Financial Freedom Through Frugality

financial freedom

Achieving Financial Freedom

Financial freedom is something everyone aspires towards. How they go about achieving it is another matter altogether. It’s true, frugal is the new cool in many circles, but spending less isn’t how most people are saving for retirement, early or otherwise.

“Financial freedom” doesn’t necessarily mean the same thing to everyone. For some, it refers to ditching debt. For others, it means not having to worry so much about money and their financial situation.

In this case, financial freedom means becoming unfettered from the shackles of finance. It’s about creating “a life that is better than your current one, which just happens to cost 50-75% less,” (Mr. Money Mustache).

According to an article in the New Yorker, Mr. Money Mustache’s goals are:

  1. “To make you rich so you can retire early”;
  2. “To make you happy so you can properly enjoy your early retirement”; and
  3. “To save the whole Human Race from destroying itself through overconsumption of its habitat.”

The Scold: Mr. Money Mustache’s retirement (sort of) plan

 

Life is Expensive. Or is It?

“Life is hard and expensive, so you should keep your nose to the grindstone, clip coupons, save hard for your kids’ college educations, then tuck any tiny slice of your salary that remains into a 401(k) plan. And pray that nothing goes wrong in the 40 years of career work that it will take to get yourself enough savings to enjoy a brief retirement,” (“Getting Rich: from Zero to Hero in One Blog Post”).

But that’s just a line, Mr. Money Mustache insists. “What happens when you can save more of your income? As it turns out, spending much less money than you bring in is the way to get rich. The ONLY way.”

How much could you possibly save? “Simply cutting cable TV, and a few lattes, would instantly boost their savings to 15 percent, allowing them to retire eight years earlier!! Are cable TV and Starbucks worth having two income earners each work an extra eight years for???,” (“The Shockingly Simple Math Behind Early Retirement”).

Here are two important takeaways from Mr. Mustache:

Cutting your spending rate is much more powerful than increasing your income.

“Earning more is great, and I highly recommend it. But by definition it is impossible to out-earn the habit of spending all your money,” (“Reader Case Study: Young Man Saved from Jeep Suicide”).

 

How Much Money Do We Need?

“According to a new survey from Charles Schwab, Americans say it takes an average of $2.4 million to be considered wealthy,” (“Here’s how much money Americans think is enough to live comfortably”). “As for how much it takes to be ‘financially comfortable,’ survey respondents say it’s an average of $1.1 million.”

Like the definition of financial freedom, the real secret behind Mr. Money Mustache’s (his real name is Peter Adeney) financial success is his own perception of wealth. He has what he needs. He doesn’t need to worry about money. By his own reckoning, he is a wealthy man.

And that sensibility is catching on in the form of “an anti-consumer, penny-pinching movement that’s finding favour with millennials,” (“Meet the Frugal Millennials Planning for Decades of Retirement”), and it inspired Stephanie Williams and Celestian Rince to adopt extreme frugality and thrift into their lives, all while meticulously recording their expenses, and lack thereof, on their personal finance blog, Incoming Assets.

“It costs the two of them less than $1,500 a month to live—and that number includes the $787 rent on their 400-square-foot apartment. Their combined income, meanwhile, is just under $90,000 a year. They save roughly 60 percent of it. When their investment income hits a point that it can pay the bills, they’ll bid their jobs as receptionist and administrative assistant adieu. Their savings amount to about $260,000.”

“Meet the Frugal Millennials Planning for Decades of Retirement”

Financial Freedom is Possible

Ultimately, Mustachianism, financial badassity, or whatever you want to call financial freedom, seems to be more attainable, more viable, when we look at concepts of spending, saving and wealth in a certain light.

“It seems as if thinking about the world through the lens of maximizing your independence by minimizing your overhead could, at best, transform your life, and at worst, result in your amassing thousands of dollars in savings,” (“Meet the Frugal Millennials Planning for Decades of Retirement”).




What Happens When Your Financial Advisor Retires?

financial advisor

Everyone eventually retires. And as there are many questions you should be asking your financial advisor about your own retirement planning, considering many of us will need financial advice long after we retire ourselves, there’s an important question to keep near the top of the list: What will happen to your account, to your retirement planning, when your financial advisor retires?

Financial Advisors: Do They Have a Succession Plan?

Planning for retirement is difficult. We spend years discussing our financial details with our advisor. We form a relationship. In many cases, it’s a bond built over decades. You have trusted and relied upon this person to guide your steps on the path to financial security, and you want to be sure your financial advisor has implemented a succession plan which considers your long-term needs as a client.

Your financial advisor is helping you plan for your future. It’s easy to assume they have their own exit strategy in place. They know the importance of planning ahead, right? Unfortunately, it seems some financial advisors and their businesses suffer the same fate as the cobbler’s children. Succession is a major issue in the investment industry today, for both its professionals and their investors.

Financial Advisors Want to Work Forever

A 2014 study entitled Key Trends in Wealth Management Business Practices interviewed almost 1,000 investment advisors in Canada and the United States. Sixty-one percent of the respondents were over 50 years of age. Reportedly 12 percent of the Canadian respondents indicated they would likely be retiring within five years. None of the respondents based in the US felt they would retire within five years. Not even those over 60.

