Category Archives: credit cards

Tying the Knot

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Financial Tips for Newlyweds

By Steve Davis, CERTIFIED FINANCIAL PLANNER™

Do you remember that summer a year or two after you graduated from college? You know, the summer when you attended weddings almost every weekend? It started in June and it seemed that almost all of your hard earned cash was going toward wedding presents for your friends who were tying the knot. Well, June is here again and soon the church bells will be ringing as brides and grooms walk the isle.
Here are some financial issues that couples should consider when embarking on a matrimonial journey.

1. Discuss your finances before marriage — Start your marriage off on the right foot by having an honest discussion about financial habits, objectives and history. If one of you is a saver and the other tends to spend every dollar earned, figure out a plan to get on the same financial page. Talk about your short and long term financial goals and review them periodically.
And before your big day, share your statements from your bank accounts, credit cards, student loans, and 401k plans. In the business world — when companies merge — they take the time to carefully explore each other’s financial records. Couples should do the same thing. Also share credit reports and FICO scores. It’s not necessary to make your spouse a joint accountholder on your credit cards, especially if he or she has a poor credit history, which can drag down your own credit rating. If there are any financial concerns or problems, seek out an accountant or CERTIFIED FINANCIAL PLANNER™ for guidance.

2. Create a Spending Plan — Marriage Counselors say that failing to create and stick to a mutually agreed upon budget is one of the leading causes of marital strife. And while nothing seems less romantic than budgeting, remember that the process doesn’t have to be complicated. Start off by listing your monthly take-home pay. Then add up expenses, everything from your rent, car payments, student loans, to groceries, gym membership and utilities.
If you’re making more than you spend each month, you can begin planning how to set aside money for long-term financial goals. If not, time to consider ways to cut spending.

3. Think holistically — Consider each spouse’s investment portfolio as part of a whole. For instance, if both you and your mate contribute to 401(k) plans and IRAs, see how your investment choices match up. You might find that your combined portfolio is more exposed to risk than the two of you can tolerate. Or, you might learn that when you combine your portfolios, your asset allocation is out of whack. Remember, you can rebalance your asset allocation by shifting money from one asset class (stocks, bonds and money market instruments) to another or by adding new money to the underrepresented asset class.

4. Review documents — Along with other legal documents, remember to update your beneficiaries on life insurance policies, IRAs, employer-sponsored retirement plans and pensions. Also, be sure to either create or modify your wills.

5. Meet with a professional — Make a date with a qualified financial professional to discuss your financial goals, such as buying a home or investing for retirement. Then, after making sure that all of your financial bases are covered, relax and enjoy the beginning of your life together.

5 Money Tips Every College Freshmen Should Know

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By Steve Davis, CERTIFIED FINANCIAL PLANNER ™

For many college freshman and their parents, the next few weeks will be the beginning of a new adventure. I should know since another one of my boys heads off to college this year. The freshmen are leaving home, orientation is in full-swing and the students are sizing each other up and getting used to their new surroundings. Similarly, parents are getting acclimated to new surroundings too – an unusual silence in the home and questions about how best to fill the hours that were previously spent with our sons and daughters watching their sporting events and attending their school activities.

Saying Goodbye: Toy Story 3                        © Disney/Pixar
As a parent, I have conflicting emotions; I eagerly anticipate the wonderful experiences my son will enjoy over the next four years, and like Andy’s mom in Toy Story 3, I have feelings of melancholy and longing. Parents of college freshmen will fondly remember reading bed-time stories and taking their sons or daughters to the soccer fields on Saturday mornings. For those of us who can’t comprehend that it has already been 18 years since our kids were born, they will quickly show us that the next four years will go even faster.

Members of this year’s freshman class, most of them born in 1993, grew up just as the internet was starting to take off. This was incredibly helpful for parents like me who often turned to their kids to get tips on how to use the “interweb” or how to fix their computers. Yet for all the help our kids have given us, we are still their parents and can offer valuable advice too – even if they won’t recognize our wisdom for a few more years. As Mark Twain once said, “When I got to be 21, I was astonished at how much the old man had learned in a few short years.” 
Here are five money tips every college freshmen should know.

1. Go to Class. While it may be tempting to sleep-in and skip that early Monday morning English 101 class, doing so is like throwing money out the window. I hate to state the obvious, but college is expensive. According to a newly released Sallie May study, college costs last year averaged $21,889, and some schools like Northeastern University cost more than $50,000 per year. Assuming a schedule of four classes that meet three times per week over a fifteen week semester, each class skipped costs between $120 and $275. That’s some expensive shut-eye.

