on some of the most consequential mistakes people can make with their money. We also offer advice on fixing these mistakes — or avoiding them altogether — so you’re not left ruing the day when you blew your budget, wiped out your savings or otherwise sabotaged your financial future.

1. Borrowing from your 401(k)

Taking a loan from your 401(k) can be tempting. After all, it’s your money. As long as your plan sponsor permits borrowing, you’ll usually have five years to pay it back with interest.

But short of an emergency, tapping your 401(k) is a bad idea for many reasons. According to John Sweeney, executive vice president for retirement and investment strategies at Fidelity Investments, you’re likely to reduce or suspend new contributions during the period you’re repaying the loan. That means you’re short-changing your retirement account for months or even years and sacrificing employer matches. You’re also missing out on the investment growth from the missed contributions and the cash that was borrowed.

Keep in mind, too, that you’ll be paying the interest on that 401(k) loan with after-tax dollars — then paying taxes on those funds again when retirement rolls around. And if you leave your job, the loan usually must be paid back within 60 days. Otherwise, it’s considered a distribution and taxed as income.

Before borrowing from a 401(k), explore other loan options. College tuition, for instance, can be covered with student loans and PLUS loans for parents. Major home repairs can be financed with a home-equity line of credit.

2. Claiming Social Security early

You’re entitled to start taking benefits at 62, but you probably shouldn’t. Most financial planners recommend waiting at least until your full retirement age – currently 66 and gradually rising to 67 for those born after 1959 – before tapping Social Security. Waiting until 70 can be even better.

Let’s say your full retirement age, the point at which you would receive 100% of your benefit amount, is 66. If you claim at 62, your monthly check will be reduced by 25% for the rest of your life. But hold off until age 70 and you’ll get a 32% boost in benefits – 8% a year for four years – thanks to delayed retirement credits. (Claiming strategies can differ for couples, widows and divorced spouses.)

“If you can live off your portfolio for a few years to delay claiming, do so,” says Natalie Colley, a financial analyst at Francis Financial in New York City. “Where else will you get guaranteed returns of 8% from the market?” Alternatively, stay on the job longer, if feasible, or start a side gig to help bridge the financial gap. There are plenty of interesting ways to earn extra cash these days.

3. Paying the minimum on credit cards

Americans’ plastic addiction is taking a toll on their bottom lines. The average household with debt owes $15,762 on credit cards, according to personal finance website NerdWallet.com.

“It can take years and years and years to potentially pay off that credit card debt with the amount of mounting interest costs,” says H. Kent Baker, professor of finance at the Kogod School of Business at American University, “especially if one continues to charge more and more and more.”

Consider this example: You have a $5,000 balance on a card with a fixed rate of 12.5%, typical of what banks are charging these days. If you only make minimum payments, it’ll take nearly 10 years and $1,700 in interest to eliminate that $5,000 debt, a Bankrate calculator shows.

What to do? First, stop making new charges. Second, if possible transfer the balance to a lower-rate card. Third, pay more than the minimum. Even a small boost to your monthly payment can result in significant savings on interest. Above all, advises Baker: Live within your means. (Kiplinger’s Household Budget Worksheet can help you get back on track.)

4. Putting off saving for retirement

Financial professionals have heard the refrain before: “I’ll start saving for retirement when I make more money.” But that fiddling while Rome burns won’t cut it as retirement nears.

“Many people do not start to aggressively save for retirement until they reach their 40 or 50s,’’ says Ajay Kaisth, a certified financial planner with KAI Advisors in Princeton Junction, N.J. “The good news for these investors is that they may still have enough time to change their savings behavior and achieve their goals, but they will need to take action quickly and be extremely disciplined about their savings.”

Morningstar calculated how much you need to sock away monthly to reach the magic number of $1 million saved by age 65. Assuming a 7% annual rate of return, you’d need to save $381 a month if you start at age 25; $820 monthly, starting at 35; $1,920, starting at 45; and $5,778, starting at 55.