“When asked about their plans for retiring, the sale of a practice ranked lowest on an investment advisor’s list of priorities (10 percent). Operating a business at a slower pace (31 percent), and living off accumulated assets (23 percent) ranked much higher. A shocking 38 percent of all respondents have no plans for retiring at all. Another 28 percent don’t plan to retire in the next 15 years,” (“Do Investment Advisors Need To Do a Better Job Planning Their Own Retirement?”).

Practice What You Preach

Increasingly, a good succession plan is a necessity for keeping existing clients and attracting new ones. “Advisors can’t change the inevitable,” says Tom Nally, president of TD Ameritrade Institutional (“The big benefit of having a succession plan”).

“They need to live by the practices they preach,” he added. “Clients want to work with someone doing the right things for their own legacy.”

Clients Need to Ask the Question

Despite these findings, many advisors do have the long game high in mind. Some feel the pressure needs to come from the clients themselves.

“Clients need to say, ‘My retirement is going to last 30 years. Where are you going to be?’,” states Paul Saganey, founder and president of Integrated Financial Partners (“What to Do When Your Financial Advisor Retires”, New York Times). Every one of Mr. Saganey’s advisor teams are required to have succession plans for both retirement and less predictable events, like dying or becoming disabled.

To help prepare for a new financial relationship, Rick Robertson, associate professor at Western University’s Ivey School of Business, recommends proactive measures. “It wouldn’t hurt to ask, even if the person doesn’t have much grey hair, do you have a succession plan? What would happen if something happened to you?” Mr. Robertson says (“Planning ahead: Someday, your financial advisor will retire, too”, The Globe and Mail).

What Can You Do?

  • Ask the question: Does your financial advisor have a plan for their retirement?
  • Ask if you can you meet their successor or the rest of the team.
  • Examine your finances and treat this is as an evaluation opportunity. Maybe it’s time to move on to a new advisor.



Financial Planning for Millennials, By Millennials

Financial planning for millennials

“Millennial” is the greatest insult someone who crashed the modern economy via subprime mortgages can call another person. Remember when replacing “Millennial” with “snake people” was big a few years ago?

But I’m here to tell you that Millennials are people too, so there’s no need to be mean. We’re just like you, but maybe a little more into Harry Potter and Pokémon, and a little less into Applebee’s (you’re welcome). Oh, and we might budget a little differently.

Not that differently. But Millennials are in a different place than, say, Xennials, and that affects our money habits. Yes, there have been approximately one trillion articles written about financial planning for Millennials. Here’s another one.

Millennial Money Lessons

Millennials have a reputation for being spoiled and receiving participation trophies (Note: I have yet to find evidence that participation trophies actually exist, but they make a good boogeyman). And I was pretty spoiled growing up. But here’s the thing: It actually made me better with money.

My parents bought a car that my older sister and I shared all the way through high school and college. When I graduated from college, I lived at home for a few years while I saved up enough money to buy my own car (a Ford Contour can only last for so long, especially when it no longer holds power steering fluid and becomes as maneuverable as a fridge). Speaking of college, my parents paid for almost all of it — and I was done paying off student loans within a year after graduating.

It would be easy to see how this would make me wildly irresponsible with money. But the thing is, none of this existed in a vacuum. My parents paid for things, but I knew what was going on. Money lessons were instilled from an early age. Clark Howard was a staple on the radio during road trips. When I was seven years old, my allowance had to be divided between spending, charity, and stocks. I’m still not entirely sure I own those stocks, but message received.

My parents never put me in debt, and now I never want to be in debt. I use a credit card, but pay it off in full every month. I don’t buy things unless I know I can pay for them. I have an emergency fund. It was really nice not having to worry about money growing up, and I don’t want to worry about it now.

Financial Planning for Millennials: The App

The iPhone didn’t come out until I was in college, but that still means I’ve spent basically all of my adult life with a smartphone. There are a lot of benefits to smartphones – I never have to know where I’m going ever again – but one of the biggest benefits is all the financial and budgeting apps out there.

Admittedly, I might be predisposed to seeing this as a huge boon considering I like technology, and write for a personal finance blog, but I can’t be the only one. Budgeting apps are only outnumbered by however many Angry Birds games have been released. There’s a reason why we can write about so many of them, and I’ve tried just about all of them, from Clarity Money to YNAB.

And it didn’t start with apps. I was a Mint user before it was bought by Intuit. This probably plays into another Millennial stereotype, but I’d rather do literally every banking thing online than in person, and I don’t remember the last time I had to go into a bank (it helps that I bank with USAA and Schwab, who don’t have many physical branches).

Venmo is hands down the easiest way to transfer money to pay for shared utilities, or anything else (although I was excited this past weekend when I saw the option for Zelle in my USAA app. Yes, that got me excited, shut up. My girlfriend didn’t seem to care as much.). I have a Vanguard account, but have to admit that Betterment and Wealthfront are much more aesthetically pleasing and user-friendly.

