By Lena Rizkallah, Money Moxie
My teen-aged nieces came to visit me in New York a few weeks ago. Besides spending 3 hours agonizing over what color “cheeksters” to buy at Pink, waiting another 45 minutes for them to stand in line to try on ONE tank top at H&M, and then rounding out the rest of the day with more, um, shopping (ie. THEM going through racks of midriff-baring tops and teeny ‘distressed’ jean shorts, ME sitting in a chair boyfriend-style playing Fruit Ninja), we also spent some quality time taking Instagram pictures of each other and watching YouTube on our Iphones. In addition to finding out which stores in Soho have the most comfortable chairs (Uniglo and Arsizia tied for first place, Mango came in dead last), I SURE learned a lot that weekend.
For example, I had heard of but never exactly knew what ‘twerking’ was until my niece pulled up about a dozen examples of little 13-year old girls jiggling their behinds, sometimes against a wall, backed up to their BFF or upside-down. But now I know, so thanks D and K!
I had also never watched the show “Orange is the New Black” until D and K told me how awesome it is and stayed up all night watching back-to-back episodes. But everyone can calm down because now I know what it is and as soon as I join Netflix and watch all the episodes of “Arrested Development,” I’m on it.
My nieces also introduced me to the wild and crazy world of “selfies.” I’ve never really had a problem taking a picture of myself in different poses, as long as I could edit, delete or Photoshop them until absolutely perfect. But with a selfie, you take the picture and then post it all over the place, like on Twitter, Instagram, Facebook, Snapchat, etc. All weekend, I watched my nieces photograph different variations of “duckface” or close-up selfies with each other, or with my dog, or in a Pink push-up bra showing off cleavage, and I was amazed at their bravado and lack of self-consciousness. They didn’t care if the picture didn’t show them in their best light or the photo revealed some flaws–not that they have any. But they put their selfies out there for the world to see, and they kept them coming!
Savings Through The Years
The idea of a selfie got me thinking about how honest we are with ourselves when it comes to saving, or whether we ‘edit’ some of the truth behind our savings habits. Up until the mid-1980’s Americans saved a significant amount of their earnings. When employer saving plans like 401k plans were introduced in the 1980’s, the savings rate started to decrease because most Americans were encouraged to sock money away in these tax-deferred plans. In addition, as interest rates declined, Americans were less incentivized to put extra money in savings accounts, and instead invested in real estate and equities for better returns. The upside to this was, well, the possibility of better returns. The downside was poor returns and liquidity challenges.
However, as Americans began to rely more on credit to afford a certain lifestyle, the savings rate declined even further so that by 2005, Americans were saving less than 1% a year. Compare that with an average saving rate of 10% per person in Europe. Since the recession started, however, and as many people lost their jobs, credit became more difficult to come by and salaries stagnated, Americans got better at living within our means and putting more money away. At the height of the recession the personal savings rate reached 5.5% but has since decreased to about 2.5% in early 2013.
Why does this matter? Think about the past few years of the downturn and whether you’ve had to make some lifestyle changes as a result. Would things have been different if you had a bigger cushion to lean on during tough times? And it’s not only in case of tough economic times; establishing solid saving habits is crucial not just for the immediate term but also for retirement. As Americans live longer lives and as the promise of Social Security payments and employer-based pensions begin to diminish and in some cases disappear, we are ultimately responsible for funding our retirement.
Say NO To Retirement Drama
Retirement probably seems a long way off for many of us, but it’s important to start saving as soon as we start earning. Here are some tips:
– If your employer offers a 401k plan, you may already be automatically enrolled. Check!
– Make sure you are enrolled and then make sure you’re saving more than the minimum if you can afford it. Remember, this money comes directly out of your paycheck before it’s taxed. So you never see it long enough to miss it. And in the meantime, the money is invested and growing tax-deferred until retirement.
– Plus, if your company offers a matching contribution, all the more reason to sock away that moulah!
