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financial priorities

Wednesday’s need-to-know money news

March 16, 2016 By Liz Weston

refinancingToday’s top story: How to win a bidding war in a hot housing market. Also in the news: How to retire during a bear market, how to get your financial priorities straight, and how to survive an IRS audit.

6 Ways to Win a Bidding War in a Hot Housing Market
Strategies to help you come out a winner.

How to retire in a bear market
Quitting work when the market isn’t cooperating.

Is Your Money Going Where It Needs To? How To Get Your Financial Priorities Straight.
Time to get things sorted.

The IRS Audit Survival Guide
Don’t panic.

Filed Under: Liz's Blog Tagged With: audit, bear market, financial priorities, housing market, IRS, Retirement, Taxes, tips

Money rules of thumb: car edition

April 22, 2014 By Liz Weston

Thumbs upToday for public radio’s Marketplace Money we talked to a guy who has a $600 a month car payment. It turns out he bought a car worth more than half his annual pay, and financed it over six years. (The segment airs this weekend, if you want to listen in.)

I no longer try to talk car guys out of their love affairs with wheels. But too often they’re prioritizing car payments over retirement savings and other more important goals.

So here, in my continuing “Rules of thumb” series, are three guidelines regarding cars:

Cars, Part I: “Buy used and drive it for at least 10 years.” I run through the numbers in my book “Deal with Your Debt”—you can save a quarter million dollars over your driving lifetime by holding on to cars for 10 years instead of trading them in every five years, assuming the cars cost about $20,000 each in today’s dollars and you finance them for five years. If you buy used and/or pay cash, you’ll save even more. Not only will you buy half as many cars, but you’ll avoid the 20% or so loss to depreciation that happens as soon as you get the keys. Today’s cars are better built and will last longer than ever before, so buying used isn’t the gamble it used to be.

Cars, Part II: “If you have to borrow, follow the 20/4/10 rule.” Make a 20% down payment so you’re not upside down as soon as you drive off the lot. Limit loans to four years and payments to no more than 10% of your income—less if you have other big debts or a fat house payment.

Cars, Part III: “The real cost to own is about twice the monthly payment.” If you’re trying to decide whether you can really afford the car the salesman is pitching, double the payment, since that’s roughly what you’ll pay for insurance, maintenance, repairs, depreciation and other costs averaged over five years. Some cars are much cheaper to own than others, obviously, but keeping the true cost in mind can help cool your ardor for a too-expensive ride. You can get more precise figures about how much a car will cost over five years by using Edmunds.com’s “True Cost to Own” calculators.

 

 

Filed Under: Liz's Blog Tagged With: auto loans, Budgeting, car costs, car purchases, financial priorities, money rules of thumb

What are you willing to give up?

October 22, 2013 By Liz Weston

HopeAs a reporter I learned a technique that saved my sanity. I asked my bosses to make choices.

In journalism, as in other fields, there’s far more good work to do than there is time to do it. Editors can and will keep piling on the assignments. So I learned, when my plate got too full, to ask my bosses to help me prioritize.

Here’s how I did it. I always said yes to the new assignment, then followed immediately with, “But I’m also supposed to do this and this and this. Which of these other projects should I drop?” Or “back burner” or “table” or whatever euphemism worked best with this particular editor.

Saying yes made it clear that I was a team player, that I valued my boss’ direction and that I wasn’t one of those pain-in-the-ass whiners who had to be wrestled into doing actual work. But quickly reviewing my current assignments reminded the editor of all the other work she’d tasked me with.

A more experienced journalist had explained that it was part of my boss’ job to help me prioritize. Managers are supposed to keep an eye on the company’s ultimate mission and encourage the actions that support that mission. Until he said that, I’d been saying yes to everything and driving myself nuts trying to fit it all in.

Fast forward a few years. I’m now my own boss, writing for different clients and once again faced with far more work than time to do it. Now I’m the one that has to make choices. I have to figure out what my ultimate mission was and what actions support it (and which don’t). I also now have a life—a husband and a baby girl I want to spend time with. Suddenly it became a lot easier to ditch the work that didn’t pay enough (or at all), and focus on the stuff that did.

There’s one other place it can be helpful to ask what you’re willing to give up, and that’s negotiating with family members about financial priorities.

First, you need to sit down together and set some priorities—what’s most important to accomplish, where you want to be in five years, 10 years, 30 years. You figure out what you need to do to get there, then wrestle your priorities into place. (Quick example: You want to take a vacation with your family next year, replace your car five years from now and retire before you’re 80. You figure how much you need to save for each goal and adjust until it’s doable. Maybe to save enough to retire by age 65 you’ll have to put the Disney cruise off a couple of years…that kind of thing.)

When new wants rear their heads—somebody’s agitating for a bathroom remodel, say—you return to those priorities and decide together what you’re willing to give up. Maybe the bathroom remodel is important enough to delay your retirement until 67 or to continue to drive your old car another five years. Maybe it’s not. But the exercise reminds you of what you really want, and helps you decide—together—when and how to adjust those priorities.