Then there are the non-financial apps that have big financial implications. I’ve subscribed to Netflix and Hulu for a while, but YouTube TV means I finally have a good cable alternative. With FreshDirect, I don’t even have to go to the grocery store. Technology has had a huge impact on how I manage money, but also on the way I spend money.

Can You Be Too Hands on With Your Money?

The good thing about all of this app stuff? I can access my finances from anywhere (or at least anywhere I have my smartphone which, let’s be honest, is everywhere).

The bad thing about all of this app stuff? I can access my finances from anywhere, and I sometimes I’m compelled to.

Is it possible to be too hands on with your money? It feels that way. Like I’m missing the forest for the trees, that I’m so worried about having an app set up just so, and I spend more time tweaking and setting up automation than I would checking in every now and then – and I still have the same level of financial awareness.

If you’re like me, you go through bouts of obsessively checking apps to see what you’re spending money on. If you are, there’s good reason: Developers want us to keep using their product, so they introduce elements of gamification to keep us coming back for more. I’m still looking for the perfect app that walks the fine line of being helpful without making me feel like I need to regularly unplug.

Maybe #kidsthesedays won’t have this problem because they’ll have been plopped in front of an iPad since they were a toddler, and they’ll have better impulse control when it comes to opening apps. Stay tuned for a follow-up article 18 years from now.

Millennial Money Mistakes: It Was the [Smart]Phone’s Fault

Budgeting apps can (ostensibly) help you save money. Just about every other app, though, can make it harder.

I’m not just talking about when Amazon has to refund $3 billion because babies keep making in-app purchases. Why wait for the subway when I can just hail an Uber? Why spend time cooking dinner when Seamless is so much easier? How many subscriptions do I have because signing up from my phone was so easy and I just never took the time to cancel them. Really, is it worth figuring out how to unsubscribe from Medium when it’s only five bucks a month?

I like to think I’m good with money, but I’ve spent a lot of money just because my phone was right there. If The Financial Diet is any indication, I’m not the only one. Every now and then I have to take stock of the money I’m spending that I don’t even see because it goes from bank account to app – and remember, never be afraid to uninstall an app. It could save your budget.

Millennials and Their Things

If you Google “Millennials experiences over things” you get more than a million results. It’s cliche, but I think it might actually be true. I hate when that happens.

I don’t really buy a lot of “things” anymore. Sure, there are a few big ticket items I want every now and then – I’ll save for a new smartphone or Nintendo Switch – but it’s not very often. Most of what I want I can get through one streaming service or another. (Or the public library! Because Millennials are the generation most likely to use the public library! Seriously!)

But a recent trip I took to Iceland was the best purchase I’ve made in recent memory. Most of my money is spent on food, and I feel a lot less guilty when I’m eating out with someone than when I lazily order a Seamless meal.

So, I budget accordingly. If I know there’s something coming up that would potentially break the bank, I start saving early. I have a separate bank account for big purchases that doesn’t get touched unless it’s for something specific.

Financial Planning for Millennials: Finding the Right Path

There’s been a lot of ink spilled about Millennials in the workforce: We switch jobs constantly, we want to do something that matters, we’re less likely to retire than other generations.

Financial planning for Millennials feels the same way. I’m on the right path, but am I going to care about owning a home one day? Should I use a 401(k) because I always have, even though I might get a better ROI somewhere else? There are so many investment options out there, how can I be sure that I’m using the best one?

When I’ll figure all of this out is one big ol’ emoji shrug. But, I’m not that concerned about it. I think these concerns are universal, not Millennial. No how matter how much prep work you do, there’s always a “what if…” when it comes to our money. We can control a lot, but we can’t control a recession, or a housing shortage, or getting laid off.

Everybody has a plan until they get punched in the face. Sometimes all we can do is damage control.

Maybe I’ll never own a house, and if that’s the case, everything will still be fine. Especially if they crash the housing market again.

Check out Millennial Matters: Grabbing Life, Ditching Debt for a free Financial Guide to Life eBook!

 

Note: This post originally appeared on PolicyGenius.

 




Q&A Broke Millennial: Get Your Financial Life Together

 

Q&A Broke Millennial: Get Your Financial Life Together

Erin Lowry is a personal finance expert and the founder of Broke Millennial. She’s also the author of Broke Millennial: Stop Scraping By and Get Your Financial Life Together.

Erin spends her days dispensing practical advice so millennials (like her) can navigate pesky (but important) money questions. She joins us now to answer some questions about how she got started, and what it was like getting her own financial life together at an early age.

Can you share what your transition from college to being on your own was like?

The transition ran the pendulum of exciting to stressful. I moved to New York City pretty quickly after graduating college, so I got thrust into handling my own affairs pretty quickly.

However, I was prepared for that because I went to college in America while my family lived in China, so I was used to having to navigate things for myself.

It’s important to remember that back in 2007, when I went to college, it wasn’t as easy to connect with people overseas. I couldn’t FaceTime my family. Skype was in its infancy and it would cost the GDP of a small country for me to be calling my parents on a regular basis.