Uncle Sam offers incentives to procrastinators. Once you turn 50, you can start making catch-up contributions to your retirement accounts. In 2016, that means older savers can contribute an extra $6,000 to a 401(k) on top of the standard $18,000. The catch-up amount for IRAs is $1,000 on top of the standard $5,500.

5. Passing up professional advice when you need it

We all can use a hand once in a while, especially when it comes to tricky aspects of our financial lives. For example, some of the financial professionals we talked to pointed to the panic brought about by the sharp economic downturn in 2008 and 2009. Many individuals poorly timed when to get out of the stock market and when to get back in.

“Investors who aren’t very experienced tend to buy high and sell low, when you’re supposed to buy low and sell high in the stock market,” says Catherine Shenoy, director of applied portfolio management and senior lecturer at the University of Kansas Business School. “That’s one way a professional financial adviser can help you.”

Advice isn’t limited to investments. The right financial pros can assist with everything from taxes and insurance to retirement savings and estate planning. And good advice can pay off for you and your loved ones. Common but avoidable mistakes such as dying without a valid will or failing to designate the correct beneficiaries for your retirement accounts could leave your heirs in limbo and even see your wealth go to the wrong people.

“Not carefully choosing your financial adviser can be a huge mistake,” says Andy Tilp, an investment adviser representative with Trillium Valley Financial Planning in Sherwood, Ore. “It is very important to have an adviser who is a fiduciary for the clients and is working solely in the client’s best interest. An adviser who sells high-fee, commission-loaded products is helping his own net worth but can be a disaster for the client.” (Learn more about what to ask a financial adviser when hiring one.)

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Disastrous myths about your credit score

Disastrous myths about your credit score

Contrary to popular belief, paying bills on time is an overrated part of your financial reputation.

People are obsessed with getting and keeping an excellent credit score. We hear these statements regularly on our financial helpline:

A caller who can’t pay their monthly bills because their debt payments are so high says, “I can’t go to credit counseling because I heard it will damage my credit score.”

A caller who is not saving in their 401(k) and missing out on the company match says, “I don’t want to pay off my credit cards. I am keeping a balance to help my credit score.”

This makes no financial sense. People aren’t going to seek help getting out of debt — lowering the interest rate and possibly the balance owed — because it will hurt their credit score? How is this helpful? If people don’t get their debt under control, they may never retire. We’ll have a nation of people working into their 80’s with no savings but they can all come together and brag about their credit scores.

Let’s examine some of the biggest credit myths that can lead to disaster:

Assuming if you pay your bills on time, you don’t have to do anything else. Paying your bills on time accounts for about 35% of your credit score but there is another 65% which includes amount owed (30%), length of credit history (15%), new credit (10%) and type of credit (10%). Consider all of the other factors.

Also remember that there may be errors on your credit report so if you don’t check it, you’ll never know and your score will be affected. According to Deborah McNaughton, author of The Get Out of Debt Kit, 80% of credit reports have errors (as cited by Bankrate.com). Many of the erroneous reports had missing information that may boost a score, such as missing a revolving account in good standing, or miscellaneous incorrect information such as an incorrect birthday.

Check your credit report. Credit reports are unique to Social Security numbers, so if you are married, you may want to stagger your requests with your spouse every six months. You can also request your actual score for a onetime fee (which is less than $15 through most credit bureaus). Most credit monitoring services will provide your score for free when you sign up for their service.

Assuming when you divorce, your accounts automatically divorce with you. They don’t. If you have a joint account and one of the parties on the account is late, you are both late. With some types of loans, such as a mortgage or a car loan, the lender may not accept a letter asking you to be removed from the account after a divorce even if that property is going to your ex-spouse. They will need to qualify for the loan on their own before you will be removed from the account.