Filed Under: Liz's Blog Tagged With: Budgeting, financial priorities, goals

Monday’s need-to-know money news

July 15, 2013 By Liz Weston

No sharksWhy you’re never really alone while shopping at the mall, what debt you should focus on first after graduating, and how to protect your finances from natural disasters (sharknado!).

Is Your Mall Spying on You?
Your cellphone could be providing retailers with a wealth of information.

How to Keep Telemarketers at Bay
Putting a stop to those annoying calls for good.

How Grads Should Prioritize Their Debt Repayment
Find out which debt should take the highest priority.

How to Save for Retirement on a Small Salary
Saving for retirement is possible even when living paycheck-to-paycheck.

Prepare Your House and Finances for a Natural Disaster
Protecting your house and your wallet from unexpected disasters.

Filed Under: Liz's Blog Tagged With: debt, disaster preparedness, financial priorities, natural disaster, privacy, telemarketers

Don’t delay gratification too long

April 26, 2013 By Liz Weston

Mom in Alaska. She landed this honking rainbow on her first cast. Getting her off the river after that was almost impossible.
Mom in Alaska. She landed this honking rainbow on her first cast. Getting her off the river after that was almost impossible.

Today is my mother’s birthday. She would have been 82.

Except that she died twenty years ago of colon cancer. She loved life and she should have had more of it.

I write about this for two reasons. First, to enlist you in my effort to get everybody screened. Colonoscopies aren’t fun, but they can save your life. Catch it early, and colon cancer is a non-issue. Procrastinate, and it can kill you. The AMA recommends you get your first colonoscopy at 50, or 40 if you have a family history of the disease. You’re not off the hook if you’re younger: start bugging your parents, your aunts and uncles, your older siblings to schedule their screenings. A little nagging can save a life.

The second is to remind you to do the things you love, go the places you want to go, take the chances you’re afraid to take. Don’t put this stuff off indefinitely. Although plenty of people are live-for-today grasshoppers, I suspect more than a few of you are careful ants, focused diligently on the future.

I once heard from a man who wanted to take his 11-year-old on a trip to Europe. But he also felt he should start paying down his mortgage, as he was on track with his retirement savings and that seemed to be the next logical goal. Go, I told him, while she still wants to spend time with you. She’ll be off on her own soon enough, and the mortgage will still be there for you to tackle.

Delayed gratification is good and necessary if you want a sound financial foundation–and if you want to retire someday. But also don’t forget that tomorrow is not guaranteed. Think about what you would regret not doing, not saying, not being if today were your last day. It may not be, probably won’t be, but your life will be richer for living as if it might.

Filed Under: Liz's Blog Tagged With: financial priorities

Use windfall to boost retirement savings

April 8, 2013 By Liz Weston

Dear Liz: What would you suggest that someone do with $20,000 if the someone is closer to 40 than 30, single, with $100,000 of student loan debt and a $250,000 mortgage? My salary is around $100,000 a year. I have an emergency fund equal to six months of expenses and I make an annual IRA contribution since my employer doesn’t offer a 401(k) plan. Should I accelerate my student loan payments, since the interest isn’t tax deductible for me because my income is too high? Or should I invest instead? If I invest, should I put it all in a total market stock index fund or is that too risky?

Answer: Even if you’re making the maximum annual IRA contribution of $5,500 (people 50 and older can contribute an additional $1,000), you’re probably not saving enough for retirement. You can check the numbers using a retirement calculator (AARP offers a good one at its website, http://www.aarp.org). If indeed you’re coming up short, then consider opening a taxable brokerage account and earmarking it for retirement. You can use a chunk of your $20,000 windfall to get started, but also set up regular ongoing contributions.

The bulk of your retirement money should be invested in stocks, since that’s the only asset class that consistently outperforms inflation over time. If you try to play it too safe and avoid stocks, your purchasing power is likely to decline over the years instead of growing. A total market index fund with low expenses is a good bet for delivering diversification at low cost. But leaven your portfolio with bonds and cash as well, since these assets can cushion market downturns. All the returns that stocks give you in good markets won’t be much help if you panic and sell in a bad market. People who try to time the market that way often miss the subsequent rally, so they wind up selling low and buying high — not a winning way to invest.

If you don’t want to try to figure out an asset allocation, look for a low-cost target date fund. If you plan to retire in about 25 years, you’d want to look for a “Retirement 2040” fund.

Once you get your retirement savings on track, then you can start paying down that student loan debt. Target private loans first, if you have any, since they’re less flexible and have fewer consumer protections than federal student loan debt.

Filed Under: Q&A, Retirement, The Basics Tagged With: emergency fund, federal student loans, financial priorities, Retirement, retirement savings, student loan debt, Student Loans, windfall

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