2. Don’t get a credit card. Sure, the guys sitting behind the sign-up table may be offering some free t-shirts and cool merchandise as an enticement to get you to apply for their credit card, but they’re not there to help you. College campuses are where many young Americans are introduced to credit and the possibility of spending beyond their means – a problem confronting the nation as a whole. If you must use a credit card, avoid non-academic debt. It might seem like a good idea to put that restaurant tab or your new iPad on a credit card, but it’s not. Learn to save, and then splurge.

3. Don’t hang out with big spenders. You’re a college student, so live like one. Don’t pretend to live a lifestyle you can’t afford. Some kids have parents with deep pockets while others are on their way to financial ruin. Hanging out with these free spenders can lead you to spend more than you can afford. Instead, socialize in the dorms, learn to cook in your apartment, use your student ID and take advantage of campus activities and student discounts.
4. Have a Spending Plan. Set a weekly budget for spending categories like food, entertainment, road-trips and the like. At the start of each month, estimate how much income you’ll receive and decide how much you want to allocate to each category. If you anticipate taking a date to an expensive restaurant, skip your morning cup at Starbucks that month or reduce spending in other areas. It is amazing how little things can add up. A couple of energy drinks, lunch at the local Chipotle, several ATM fees and a couple of apps for your iPad means that at the end of the month you may find yourself looking at a large part of your budget going towards “inexpensive” things you splurged on without thinking. Spend less than you earn.

5. Get a job. Being broke in college is no fun. If you would like to spend more, you’ll need to earn more. If you need or want a job, look for ones that you can eventually put on your resume or will bolster your internship options later on. Alternatively, seek out positions that add to your personal development. Like to mountain climb? Work at a rock gym. Enjoy cooking? Get a job in a restaurant. Want to help people? Try a non-profit. Finally, remember the story of Facebook and consider starting your own business. It could be that you have an idea that might be the next big thing, but it could equally be a simple babysitting service, tutoring, or buying and reselling stuff on eBay. Above all, remember that your first “job” is to graduate on time. Earning some extra cash each month is great but those semesters of school don’t come cheap.

Now stop worrying about money and get out there and have some fun. I’ll see you when you come home for Thanksgiving!

This article was written by Steve Davis and appeared in the column “Talking with Davis about Money Matters” found at http://mansfield-ma.patch.com/articles/five-money-tips-every-college-freshmen-should-know

Strapped for Cash?

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By Steve Davis, CERTIFIED FINANCIAL PLANNER ™   

At some point in our lives, most of us have felt a little strapped for cash. Perhaps we suffered a job loss or unexpected medical expense. But maybe we just overspent and are afraid to admit how much we really owe on credit cards. Or possibly, we’ve decided it’s high time to replace the ‘89 Ford Aerostar that has 200,000 miles and probably just as many Cheerios stuck between the kid’s seat cushions.

The days of using our homes as a piggy bank to bail us out are all but over. Before approving home equity loans, lenders today require better credit scores, more home equity and higher income than they have in the past. So where are Americans turning to finance college, upgrade their kitchens and get the debt collectors off their backs? Their retirement plans.

Last month a survey released by Bankrate 1 shows that nearly one-fifth of full-time workers have dipped into their retirement accounts to cover a financial emergency in the past 12 months. According to the survey, 19 percent of Americans have either borrowed or withdrawn funds from their retirement savings.

Robbing Your Retirement: Early Withdrawal from your IRA or 401k plan

When times are tough, making early withdrawals from your retirement funds can seem like a quick source of cash. It is. But it can be an extremely expensive source of quick cash and should really only be considered in cases of emergency. Remember, we’re talking about your retirement plan, not your Aruba vacation plan! So before you withdraw money from your retirement account consider the following traps:

Withdrawal Trap 1:Taxes and Penalties. Money inside your deductible IRA or 401k plan has never been taxed. Your contributions were made with pre-tax dollars and you’ve never had to pay taxes on interest, capital gains or dividends either. But, once you take money out of the plan, it will be time to pay the piper. When you withdraw money, you’ll pay taxes based on your current tax bracket – and the withdrawal might even cause you to jump into a higher bracket. If you’re younger than 59 ½ and take a distribution, you may be subject to an additional tax of 10%. Here’s an example highlighting the consequences of withdrawal.

Withdrawal Trap 2: Less Money for Future Growth. Obviously, when you withdraw a dollar, you have one less dollar available at retirement. But more than this, that dollar is no longer earning interest so your account won’t have the opportunity to grow as quickly because your portfolio (and consequently your earnings) will be smaller. You can never replace the missed earning opportunities.

