A couple of weeks ago I shared my financial fears in marriage and some tips and tricks I’ve used over the years to overcome them. I love doing posts like this because not only do I get to share the fact that I, too, have financial fears but it gives me an opportunity to find out if all of us have similar concerns. Spoiler alert: we do!
At the end of the post, Brittney from the Haven Life team included a poll to uncover your financial situation and concerns, so I could help you address them. Based on the responses we received, we uncovered:
- People aren’t keeping secret accounts – yeah!
- Some people don’t have budgets! Getting a strong working budget in place is step #1 toward building your financial success, and it’s not as hard as you think it might be (or as stressful). There are some great apps like You Need a Budget (YNAB), Mint and Level Money that can help make the budgeting process easy for you (and lead to fewer money fights as a couple).
- Not all people have an emergency fund. Just as the name suggests, an emergency fund is a pool of money set aside in a separate savings account that’s there just for emergencies. In most cases, you should aim for 3-6 months of expenses set aside in your emergency fund. Start thinking about High-Yield savings accounts where you will get a higher interest rate for your savings over traditional banks. Two of my favorites are Ally Bank and Capital One 360.
- You guys have both an individual and an employer-provided life insurance policy. Life insurance is one of the basic building blocks of a strong financial foundation, and often times, people simply rely on their employer-provided policy for coverage. However, employer-provided policies typically don’t supply the recommended coverage of six to 10 times your income. Purchasing an individual policy is very important once you have financial dependents.
In addition to the poll, I asked my social media circles to share their money fears and questions so that I could answer them in a follow up Q&A. Just as I had hoped, you guys submitted a lot of great money questions, and they’re ones I see frequently with my clients.
Your Money Questions
Q: What’s the biggest money mistake you see Millennials making?
A: The biggest money mistake I see Millennials making is their adverse interest in investing because of the 2008-2009 crash. Most Millennials that I see are very conservative and nervous to invest in 401(k)s, IRAs and the stock market in general.
Generally speaking, when you’re young you can typically be riskier with your investments because you have a long horizon for them to rebound should there be a decline in the market. Investing your money capitalizes on what Benjamin Franklin calls the “8th wonder of the world”: compounding interest. Compound interest can give your money the potential to grow at a faster pace and can help you reach your financial goals.
Other than skipping out on investing, I would say the lack of a budget causes financial issues for Millennials. I know, budgeting is probably the last thing that most people want to tackle, but honestly, it’s the first thing you should figure out. A budget has saved me many times in my financial life and provides a great way to save toward all my goals that I want to achieve. If you think budgeting is too hard and need a good system, check out my video on How to Budget in 20 Minutes a Month.
Q: How much should you have in savings before you start investing in the market?
A: This is a great question, and the answer is that there isn’t so much a certain dollar amount, but rather a few financial steps you need to take first. You’ve got to have a strong financial foundation before you start investing. This means that you have a working budget that you use each month, you have your 3-6 months worth of expenses saved in your emergency fund, you’ve got your life insurance and health insurance policies in place, and you have excess funds each month that you can use for investing.
From there, the first place to start investing is in your 401(k), IRA or ROTH retirement accounts. It’s a good idea to fully fund these before you start investing outside in the stock market. Once you’ve checked those items off your list, start with a play stock account before you utilize real money. A great resource is a company called Sprinklebit where you can take their free educational course and get $5,000 of “Sprinklebucks” virtual money to practice building a portfolio to test your skills before you pony up your money. Sprinklebit is a lot like Facebook where you can see what others are investing in as well and learn from their wins and losses.
Q: When planning for our child’s future, what are the must-dos? Change beneficiaries and start a college fund? Anything else?
A: With a new baby comes many new financial responsibilities. And, saving for college should be a top priority. First, you may want to consider a 529 plan for college savings where you can sock away up to $14,000 (the annual gift tax exclusion amount for 2016) per year (if you are married you can each contribute $14,000 per year for a total of $28,000). Most people never save for college and end up delaying their retirement instead. I tell people that you can always get a loan for college, but you can’t get one for retirement.
Second, you will want to make sure you have a life insurance policy in place should something happen to you. Term life insurance is cheapest when you are young and healthy, and Haven Life can help you figure out your life insurance needs. Bonus: you can also get life insurance in 20 minutes, entirely online.
Besides those two items, make sure you have a will in place with clearly marked guardians who would be willing to take care of your child/children, and beef up your emergency savings account with a couple of extra months of savings to help with any unexpected added expenses.
Life insurance needs aren't one-size-fits-all.Start your life insurance checkup
Q. I have a lot of credit card debt, but I pay my bill every month and I’m not making headway. Am I doing it wrong?
A: Credit card debt requires a solid plan in place to make any real headway. To start paying down the credit card debt, you have to stop incurring more debt. The easiest way to do this is to tuck your card away somewhere safe, but get it out of your wallet. Don’t cancel your credit card though as a major factor in your credit score is “utilization” – meaning how much credit you are using versus how much available credit you have. There are two schools of thought when it comes to paying off credit card debt, and neither one trumps the other, but to make headway you’ve got to pick one way and stick with it.
Option 1: Pick the credit card with the lowest balance and pay minimum payments on the other credit cards. Use the excess money you were putting towards your other cards and lump it into the payment on the card with the lowest balance. Once that card is paid off, move to the next lowest card and add the payment you were making on top of this card’s payment. Keep doing this until you have your debt paid off.
Let’s see that in action!
Below we have the old payments vs. new payments. In the old payment method you were paying above the minimum payment for all the cards, a total of $450 a month. Under the new payment method you will pay the minimum on two cards and put the excess money you were paying on the third. You aren’t paying any more each month, BUT will pay off your American Express card quickly and then take that $300 payment and put it towards the next lowest balance, the Discover card, and so on.
Option 2: Pick the credit card with the highest interest rate and pay the minimum payments on the other credit cards. Just like the strategy above, pay off the card with the highest interest rate and then move on to the next highest interest rate. While you will probably save a few bucks in this method over #1, it can leave people burnt out because your debt with the highest interest rate might also be the highest debt and therefore might take you the longest to get this sucker paid off.
Let’s see that in action!
Same as before, you will pay the minimum payments on two cards and put the excess funds to pay off the card with the highest interest rate, the Chase card. Once that’s paid off then you’ll move to the next highest interest, the American Express, and so on.
In asking about your money fears and questions, we uncovered that there was a common theme with many of you: retirement. Retirement is a valid concern for most people and should be thoughtfully planned for.
Since there were so many questions around retirement, next week the Haven Life team will share another Q&A with me that will focus just on your retirement questions.
Thank you all again for participating and sharing your money fears. Hopefully you can walk away from this Q&A knowing that not only do you share many of the same common financial fears as your peers, but that there are actionable steps you can take to address and conquer them.
Shannah is a CERTIFIED FINANCIAL PLANNER™ professional and is a millennial money financial strategist. She runs the blog Your Millennial Money, and is host of the Millennial Money iTunes podcast. Her husband Jeff is a travel journalist, but when they aren’t traveling she loves to challenge herself in the kitchen by creating a culinary masterpiece worthy of Food Network fame (she can make a mean risotto).