Take this into consideration because if they don’t refinance, and then have late payments, you may find yourself with some credit issues. When possible, close all joint accounts and refinance any debt separately. If it is not possible, maintain some type of control, whether it is an escrow account or at least access to information to make sure the accounts are paid in a timely manner. Don’t assume. Also see the last point about closing accounts.

Avoiding consumer credit counseling because it will hurt your credit score. For someone with serious debt, working with a not-for-profit credit counseling agency to develop a debt reduction plan and get out of debt permanently should take priority over credit scores. Credit counselors will work with your creditors to try and reduce your monthly payments, or settle your debt altogether. Debt settlement doesn’t affect scores as badly as you would think. In fact, many people don’t realize that late payments affect scores more than a debt settlement. Here is an example of how a debt settlement can affect credit scores, and how that compares to late payments.

A late payment hurts your score more than a debt settlement if your score is in the 680 range; it only significantly pulls it down if you are in the 780 range. Let’s be honest here, people ready for credit counseling probably don’t have the highest scores anyways, and the bottom line is credit scores are fluid — they can be rebuilt. According to Credit.com, a debt write off can stay on your credit report from seven to ten years, but as the information ages, so does its negative impact.

Making late payments aren’t that big a deal. According to FICO, a 30-day late payment can affect your score by as much as 110 points. Late payments can have a huge impact on your credit score causing it to drop like a stone. This is one disaster that is relatively easy to avoid. Simply set up all of your accounts with an automated minimum payment schedule from your checking account. This way you’ll never miss a payment. You can always pay additional amounts through online banking. Set yourself up for success with this one because it can be an easy one to miss and makes a significant impact.

Closing accounts to clean up your credit. Closing an account may be a good idea if you only opened the account to get a discount on merchandise or have too many credit cards which is causing confusion, but it won’t clean up your credit or help your score. In fact, it can hurt your score when the account you close has a long credit history — especially a good one. Your credit history accounts for 15% of your score, so in making decisions which cards to keep and which ones to close, keep in mind how long you’ve had the account open and close the most recent ones first.

Are credit scores important? Yes, but they are not the “be all and end all.” Now that we’ve dispelled some of the biggest myths, consider what the “be all and end all” is for you. What are your biggest financial challenges and concerns? Our latest research shows that less than 18% of employees feel they are on track for retirement.

Are you part of the 82% that isn’t? Do you have a personal net worth statement and is it going in the right direction? The point is when you focus on the important financial issues, you have a chance to meet your financial goals. Clean up your credit if you have to, and do your best to keep a good credit score, but let’s not go overboard and lose sight of everything for just one number.

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Understanding Forex Trading

Understanding Forex Trading

Forex refers to the biggest, freest marketplace in the world: the global trading of different nation’s currencies or money. Dollars, euros, pounds and yen are all examples of currencies. If you live in a country that counts money in dollars, then euros are foreign currency to you. If you want to pay dollars to someone who uses euros, the two you will have to engage in foreign exchange, or forex.

It’s elementary supply and demand. If I have lots of dollars and few euros, your dollar is worth only a small number of euros to me; perhaps only a fraction of a euro. On the other hand, if I have a shortage of dollars (and need them to pay someone else), then I will give you more euros for your dollar. If we can negotiate a mutually agreeable exchange rate – X dollars for Y euros – then we can do business.

Our dollars and euros are said to be “liquid” if each currency can be exchanged for another readily. Liquidity is vital to international trade, obviously. Fortunately, the forex market is extremely liquid. There is always someone willing to buy your dollars with whatever foreign currency you need, and enough players in the market that you can almost always find an acceptable exchange rate.

The more information you have about exchange rates, the better the deal you can negotiate and the better your profit on foreign exchange. The rub for small traders is that they don’t get much market information. The forex market is a clique-ish one. The more currency you trade, the more information other large traders will share with you. If you trade a small amount of currency, you do so in nearly total ignorance of what a “fair” exchange rate should be. Small players in forex make money accidentally; most of the time, they lose.

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