I moved to New York City with one part-time job working in entertainment and just kept hustling and applying for absolutely anything else in order to pick up other work to make ends meet.

I ended up working as a barista and babysitter in addition to my main job. There were exhausting days and moments I cried, but overall, I loved making it on my own.

What could have made the transition a smoother and quicker one for you?

What could your parents, community, or educational organizations have provided, which could have helped establish your financial literacy early on, and helped to get your financial life together?

I wouldn’t change a single thing, partially because I’d been given a great financial education from my parents.

Had I not been given that advantage, it would’ve been a real struggle for me to handle money in those early years.

What are your tips for new graduates struggling to set a budget and live within their means after years of being supported by their parents?

Know your cash flow. How much money is coming in each month, and how much is going out.

Write out a list of all your expenses and evaluate where your money is going. Do you have places you can slash in order to reallocate those funds elsewhere?

You also need to be vigilant about ensuring other people don’t spend your money. Some peers will out earn you, so it’s important that you not try to constantly keep up if you don’t have the financial means. Be honest with your friends and loved ones.

When your peers ask you for advice, what is the one change you tell them is most important to make to get their financial life on track?

The first step is running your cash flow. You need to know how much money is coming in and how much is going out each month. Then you need to also face your debt numbers and create an actionable plan. Without knowing this information, it’s pretty impossible for you to have control over your financial life.




Recognizing Risk in Investing

recognizing risk

Risk. As a word it’s inherently negative, especially when it comes to health or disability insurance. When it comes to investing, risk is neither good nor bad. It can yield both positive and negative returns.

Recognizing risk and assessing it, is part of a plan and process rather than something to be avoided.

Market Risk vs. Business Risk

There are many different kinds of risk, but when it comes to recognizing risk in finance, investors look at business risks and market risks.

According to the Financial Industry Regulatory Authority (FINRA), business risks are “associated with investing in a particular product, company, or industry sector.” These include management risk, which refers to management team decision making. If management puts their own interests above those of the company, or does something fraudulent, or gets involved in some kind of scandal, their actions count as risk for the company in question.

Market risk, on the other hand, “involves factors that affect the overall economy or securities markets. It is the risk that an overall market will decline, bringing down the value of an individual investment in a company regardless of that company’s growth, revenues, earnings, management, and capital structure,” (FINRA).

Some common market risks include: interest rate risk, inflation risk, currency risk, liquidity risk, sociopolitical risk, country risk, and legal remedies risk.

Whoa. That’s a lot of risk. None of which are inherently bad. Learning to recognize risk, and to be aware of how various risks can affect a portfolio, is important.

Understanding Risk

Okay, we recognize the risk. We can identify that it is, or could be, affecting our investment portfolio. But, truth be told, knowing risk is there doesn’t solve any problems. Recognizing it is the first step. Measuring it and understanding how it can affect your investment(s) is the next.

There are many different ways to measure and quantify risk so that we understand how it will affect an investment. Standard deviation, chance of loss, beta ratios…however, this is where recognizing risk is good in theory, but difficult in practice. For example:


Beta is a measure of a stock’s volatility in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market.

A stock that swings more than the market over time has a beta above 1.0. If a stock moves less than the market, the stock’s beta is less than 1.0.

High-beta stocks are supposed to be riskier, but provide a potential for higher returns; low-beta stocks pose less risk, but also lower returns.

Simple, right? Maybe for some, but overall, risk assessment is a question to ask your financial advisor. That said, it is our ability to recognize risk, and understand how it can affect our portfolio, that is pivotal to asking a professional the right questions.  

Recognizing Risk Aversion

Asking the right questions is important, but so is knowing some answers. When we first sit down with an advisor, planner or broker, the question of risk comes up.

What are you comfortable with? What factors should we be considering? Age? Liquidity? Are you risk-averse? Many of us don’t know the answers to these questions. If we do, they may have changed over time.

Recognizing risk isn’t just about knowing that some risk is essential in an investment mix. It is important to realize when and where we shouldn’t carry risk.

“Bonds are supposed to be boring. The primary role they serve in our portfolios is not necessarily to make money, but to dampen the volatility that is an inevitable byproduct of the real moneymakers—stocks,” (“Don’t Let Wall Street Fool You Into Taking Too Much Risk”, Forbes).

Recognizing Risk Tolerance

Just like the word risk, the words “safe” and “conservative” can have different meanings for different people. In an effort to identify “safe” investments, some people can’t avoid risk.

What’s riskier? Investing in something safe, with returns that could get eaten away by inflation? Or tolerating risks for bigger returns?

“Facing a potentially longer lifespan than their parents, many investors in their 50s and early 60s need to be more open minded and take on more risk to avoid outliving their nest eggs, financial advisors say,” (“Pre-retirees seeking safe investments can’t avoid risk”, The Globe and Mail).

“Millennials and, to some extent, GenXers, are risk averse and conservative in their investing approach. Given their long-term investment horizon, this perspective could be harmful to their retirement planning,” (Report: Loss Aversion and Your Investment Portfolio, Sun Life Global Investments).

