GREENPATH NEWSLETTER
JULY 2014
Four Personal Finance Fireworks to Avoid This Summer By David Flores, GreenPath Manager and Counselor As summer gets underway, we feel it’s an appropriate time to discuss some potentially dangerous personal finance fireworks you might encounter this time of year. Debt-hiding smoke bombs, bad-habit sparklers, balance-jumping bottle rockets and fast-spending firecrackers are just a few of the fireworks you might come across this summer. Let’s review: Bad-habit sparklers – Growing up, we were warned to hold a sparkler at arm’s length, maybe twirl it around a bit, and it went out shortly thereafter. The same can be said of our personal finance habits that started out so strong at the beginning of the year. You may have kicked off 2014 with a solid budget and plan, but, by the beginning of summer, new habits may be fading. It’s important to revisit those initial feelings of taking control of your personal finances and re-dedicate yourself to good, solid spending and savings habits during the rest of 2014. An example is to start saving $10 a week now towards holiday gifts, which will lessen the impact on your budget towards the end of the year (that’s nearly $250 you’ll have in cash, come mid-December).
Fast-spending firecrackers - Some people light a long string of fireworks, one at a time, savoring each moment. Others set off the entire string at once to watch it explode into a continuous series of loud pops and bangs. Your monthly income is similar: Spend only what you need, pay your bills, and conserve your money to last the entire month, or spend your paycheck in a short period of time, with very little remaining for the rest of the month. Keeping credit card balances paid off, while staying current on your bills and building an emergency cash fund is the best option. Balance-jumping bottle rockets – Light these fireworks and they whoosh out of sight. Some people think that the best way to keep their debt out of sight is to jump the balance from one credit card to another. You aren’t really solving your problem when you continually move your balance from one card to another card. While you may have good feelings at first that you are paying a lower, or even zero interest rate, that feeling could be short lived. When that introductory rate ends, you might be in even more debt than if you tackled the debt in the first place. This summer, work on being disciplined with spending and saving and you’ll have more fun in the long run!
Debt-hiding smoke bombs – Colorful smoke bombs can make an impact, but a personal finance smoke bomb between individuals can hide problems. Many times, people feel that if they can create a diversion, they can push off painful conversations about spending habits and debt. But, once the air clears, the problem is still there. A good start in communicating is building a personal budget together.
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GREENPATH NEWSLETTER
Build a Budget, Don’t Tap Retirement Money
By Katie Moore, GreenPath counselor, Detroit, MI Recently, an article in Bloomberg News discussed how more people are tapping into their retirement accounts to make ends meet. At GreenPath, we encounter more people asking about the ramifications of using money that has been set aside for the future. Unfortunately, we see situations where clients consider using their retirement savings to resolve their financial concerns, particularly since the downturn in the housing market eliminated the use of home equity as an option. For someone who may be decades away from retirement, using a 401(k) might seem like a logical solution to get through a tough time, despite knowing there will be long-term negative effects. The Bloomberg News article states, “Younger workers ages 20 to 39 have the highest cash-out rates, with about 40 percent taking money with them when they switch jobs, according to data from Fidelity, the largest administrator of 401(k) plans.”
Although borrowing from retirement can be an effective way to catch up on past due priority bills, such as a mortgage in foreclosure or high interest credit card debt, it really should be used as a last resort and only if it will fix the root issue that caused the financial trouble in the first place. And in many instances, there are penalties for early withdrawal. “The Internal Revenue Service collected $5.7 billion in 2011 from penalties, meaning that Americans took out about $57 billion from retirement funds before they were supposed to,” said the article. Regardless of your age or economic status, before tapping into retirement savings it is important to create a realistic budget to determine if it balances or will balance with the use of retirement funds. If the root issue is that you simply do not have enough coming in to cover what needs to go out each month, there may be lifestyle changes to consider that will resolve the root issue and leave your retirement savings intact.
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