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Financial Fluency Episode #11: Saving For Life

Hello, and thank you for joining me today on Financial Fluency. Today I want to talk about saving for life.

You can listen in below and Tweet it out here

Savings is a really important part of anyone’s financial plan, and it is what I consider to be the paying ourselves part of our financial plan overall. I know that people who get a salary either from a regular employment pay check kind of job or if you’re working for yourself and paying yourself a salary, it seems like the salary is what you get paid, but a lot of that gets used in the operating expenses of our daily life.

If you own a business you think of operating expenses for your business, yes, but when you look at your personal finances you also have a certain level of expenses just to operate your daily life at the level of income and at the standard of living that you’re used to living. All of that gets consumed.

What I think of as actually paying ourselves is what goes forward into the future for us to build the life that we want to live. Tweet That!

Post Recession Retirement

Since the recession, a lot of us have changed how we think about the idea of retirement. Few people anymore think about going on a golf course or just going on cruises because we can see how difficult it is to get to a point in life where we have no earned income. There are a lot of ways to mitigate this; a lot of people that I work with end up adding additional income streams that can go forward into the future, things like:

  • Royalties on books
  • Royalties on music
  • Rental properties that continue to have income, especially once the principal mortgage is paid off

There are a lot of ways to look at setting up your life to continue to have some income coming in – even after you are hopefully no longer needing to hustle – but for all of us, both because of our health and different circumstances in our life, we need to look at the possibility that there may come a point when we aren’t working in the same way that we are now.

I hope that a lot of us end up having some kind of retirement!

So if you at this moment do not have anything planned for retirement, I am planning on doing my next solo episode on investing for beginners, which really goes over IRAs, tax advantaged accounts and things like that. Right now I’m just going to talk about a regular savings account, because if you haven’t saved anything and if you don’t have an emergency savings, if you don’t have savings for curveballs, for things that occur a couple of times a year, it’s hard to jump straight to the IRA.

You really need some savings cushion in there because you don’t want to be pulling money out of an IRA once you put it in there. There are tax penalties and also trading fees, so once you invest something, you really want to leave it there for at least a year. If you trade something, if you buy and sell it within a single year, you end up with a different tax consequence than if you leave it for more than a year. You also need time to let that grow, you don’t want to be jumping in and out of retirement accounts or investment accounts, just pulling money in and out willy nilly.

Regular Old Savings

Looking at statistics, at least here in the United States, the people who tend to save most for the future traditionally have been those who had access to employer sponsored 401k type plans and retirement accounts, where the money was taken out of their pay check before the pay check ever arrived. They never really saw that money week by week and month by month as something that could be spent.

A lot of us don’t have access to those kind of accounts anymore, either because employers aren’t offering them, or because we’re now self-employed. What I would like to do is to set up the type of system that most closely mimics that for us.

Here’s How You Can Do It

If you have a pay check that arrives twice a month, say on the 1st and the 15th, on the 2nd and the 16th you set up an auto transfer into a savings account. That means that there is very little time to spend it before you’ve made that savings transfer.

If you are a sole proprietor, a small business owner who puts their income in their Schedule C, hopefully you’re already taking out the percentage you need for your quarterly estimated taxes before you transfer money into your personal money. If at the moment you don’t have separate accounts for business and personal, the start of 2016 is the perfect time to separate out those accounts, because you really do want to make sure that you’re getting those taxes covered for your small business before you’re paying yourself, and then from what you pay yourself, you can take your personal savings out of that.

That is something I want to stress for sure. If you haven’t been separating those accounts yet, do it now, go into the bank, get a separate account for your business so that you pay yourself a salary of some sort, or at least regular draws which you can take a percentage out of for personal savings.

A Cool Tool to Help You Save

If you find it difficult to figure out how much you should be taking each month in savings, you can either do a percentage of pay check or a percentage of fees, if you’re a freelance. If you find that difficult to anticipate so you can set up an auto transfer, another way to do it is to try out a new company called Digit.

I found out about Digit last summer and I signed up in June 2015.

What Digit does is they have some sort of algorithm that studies your spending habits. You hook it up to a single checking account, and after looking at your spending habits, it figures out the best times to remove small amounts of money here and there throughout the month so that you will notice it the least, and it will add up.

You always have the option to tell it to save more and you can add a five dollar recurring weekly or monthly transfer on top of it taking little bits out. If you do a few months, you like seeing the money accumulate and you aren’t feeling any pain from taking the money out of your account, you can tell it to increase. In the course of the seven or eight months I’ve been doing this, I think I’ve accumulated about $2800 in my Digit savings account.

This was a great surprise because I saw the little bits coming out here and there and they send you text messages to tell you your balance. They make sure they never overdraw you with their small recurring withdrawals and they actually promise they won’t make you overdrawn, but it also allows this money to accumulate bit by bit, and that’s really nice to see.