Risk: The Financial Equivalent of Eating Your Broccoli

Recognizing risk and assessing our tolerance for it will help us ask the right questions when we talk to our financial advisors, but it also helps define and achieve the big picture of saving for retirement.

The Sun Life Global Investments report explains it well:

“If you understand how taking prudent risks can help you meet your long-term objectives, you may be willing to accept risks you would otherwise reject—not because your natural loss aversion is gone, but because you know that dealing with the discomfort caused by volatility is in your best interest. It’s the financial equivalent of eating your broccoli—you do it because it’s good for you, not because you like it.”




Key Questions to Ask Your Financial Advisor

Questions to ask your financial advisor

Depending on what’s going on in your life, the key questions to ask your financial advisor can vary greatly. Maybe you just got married. Perhaps you started a new job. Kids? New home? There are many variables that affect the first, or the fortieth visit to your financial advisor.  

There are also just as many listicles highlighting the top questions you need to ask your financial advisor. Most stipulate you need to have your goals sorted out beforehand. We’re going to respectfully disagree on that point right out of the gate.

Yes, but No

Often, the reason we are seeing a financial advisor is just that: We don’t know what, or how, we should be saving. Should you pay off student loans early? What about credit card debt? Should you be saving for college, or retirement? We can save you a lot of time here and now. The answer to all of these questions? Yes. Or no.

Or perhaps we aren’t even talking about yes or no questions. What’s your risk tolerance? Until we ask the our financial advisor the question, we likely have no idea.

Questions to Ask Your Financial Advisor: Goals vs. Needs

That’s the thing. It all depends, and that should be one of the questions you ask your financial advisor: What should my financial goals be? How and when should those goals change? And how are those goals different than your financial needs?

A financial need “is something you should look at as a regular expense,” (“Setting Investment Goals”, Wells Fargo):

  • Food
  • Clothing
  • Transportation
  • Rent or mortgage payment
  • Insurance
  • Building emergency savings
    • From Wells Fargo: “A general rule is to set aside six months of living expenses to cover your everyday essentials before you consider investing for the long term.”

A financial goal “is something you plan for, and often can be driven by your financial needs.”

Getting on the Right Path

Identifying what those financial needs are, how they affect your financial goals, and how we should prioritize accordingly are big question marks. Were you to ask your parents, they may say to avoid debt at all costs. But financial and retirement planning are much different now than they were then.

Longer life, more than one employer, how employers are caring for employee financial health, and where your money will be safe are serious considerations now, but weren’t then.

Which is why they should factor into the questions you need to ask your financial advisor. Yes, you ultimately need to address certain questions yourself, but it can be very hard to be objective with our own finances. An advisor can set us on the right path from the get go, speaking to different market trends and asking you the right questions in return.

Talk to HR

Your financial advisor will likely want to talk about your retirement plan(s), the advantages and disadvantages of early retirement, how much disability insurance you need…and yet many of us don’t have a clear picture of what kind of benefits we have through our employer.

“Surprisingly, I’ve found that there are a lot of people who have no idea what their retirement match even is,” says Katie Brewer, a CFP® with LearnVest Planning Services, “so it’s a good idea to spend some time figuring out what you already have in place when it comes to your benefits.” (“9 Great Ways To Prep For A Meeting With A Financial Adviser”, Forbes).

Questions No One Asks Their Financial Advisor

The questions you ask your financial advisor, and the questions they ask us, are important. That said, it can be quite revealing to turn the tables around.

Here are a couple of harmless questions that can provide deeper insight than you’d imagine. The first being, “What was your worst investment decision?” closely followed by, “What was your best investment decision?”

Pay attention to the examples they give—the insight or lack of it. For example, an advisor who doesn’t want to show they ever made a bad investment and gives you a cursory answer may end up hiding something from you in the future. One who laughs about their poor investment but didn’t learn anything could continue to make the same mistake over and over again, but with YOUR account.

Don’t Assume the Worst

Many people hesitate and delay when it comes to meeting with a financial advisor for fear of what they’re going to say, ask, or discover about their financial reality. But truth be told, we aren’t going to know anything until we ask.  

Maybe your finances aren’t as bad as you thought. There’s always room for improvement, and proactively addressing that with your advisor is a good thing. The questions you ask your financial advisor are pivotal to planning for your future.




What is a Financial Detox?

financial detox

What is a financial detox, and is a detox different than a cleanse? What about a diet?

A detox has been defined as “a process or period of time in which one abstains from or rids the body of toxic or unhealthy substances.” A diet is more like a regimen. A guideline. Something habitual.

We’re going to assume a financial detox and cleanse are synonymous for the purposes of this post, and that they’re a little more… staunch than a financial diet.

While the value of a detox is often debated, it’s hard to argue the practice doesn’t yield results. At the very least, a so-called detox forces us to identify and remove key elements from our diet, whether sugar, caffeine or processed foods.

Supporting Our Good Intentions

And it’s that practice, the act of identifying certain “toxic” choices and activities—toxic spending?—and removing them from our financial diet, that serves as a jump-start to healthier financial habits.