Emergency Fund Fun
But first things first. If there’s one thing many of us have learned from the recent weak economy it’s the importance of an emergency fund. Here are some tips:
– Your emergency fund should be able to cover at least six months of expenses in case you lose a job or life gets rough. If you’re up-to-date on your bills, an emergency fund is the next goal to tackle.
– Every month, once you’ve tackled your budget and paid rent, bills, etc. then pay yourself. That is, put 5-10% of your earnings away in your emergency fund.
– Do it consistently and on months that you can afford to save more, do it.
– Once you’ve reached the magic number for your fund, start saving for your next goal whether for an investing account, a home, a dream vacation etc.
Are you saving enough? Take this savings selfie:
– How much money do you put in your savings account on a monthly and annual basis?
– Are you aware of your monthly “necessary” expenses? How much would you need to save for your emergency fund?
– Based on your current monthly budget including bills/debt and current income, how long will it take for you to save for a six month emergency fund if you save 5-10% or more of monthly income?
– If you’re not saving enough, what steps can you take to start (ie. avoid the middle of the night online shopping-scapade, dinners out, etc).
While shopping with my nieces I even learned a big lesson on shopping and saving. Before the trip, they had saved up their summer job money and also got some shopping money from Big Daddy. But instead of impulsive spending at every store, they shopped carefully, made their selections thoughtfully and really considered the value of some of the items they were trying on. In the end, they came away with some great pieces they could share–and both went home with most of their savings still in their wallets!
It’s mid-January; do you know where your New Years Resolutions went?
Hard to believe that the holidays were just 2 weeks ago. Usually by mid-January, the mild depression caused by lack of sunlight that grips most of us in the Northeast is in full effect. This year it’s that plus the flu. No wonder, then, that many of us have discarded our New Years Resolutions like some forgotten grocery list dropped on the floor of the Times Square subway.
But even if you got sidelined by the flu and haven’t been able to make it into the gym yet, or maybe went to Macy’s with the $100 gift card you got for Christmas and accidentally left with a couple of pairs of boots, three cable-knit sweaters, a blender and a European-style mattress, don’t let a little bad behavior stop you from making good on the promises you made to yourself.
One of the top three resolutions has to do with money. People vow to get out of debt, save more, or start investing. Setting financial goals is always top of mind for most people. And like the other top resolutions–losing weight, becoming a “better person (whatever that means) or volunteering (good luck with that!)–nothing will be achieved unless you set goals, make a plan and work towards those goals.
But before you go transferring your entire savings account into your 401k, or opening an online brokerage account and depositing last week’s unemployment check, or saving up for a Bloomberg station so you can start day-trading…chillax. Think of the old adage “you don’t know where you’re going ’til you know where you’ve been.” In other words, determining your financial foundation first helps you understand yourself better and your attitude towards money which in turn will help you set–and achieve–better financial goals.
Recently, I joined a new gym. I’d been going to the good ol’ run-of-the-mill gym for years and was tired of the broken machines, humid conditions and questionable stains embedded on the “clean” towels. This new gym is beautiful, shiny, sleek; it’s the gym that the one-percenters go to, and even though I am not currently a one-percenter, this gym gives me access to this special status, if only for 3-5 times a week.
With my new gym membership , I’m entitled to a couple free personal training sessions. I recently met “Tareeq,” a tall Dominican glass of water who approached me in the gym and pretended to flirt with me so that I would make an appointment with him (yes, that’s what they do, those wily personal trainers; they flirt with you and flash smiles in hopes that you will hire them as a trainer! And of course it works.)
Last week was my first session where we basically took my measurements, did a fitness test and talked about my goals…basically a humiliating start to my Friday. Funny how I started out the session pretty optimistic, cracking jokes, telling Tareeq that my weight “ain’t nothin’ but a number, just like my age, know what I mean? Haha!” And then by the end of the session, after I had ran, walked a steep incline, attempted push-ups, sit-ups, gotten my fat pinched in various parts of my body and then stepped onto a scale–I was depressed and quiet. My goals had changed. I had walked into the session thinking, ‘I feel good, just want to tone up my lower body, and have fun working out’ but after I had evaluated my present state of health and fitness, I wanted more. I wanted to lose weight, strengthen my core, lower my blood pressure, burn more fat during a workout, fix the sag situation in various parts of my body.