A Better Option: Borrow using a 401k Loan

Sometimes when you’re really strapped for cash and must get money from somewhere, a loan from your 401k plan can be a good idea because it’s a convenient and low-cost source for cash. In general, you can borrow one-half of your plan balance up to $50,000. You’ll have up to 5-years to pay it back and the interest you pay doesn’t go to a bank, but back into your own account. If you do take a loan from your 401k, don’t borrow more than you absolutely need, and be sure to repay the loan as quickly as possible because when you pay the money back over a short period of time, is usually has little impact on your saving progress.

401k Loan Trap: Risk of Termination. Know that if you leave your employer, most plans will require you to pay-off the loan within 60 days. And if you’re unable to do so, the entire outstanding balance will be seen as a withdrawal and you’ll be taxed and penalized, accordingly.

The Best Option: Create an Emergency Fund

Most experts agree that you should keep between three and six months worth of your living expenses set aside in an emergency fund. Not only will this help should you experience a sudden loss of income, but it will also ease the burden of smaller emergencies such as repairing the brakes on your car. If you currently don’t have one, make it a priority. Open a savings account at your bank and set up automatic deposits where you contribute an affordable amount each month. While this approach won’t help you if you’re strapped for cash now, it will give you peace of mind and provide a financial safety net for the future.

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This article was written by Steve Davis and appeared in the column “Talking with Davis about Money Matters” found at http://mansfield-ma.patch.com/articles/strapped-for-cash

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.


1 www.bankrate.com/finance/consumer-index/april-2011-retirement-savings


2 This example assumes all contributions to the account were tax deductible and contributions and earnings grew tax deferred. This example is for illustrative purposes only.

Stanley Johnson: "I’m in debt up to my eyeballs…somebody help me!"

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By Steve Davis, CFP®






Click to watch the Stanley Johnson TV ad

    Does anyone remember that funny Lending Tree commercial where a guy named Stanley Johnson appeared to be living the good life? Stanley had the big house, a country club membership, a pool and even a brand new car. When asked how he does it, Stanley responds with a contrived smile, “I’m in debt up to my eyeballs; I can barely pay my finance charges. Somebody help me!”

In January, banks sent out billing statements that included all the charges for those holiday gifts many consumers put on their credit cards. If you were one of the many who used your card to pay for holiday shopping or for that big ticket item that was on sale at year-end, you may be feeling a bit like good old Stanley Johnson right now. Here are 5 tips for getting over your post-holiday credit card hangover.

1. Assess the damage

Go ahead and gather all your credit card statements and list your debts in descending order from smallest to largest. Put this list somewhere visible so it remains on your radar.

2. Go on a financial diet

If you’re unable to pay off your balances in full, stop all discretionary spending for the next month. Put your credit cards away. Just as a dieter will remove cookies from the cupboards when starting a diet, you should remove your credit cards from your wallet. Studies have shown that paying cash actually discourages spending while using credit encourages it.

During the first week, track your spending; know where every dollar goes. Successful dieters learn to track their calories so they know what foods are healthy and what foods are not. While this can be tedious, it helps break bad habits and it also reinforces good ones. Tally your expenses for the week and categorize them under headings like housing, groceries, dining, and transportation. You will probably be amazed at how the “financial calories” add up. Determine where you can cut back and earmark your cost cutting toward the credit card bills.

3. Consolidate

If you have more than one credit card and can consolidate them onto one low interest card, do so. Be extremely careful about using a home equity loan to payoff your unsecured credit card debt. This option sometimes seems attractive since you can write-off the interest you pay. But beware! If you miss a credit card payment you lose your good credit rating, but if you miss a mortgage payment you could lose the roof over your head!

4. Pay off your smaller debts first

Experience the gratification of eliminating your bills one by one. When you start paying off your smaller debts first, you will receive quicker feedback and enjoy the success of eliminating a debt entirely! Once a loan is paid off, apply that former payment to the next smallest debt. You may be tempted to pay off your larger bills first, especially if they charge higher interest rates, but you will be more likely to stick to the plan when you receive ongoing positive feedback and see fewer bills arriving each month.

5. File your taxes and apply your tax refund.

The Internal Revenue Service recently reported that it refunded taxpayers $328 billion last year. On average, Americans received refunds of more than$3,000. If you expect a refund, gather your tax forms, receipts and shoebox of papers and get them off to your accountant right away. The sooner you file, the sooner your refund will be paid to you. Now is not the time to procrastinate. Use your refund toward your credit card balances and then determine whether you should change your withholding to increase your take-home pay.

Once you’re back on track, focus on living within your means. Build an emergency fund for unexpected events, and begin to set money aside for retirement. Doing so will help you replace a “Stanley Johnson smile” with an honest smile of relief, financial success and peace of mind.

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This article was written by Steve Davis and appeared in the column “Talking with Davis about Money Matters” found at http://mansfield-ma.patch.com/articles/in-debt-up-to-your-eyeballs