Just like a food detox often jump-starts weight loss on our path to healthier eating, a financial detox practice will, in turn, provide us with the tools and insights to maintain the good intentions behind our financial well-being and overall saving goals.

Financial Detox Tip: Prepare

There are always tips and tricks to dieting. For detoxing, the best tip (or trick) is preparedness.

When you divorce things like sugar, caffeine and carbs from your system, you need supplemental, authorized foodstuffs at the ready! Lots of water and green tea. Nuts. Healthy snacks. Bacon (yes, bacon).

A financial detox is no different. If we’re divorcing things like spending (it can be the sugar in this analogy) from our financial diet, we need to ensure we are prepared to get through the detox period on less spending.

Compile a list of everything you spent money on in the past month.

Segment it into essentials, nice-to-haves, and extras.

Commit to not purchasing any of the extras. This early preparation will remove any uncertainty around what you can, can’t, should or shouldn’t be spending money on. Do you need this? No. Therefore, you can’t buy it!

No Finances on Your Phone

“The intersection of mobile and money is leading to more impulsive, less thoughtful behavior, with real risks for consumers and investors alike,” (“Warning: Your Smartphone Could Lead To Dumb Money Mistakes”, Forbes).

““Let’s think about smart phones, do they make it easier to save or do they make it easier to spend,” asks Shlomo Benartzi in the Forbes article.

With more and more financial transactions available via your mobile device — over half of adults with smartphones have downloaded an online banking app, offered by most banks these days — the downsides of impulsive behavior are exponentially more dangerous. Imagine being able to cash out your life savings in one click. “That’s where we’re going,” Benartzi warns.

Either delete certain apps from your phone for the period of your detox, or commit to not spending any money on your device.

Side note: Benartzi also makes an interesting comment in his Ted Talk about our relationship with our phones, insurance and how we often make sure we are protecting our devices, but won’t protect ourselves with, say, disability insurance.

How many of you have iPhones? Anyone? Wonderful. I would bet many more of you insure your iPhone — you’re implicitly buying insurance by having an extended warranty. What if you lose your iPhone? What if you do this? How many of you have kids? Anyone? Keep your hands up if you have sufficient life insurance. I see a lot of hands coming down. I would predict, if you’re a representative sample, that many more of you insure your iPhones than your lives, even when you have kids. We’re not doing that well when it comes to insurance.

Cheat Day

Like any detox or diet, it’s important to be a little flexible. Or, at least, it’s important to not give up if you slide or cheat a bit. While our financial detox is a commitment, give yourself permission to slip up once in awhile.

This doesn’t mean you should go on an online spending spree or binge. Pick a special time or event during your detox period where you can treat yourself. Buying that coffee through your phone app during a Sunday morning stroll isn’t a failure. It’s an indulgence.

Next Steps

Once we’ve completed the financial detox, it’s important to not go back to the way things were. Sure, many of us will return to certain habits and start spending on many of those extras again. So, try to identify areas where you can make a difference without fully detoxing.

For example, one of the definitions—or components—of a financial detox is investing cleaner. Ethical investing. Now, more than ever we need to know where our money is going and how we can make better choices.

Try to work philosophies and like-minded healthy activities into your financial diet so that a financial detox isn’t such a hard concept to embrace the next time around.




Caring for Employee Financial Health

Caring for Employee Financial Health

The Council for Disability Awareness is happy to announce the expansion of our blog to include topics of importance to employers.

Our goal is to create a discussion with human resource and business leaders. A discussion that covers all things related to the workplace and employee benefits.

One topic we will highlight more frequently is employers’ expanding focus on employee financial health and wellness.

The last several decades have changed the way employers think about and support employee financial health, but at what costs?

Employer-Paid Health Insurance: Back in the Day

Most of us have no recollection of the era when employers provided robust benefits for their workers, including pensions and employer-paid health insurance premiums. When the U.S. entered the 1980s and health insurance expenses exploded, benefits experts stepped back and realized employees were immune to the true cost of health care.

Employee Financial Health: Giving Them Skin in the Game

Five-dollar-physician visits skewed the reality of what doctors and hospitals charged insurance companies. Thus was born the concept of making employees have “skin in the game”. The belief was if consumers had to contribute more toward the actual costs, they would think carefully about overusing their health insurance benefits.

This philosophy of employee responsibility and cost-sharing drifted outward toward all employee benefits over time.

The capital-market crises in 2002 and 2008, new legislation and regulatory requirements for employer-provided pensions, plus a need in some industries to reduce benefits to compete in the global market placed the tradition of providing new employees with a traditional defined-benefit plan on the chopping block.

As a result, employee financial health suffered.

What Created the Drive for Employee Financial Health and Wellness Education?

Defined-contribution plans such as 401(k)s and 403(b)s are now the standard way employers provide workers with retirement planning.

Except the worry – and perhaps the guilt – employers have is that, despite contributions to DC plans, only 61 percent of employees say they are saving for retirement.

We see further proof of poor retirement planning by workers in a May 2017 Gallup survey. The results indicated 25 percent of millennials will rely on Social Security benefits as a major source of income during retirement. This is almost double the number who said this in 2007.