When it comes to finance, just like in fitness, we often make lofty goals without truly evaluating our situation and our attitudes–and as a result fall short of our goals. By establishing a financial foundation first, you get a better idea of your good and bad habits, and the areas in your finances that need immediate attention; this leads to setting the right goals and the steps to tackle these issues.
This first step in setting a financial foundations is to understand yourself.
1. Be mindful. In yoga, we’re aways reminded to be mindful of things. “Be mindful of your breath.” “Be mindful of thoughts for they turn into actions which turns into the truth yadda yadda.” “Be mindful that you don’t scrunch your neck in downward dog.”
These are small reminders that can be extremely important to the practice of yoga and to receiving the full benefits of a pose. When it comes to money, we should also be mindful of our actions and reactions to money-related matters. How do you feel when you get your credit card bill in the mail? Do you instantly cringe and throw the bill in a desk drawer, only to be found sometime in mid-August? Or do you react in the opposite way, panicked by a fear of debt, spend your whole paycheck on bills and leave yourself with a twenty-dollar bill for the rest of the month?
What is your current state of debt? What is your monthly income? What are your fixed expenses that you need to live on per month? Find these numbers and memorize them.
2. Change your attitude. Many people approach money issues with a sense of fear. I’ve heard people complain that they don’t understand finance, it’s complicated or boring. Others don’t want to delve too far into their finances for fear that they’ll discover how majorly dramatically horrifically in debt they are (which is probably not the case). Still others may think they don’t have anything to worry about because they’re too young, don’t earn enough money, or have someone else make money and investing decisions for them, etc.
First of all, take a good hard look in the mirror and acknowledge how you feel about money, debt, retirement planning and investing. Are you afraid to ask questions at the bank, or talk to a financial advisor because you feel like you don’t make enough for someone to care about your questions or accounts, or because you don’t want them to think you’re stupid or because you don’t want them to sell you something? My advice: walk into the bank like a gangster. Act like you own the place. Look at the bank advisors like they work for YOU. I mean, they don’t, but if that’s what it takes to get you to change your attitude, tell yourself those lies!
The opposite of fear is confidence. It is incredibly empowering when you can overcome your fear–or maybe even just ignore it or side-line it–in order to start a conversation with an advisor, ask questions and take control of your money (and not the other way around).
3. Create a process that works for you. Let me start by saying that I hate math. Anything that has to do with numbers–even the calculator on my Iphone–is extremely puzzling to me. I am often stumped when someone asks me to times a number by 10. So when it comes to establishing a budget and managing my finances I don’t use an Excel spreadsheet. I like things spelled out, so I gravitate towards specialized programs like Mint.com, and I also like keeping good old-fashioned notes in a notebook (or on my Iphone).
Some couples use the envelope method to manage their household finances. They stuff money into envelopes dedicated to certain parts of the household budget and anything left over from fixed expenses can be used for the variable expenses like entertainment, big purchase items or hair extensions. I have a friend that lives and breathes Excel. She uses Excel at work of course, to manage her household budget and bills but also to manage expenses on a group outing, for vacation expenses, even for shopping.
No one process works for every person; you have to find the method that is convenient, easy to use and something that you’ll stick to. And then stick to it.
Establishing a financial foundation, like fitness, is a simple (sometimes painful) process that can lead to establishing the right goals. Once you know “who” you are–with regard to your attitude, your fears and your habits towards money–you can set real goals based on that reality.
Your financial foundation can also be a great scare tactic that inspires you into action–kind of like what happened to me after my fitness test last week. I was back at the gym every day this week, and even tried some exercises Tareeq showed me. He would’ve been so proud if he saw me on that treadmill–but he was too busy flirting with a new member at the juice bar.