If you feel like you can’t set up a recurring transfer of a certain amount, go and try Digit. (This is my ‘refer a friend’ link where if you use my link, we each get something like a five dollar credit. Win)

I would love to hear what you think, so once you’ve given it a try, email me at jen@jenturrell.com. I read all of my emails and respond as much as I can. If I get several people asking me about the same thing I will totally do a show about that.

Coming Up Next

My next solo show will be about investing for beginners and looking at some of these new robo advisers as well as a company that uses the round up process of investing your money, where it rounds up the change on different purchase you make over time from a checking account. I’m doing some research on those right now and I’ve been testing them out myself. I’m excited to share them with you!

So once you’ve got an account set up for savings, either like I said with your bank’s auto transfer system or using something like Digit, let it build up for a while. Once you have enough for an emergency fund, we can start looking at taking some of that money as it saves over time and putting it into some kind of tax advantaged retirement account. That’s where big wins really happen for your future. You get the magic of compounding interest as well as making money off your pre-tax dollars, depending on which kind of tax advantage you choose, whether a Roth IRA or a traditional IRA, which means you are saving money from Uncle Sam.

You do have to pay it off later on, but that money stays whole without the taxes being taken out. It can build over time and you only pay taxes on the other end when you withdraw if you do a traditional IRA, or it’s the other way round if you do a Roth IRA and you pay the taxes now, but then all of the growth in the future is tax free.

So we’ll be going over that in two weeks after we get this and my next interview show out, and I would love to hear from all of you. Thank you for joining me again, and if you want to join my mailing list, please go to jenturrell.com and sign up on the pop-up, where you’ll get a lot more tips and tricks and articles from me. Thank you for joining me, I’ll talk to you soon.


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Financial Fluency Episode #10: Rock n Roll Finance with Share Ross

Have you ever thought of celebrating your money?  Share Ross is my rock n roll finance guest this week!

Share is a big believer in money being energy, and has the really cool idea that we should be CELEBRATING money! She even wrote letters courting it – what a fun idea!

We talk about the lessons Share learnt from being in super successful band Vixen and the big surprise she got in the 90s when that came to an end.

And as well as how the iTunes revolution has changed the music industry we manage to chat about knitting & folk music too!

Share has one question she believes you should ask yourself about your money:

Am I gonna earn it or burn it?

You can listen in below and tweet it out here

Links we mention:
Stitch n Bitch
QuickBooks


Share Ross With a big heart, an unusual set of experiences in several industries and a loving determination, Share gives her clients more than just a set of tools to achieve their dreams. She helps you uncover your own fierce belief in yourself.
And your limitless success.

Her dream is to inspire you.
Her dream is to see you become successful.
Her dream is to guide you towards the brightest version of you.

Click here to unleash your inner rockstar.

Financial Fluency Episode #9: Let’s Talk About Debt

Today we’re going to talk about debt. Debt is something a lot of people don’t really like to talk about and don’t really like to think about either.

You can read or listen in below and Tweet it out here

It’s one of those things that we try not to look at, and it just kind of keeps on keeping on there in the background of our lives, costing us a lot of money and a lot of stress. It can really affect a lot of areas of our lives, beyond just the finances and the credit scores.

Particularly when I talk to women, I feel like women who have debt, no matter how successful they are in their careers or with their books or speaking, regardless of what they’re doing, if they have a lot of debt, they still feel like a failure. They feel like they have to keep up appearances when they have this debt they haven’t been able to pay off.

The Tool I Use & Love

I want to talk about that today, and I also want to talk about a fantastic tool that I have started using this past year which I completely love, an app called ReadyForZero

One of the reasons I think a lot of people are able to push debt to the back of their mind and not really think about it is because it’s spread out:

  • Different credit cards
  • Car loans
  • Mortgage payments
  • Student loans.

You’re not really looking at it all or thinking about it all at once. The great thing about the ReadyForZero app is that you put it all into one place and you tell it how much you can afford to pay towards your debt every month. What the app does for you is it does the avalanche calculations.

I really like using the avalanche as opposed to the snowball. The Dave Ramsey snowball method definitely has its place, it gets you the quicker win by tackling the smallest total balance first, but overall the avalanche method – which tackles the highest interest rate first – will save you the most over time.

Get a Plan

When you put all your debts in ReadyForZero, it will line them up by interest rate and it put the highest payment possible towards the biggest one. It tells you exactly how much you should be paying towards each one each month, and then if you can make a bigger payment, you can put that in there and it will adjust things.

If you unexpectedly make a bigger payment which I just did this month, it sends you a little celebration. We paid off one of our cards the other day because we wanted to have one less source of debt in our lives and even though it was obviously just an automated message from ReadyForZero with little confetti and balloons, it still gave me a boost.