The near elimination of defined-benefit pension plans for new employees coupled with far less than 100 percent participation in DC plans created the current drive by employers for employee financial health and wellness education.

Employee Financial Preparedness

While I am a staunch advocate of making certain working adults plan for their futures, I worry about their present situation as well. Why? Far fewer consumers are financially prepared for interruptions to their incomes due to periods of disability – the most common of which are pregnancy and musculoskeletal-related absences – than they are for retirement.

The best way employees can financially prepare for periods of absence – usually temporary – is through short- and long-term disability insurance.

According to the Bureau of Labor Statistics, 40 percent of private-sector companies provided access to a STD plan and 39 percent of workers participated. And 33 percent of employers gave access to a LTD plan with 32 percent of employees participating.

So, if you offer a disability insurance plan, 97 percent of employees will participate. But, at least 60 percent of workers don’t have the option to receive this type of coverage through the workplace. This increases the risk for compromised employee financial health and wellbeing.

Are Employees Prepared?

The Federal Reserve released its Report on the Economic Well-Being of U.S. Households in 2016 in May 2017 and reported 44 percent of adults said they either could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money. The median time an employee is out of work due to an illness, accident or injury is six weeks.

Given the Federal Reserve data, almost half of workers couldn’t afford an unpaid absence lasting more than a week without exhausting their sick leave or paid-time off. That’s if it is even available to them.

Employee Financial Health: Stories, Not (Just) Data

But all I’ve talked with you about so far is data. And while facts are important, stories are more memorable.

A few weeks ago, a friend asked me to attend a fundraising event for Kathie (name changed). She had to stop working due to symptoms associated with a rare autoimmune disease known as Wegener’s granulomatosis. This is a difficult condition to diagnose and it took months before the physicians figured out what was wrong. The good news is that while the medical team cannot cure Kathie, she has a reasonable chance of recovery and being able to work again. The bad news is it will take months of treatment to get her there.

I didn’t know anyone at the event other than my friend. So, I found myself speaking with a lot of different people and spent time hearing stories about Kathie.

I eventually came upon the organizer of the party who turned out to be Kathie’s boss. His compassion for Kathie’s situation touched me and I told him how remarkable I thought he was. At that point, he shared the guilt he felt.

He was a small employer and he couldn’t afford to provide much in the way of benefits. His employees received their health coverage through the public exchange, or their spouse’s insurance. It was too expensive a benefit for him to offer. But, he’d met with an agent about a year ago and asked if there was something he could for his employees. The agent presented two options: term life and disability insurance. He chose the term life plan.

The employer and most of his employees were in good physical health. In fact, Kathie completed a Tough Mudder competition (which involves running through 10 miles of mud and climbing over 20 obstacles) the month before her symptoms began. He thought none of them would ever need the disability insurance policy.

The Bigger Picture

It’s my belief that we need to expand how we think about employee financial health and wellbeing. Yes, we must help people plan for the future, but not at the risk of the present.




Four Smart Investment Decisions to Make in Your Thirties

Four Smart Investment Decisions to Make in Your Thirties

Although there are some 22-year-olds who start investing in their 401(k)s and building up their savings as soon as they get their first paycheck, that’s not the reality for most of us. Our first few years out of college often involve changing jobs, partners, and even cities a few times until we find the right career fit.

By the time you’re in your thirties, you can no longer fall back on the “But I’m just out of college” excuse. It’s time to start thinking about how the financial decisions you make today will affect your future life and retirement goals.

Max Out Your 401(k) Matching

If your employer offers matching 401(k) donations up to a certain percentage of your salary, you’re walking away from money if you don’t at least meet that minimum contribution. Start there and set your contributions to increase by 1% per year until you hit your maximum contribution level.

By increasing your contributions over time—especially if you time your increases with your annual raise—you’ll be able to painlessly work towards your retirement savings goals. Received a larger than expected salary hike? That’s a great time to give your contribution rate a bigger bump.

Create—and Live By—a Budget

If you find that you are spending your entire paycheck each month and don’t have anything left over for savings, it’s time to take a close look at where you’re spending your money. Those happy hours, bachelorette parties, and Uber rides can add up over time.

A free tool like mint.com is an easy way to track your spending by category, and create a budget that can monitor your progress against your goals over time. Chances are after a month or two of expense tracking you’ll have a good idea of recurring expenses which can be curbed—and the money saved can be put aside for something more meaningful.

Build a Realistic Emergency Savings Fund

What would happen if you suddenly lost your job? How would you pay your rent and your other monthly expenses?

While some career fields have an exceptionally high demand—like software engineers—it’s more often the case that finding a new job may take you up to six months.

Using your monthly budget numbers, determine what your minimum monthly budget would be in such a scenario. Then, start saving up so you have that amount of cash in a savings account or other liquid investment you can quickly access in case of an emergency.

Pay Off Your Debt

Those student loans you deferred aren’t going anywhere. Ditto for the credit card bills you racked up to move into your first apartment. While carrying some debt can be beneficial for your credit record—such as a mortgage or an auto loan—there isn’t a benefit to keeping most debt hanging around.