I enjoyed having someone tell me, great job, congratulations, you paid off a debt!

Visualize Progress

The other thing I really like about this app is the way it visually represents your debt. Once you put everything in it gives you a graph, and there are little dots along the graph line that show when each debt will get paid off.

Each time you pay off a debt, if you continue putting that same amount of money towards all your debts, it’ll roll into the next one, just like with the snowball effect. It shows you how, over time, it gets faster and faster, the fewer debts you have, and it tells you how many years it’ll take to pay it off completely.

Keep Your Latte!

Another thing I really like is it also gives you a daily interest amount. It shows you how much interest you’re paying right now every single day based on the amounts you’re paying.

I remember in David Bach’s Automatic Millionaire where he talked about the latte factor, and this is something I’ve written about before. He wants you to find the money to save for your future by not buying that latte with a muffin every day or not getting a bouquet of flowers, or not getting a monthly massage, taking these little extraneous seeming things out of life and instead putting them towards your future.

If you put together that ten to 15 dollars a day, it comes out to three to four thousand dollars a year, depending on how much you’re doing.

Looking at this app, one of the first things I thought was, oh wow, interest, this could be your ten to 15 dollars a day, and for some people it might be 20 dollars a day. Others, it might be 30 or 40 dollars a day, depending on how big your mortgage, car payment and credit card bills and student loan are. It made me think about how much of a win it is to get that paid off as fast as possible.

That 20 dollars a day that you might be paying to interest every day, that could be going towards your savings instead of your coffee or your bouquet of flowers, or your manicure or your massage.

You could keep some of those things that keep life happy and pleasurable and make up for it by not paying interest. Tweet That

The other place I like to look at instead of those little pleasurable things is your credit rating. Having a great credit score can make up that ten to 15 dollars a day over the course of a 30 year loan for a mortgage, for example.

Those are a few ways that I like to look at those things, and if you’re able to check out the ReadyForZero app, go do it now, right now at the beginning of the year. Put your debt in there and see what it does for you.

My Recent Experience

My husband and I have been talking about wanting to get completely debt free. It’s something a lot of people argue over, because completely paying off your mortgage can severely unbalance your portfolio when you look at where your money is spread out over all the investments in your life, but at the same time how nice would it feel not to have that house payment every month?

My husband got super eager and was like,

let’s pay it off in two years!

which I don’t think we’ll able to do, but we are looking more towards, what would it take for us to pay this off in the next five to ten years instead of rolling out that full 30 year mortgage?

We’ve been wanting to get some investment properties, and looked at one recently. This was another great lesson for me about debt and income and debt to income ratio, and showing declining income on your self-employed businesses and just not having a regular income.

I learned how difficult it is to get a second mortgage for an investment property based on self-employed irregular income in a year where we did have declining income because of falling cattle prices. It was not going to be easy for us to get that second mortgage, which I was surprised about, because we did have the down payment.

It’s difficult when you don’t have a W2 paycheck or if you have one, but that’s being used up on your home mortgage and you’re trying to get an investment property. I realized when we were looking at that property that I’d really like to take the next year or two to really shape up our finances before we start making that kind of investment.

If You Only Have One Resolution This Year, Do This

Right now looking into the new year, I know everyone makes resolutions:

  • Eat better
  • Exercise more
  • Spend less
  • Save more

all those things, but something you can do right now today that will actually be an action in that direction – that once you do it, it’ll be easy to keep doing it – is putting all of your debt information into the ReadyForZero app, letting it calculate out your payments and seeing what you can do.

If things go better than expected you can add more to it throughout the year. If things get hard at some point you can back off a little, but you’ll know the ongoing effect from being able to see that graph in the ReadyForZero app.

If you’re in Canada, the UK or Australia or elsewhere and the banks you use don’t hook up to the app, another way you can get the same effect is to go to bankrate.com and use the debt calculators in there. It takes a bit more time and effort to do it yourself, but it’s still worth doing and you can set up the same kind of plan, paying a bit more than the minimum on everything except that one highest interest rate debt that you’re targeting right now.

If you are doing it on a spreadsheet or some other plan that’s not the ReadyForZero app, try using a tracking app like mint.com. I know a lot of people use youneedabudget.com, there are a bunch of them out there, but I think it’s great to have one app where you have all your different accounts and debts going into so you can get an overview and really see the picture of what’s going on.

Personally I put all my accounts into mint.com so that I can have an overview and see when transactions happen and know what my balances are at a glance at any moment in time.

So that’s my advice for today in terms of debt. It’s a really easy quick win just to sign up to ReadyForZero, put your information in there and let it make a plan for you. All you have to do is follow that plan, set up auto pays, get in there and make it happen.

If you want more information on debt and more ways to tackle it, I do have a Debt Reduction Lab which you can find here. And if you like this episode, please be sure to subscribe and keep listening!