So, where should you start?

Oftentimes, student loans can be consolidated at a lower interest rate. Similarly, your high-interest credit card should be replaced by a lower rate card from your local credit union. Once you’ve stopped accumulating higher monthly interest, it’s time to start paying off a larger portion of the principal each month. That’s right—if you are only making the minimum monthly payments you won’t be making a dent in your debt.

It’s never too late to start investing in your future. And your thirties is a smart time to identify your goals and start laying the foundation for funding your future.




What is Ethical Investing?

What is Ethical Investing?

Ethical investing. Who, or what determines the ethics of an investment? And what does that even mean? Is it different than impact investing? Sustainable investing? Green investing? Socially responsible investing? Which investments are more ethical, or more sustainable, or more socially responsible? Which are better… for you?

For that matter, who is an investment supposed to be good (or better) for? And what does “better” mean when ethics, impact, sustainability or social responsibility factor in?

What is Ethical Investing?

In general, the gist of ethical investing is this: Making money while following your conscience. Because, really, why does saving for the future have to mean ignoring our personal ethics and social values?

More specifically, it “is an investment discipline that considers environmental, social and corporate governance criteria to generate long-term competitive financial returns and positive societal impact,” (The Forum for Sustainable and Responsible Investment).

This seems clear on the surface (maybe). But it isn’t clear when we ask yardstick questions like “How do you measure societal impact?” (definitely). More on that later.

Questions We Should Be Asking About Our Investments

It is always a good idea to further your financial learning, so ethical investing aside, knowing the who, what, where, why, and how of your financial planning is important.

Who is helping you plan your finances, and how? Do they have a good reputation? What are you investing in and where? Certain funds? Commodities? 401k? Locally, abroad? Why are you investing in certain companies over others? To aggressively save? To ensure you have conservative growth?

Not everyone has answers to these questions, but once you open the proverbial can of worms, more and more considerations come to the fore.

Know What You’re Investing In

For example, how much does the average investor know about the companies in his or her portfolio? Are you going to make financial planning/investing decisions based on strategy alone, or are you going to incorporate personal values? Should you include a company that manufactures something considered morally reprehensible in your investment portfolio? Or, do you invest in organizations who focus solely on initiatives that benefit society and the environment? These aren’t easy questions to answer, but the answers to them will have an impact.

The Yardstick for Ethical Investing

Which brings us back to an earlier question: How do we measure societal, sustainable, responsible, or ethical impact in our investments?

On a personal level, our conscience is the best barometer for ethics.

But at a higher, more accountable level, investors use GIIRS (pronounced “gears”), the Global Impact Investing Rating System, which provides “investors with a comprehensive, comparable, and third party-verified assessment of companies’ and funds’ social and environmental impact,” (“Making Every Dollar Count: Investing for Impact and Return”, Forbes).

Does Ethical Investing Work?

Can ethics drive business growth? This is a concern many investors have with so-called ethical investing. Can you be conscientiously capitalistic?

Numerous studies have shown that you can do just as well, or even a little better by incorporating environmental, social, and governance issues into investment decision-making,” says Tim Nash, The Sustainable Economist. “It bears the question, ‘if you can make just as much money and feel good about your portfolio, why aren’t more people doing this?’”

Before Etsy, an online marketplace went public, there was legitimate concern that the company’s community focus wasn’t compatible with profitability.

“We understand the concern, but reject the premise,” Etsy’s CEO wrote in a blog post published the day of the company’s IPO in 2015. “Etsy’s strength as a business and community comes from its uniqueness in the world and we intend to preserve it. We don’t believe that people and profit are mutually exclusive.”

“Idealism is one of the company’s most important attributes,” says venture capitalist Charlie O’Donnell (“The Barbarians Are at Etsy’s Hand-Hewn, Responsibly Sourced Gates,” Bloomberg) “This is something a lot of investors miss and don’t understand is an asset,” he says. “It does translate into growth.”

Every Dollar Counts

There are two important lessons we should take from ethical investing: First, your investment decisions have an effect. And not only on your own financial growth.

The more people start to consider things like social and environmental impact in their investment choices, asset management firms, and the like will take note and address the need for sustainable, ethical investment products.

You Are an Investor

Secondly, it’s important to realize that we are all investors.

When we say investment, we usually think in terms of dollars and cents.

But we invest in our careers, our health, our children. As such, we need to ask the right questions. When it comes to a career, should we invest in training and more education?

When do we start thinking about retirement plans? What should we invest in? Why? How?

When it comes to saving in general, should we pay off student loans early, or put together an emergency fund for a rainy day?

And speaking of a rainy day, when it comes to our health, we need to start asking questions like disability insurance – yes or no?

As noted, many don’t consider themselves “investors,” but saving and financial planning are just that: An investment. An investment in yourself, your family and your future, but also in the future of our community, of our planet.

And it doesn’t just mean sustainability, societal, or responsible impact. It’s about redefining success, and how we can invest it in. As such, it’s not only important to invest, to save and plan for your financial future, but it’s also important to pay attention to the hows and whys around our investment activities, whatever they may be.