DEAR SMARTIES
Living TheSmartestWay™
DEAR SMARTIES: My husband and I both came from very poor families. Our childhoods were miserable. We both worked hard all our lives and now are retired, fairly secure. We received a large inheritance. He wants to spend it, as he always does. I am scared to death, for fear we will need it someday.—Fearful in Frazier Park
SAM: As we say in our book TheSmartestWay™ to Save, do not ever spend windfalls. Invest them and you can spend the earnings (such as interest and dividends) for the rest of your life as well as have the satisfaction of being able to pass the windfall onto your heirs. Windfalls are big boosts on your way to financial independence. Email us for the Principles of Financial Independence from our book.
HEIDI: Be patient with each other and do lots of calm, careful talking. Realize that a deprived childhood can cause overcompensation in different ways. For example, it could make you very frugal and overly fearful, or it can make you too eager to spend and throw caution to the winds. This windfall gives you an opportunity to learn more about yourselves and each other. You can work together to compromise with some spending and some saving that will make each of you feel satisfied and reassured.
DEAR SMARTIES: Kids these days do not know how to handle money. My son’s friends just use their debit card for everything. They do not even know when they are overdrawn. However, they’re never worried, because their parents keep funding the account.—Unimpressed in Ukiah
SAM: What we learn from our parents as children is our model for our choices as adults. Most schools do not teach personal financial management. Parents need to teach them. But parents are often unable to handle their own finances well, and therefore don’t give good financial advice to their children.
HEIDI: Students will be handling their own money and possibly large financial decisions very soon. They need to be prepared for the real world. Email us and we will send you the Principles of Financial Independence from our book for you to share with the young people in your life. One of the greatest gifts you can give children is wisdom in handling money.
DEAR SMARTIES: Is this a good time to buy a house?—Ready in Richmondy
HEIDI: Foreclosures are increasing, driving the price down in many areas of the country. Therefore, home ownership is becoming more affordable for more people. There is a geometric progression: affordability goes up as prices go down(?) For example, as the price declines, the number of people who can afford a house increases. That’s because there are more people in lower income levels than higher income levels, therefore, more available buyers. If the price of a home is cut in half, twice as many people can afford it as before. The trend started about six months ago, when the number of first-time homebuyers started to increase.
SAM: Are you really ready? Our advice to first-time home buyers is make sure first that you can afford the increased payment. Home ownership has many hidden expenses that you aren’t used to as renters. Therefore, have a good savings buffer before you decide you’re ready to become a homeowner. First-time home buyers should consult with their financial advisors re tax subsidies and incentives. Sellers are now more flexible and are carrying financing for buyer on advantageous terms. If you are ready, now is a good time. Those who wait for “the bottom” usually miss it.
Samuel K. Freshman and Heidi Clingen are authors of The Smartest Way™ to Save, Why You Can’t Hang on to Money and What to Do About It. They offer only their opinion, which does not constitute professional, financial, or legal advice. To receive a copy of The Principles of Financial Independence or submit questions, email them at Heidi@TheSmartestWay.com.
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DEAR SMARTIES
Living TheSmartestWay™
DEAR SMARTIES: My wife’s birthday is coming up. I recently lost my job, so I only have a few dollars to spend on her birthday. She has been so supportive of me in this difficult time and I want to give her something special.--Frustrated in Fresno
HEIDI: As a wife, I know what I would cherish most: a handwritten letter that explains how deeply you feel about her, on special paper, in a dated envelope inside a decorative box. In addition, a promise to write a new letter for the box for her birthday every year.
SAM: You could gather copies of your favorite photos together in a frame. Or offer to do that project around the house that you’ve been putting off--cheerfully. Or how about setting aside a day to do something special together, like a drive in the country. Time together is the greatest gift you can give.
DEAR SMARTIES: I recently graduated and am glad to say that I landed a pretty good job. I can finally enjoy life a little after years as a “starving student.” My parents say I should start paying off my student loan, but I’d rather get a bigger apartment.—Proud Grad in Piedmont
SAM: Perhaps you could delay repayment with deferment or forbearance or get your repayment extended. If you were still looking for a job, you should consider these options. Nevertheless, since you are working, you can start you loan repayment as soon as possible. Can you arrange for a roommate before getting that bigger apartment? Better yet, if you have extra cash, you should be starting a savings plan so that you can become financially independent and not have to work at all. Email us and we’ll send you The Principles of Financial Independence from our book.
HEIDI: If you are like most grads, your loans are sky-high. Unemployment is rising, job layoffs are increasing, and first hires are often the first to go. So don’t start “living large” yet. Adjust your “starving student” budget just a little--and save the rest.
DEAR SMARTIES: I want to save my money and not spend it on endless interest payments. What is a simple process for getting my arms around my credit cards?—Overwhelmed in Ojai
HEIDI: Gather all your bills, loans, etc. Take a big sheet of paper. Write down a list of all your debts, starting with the debt with the highest interest rate, the next highest interest rate, and so on. Write down the balance you owe on each debt. Then estimate how many months of paying the minimum amount it would take to pay off the card, if you never purchased on that card again.
The next step will motivate you: do a rough calculation about how much interest you will be paying on the card between now and when you pay it off. To save the most money in interest payments, pay off the debt with the highest interest first.
Set up a budget that pays all you can each month toward reducing your debt. Pay off the highest-interest-rate credit card first. Then apply the same amount to the other cards until you pay each card off, one by one. Then don’t use the cards except for true, dire emergencies.
SAM: If your debt exceeds what you can handle, call your credit card company to ask if they would please reduce your interest rate and even waive a portion of the principle you owe. Explain that you have been a good customer, and you are setting up a plan to pay them back and you want their advice and support. The worst that can happen is to get a “no.” People who do this are surprised at how many companies these days are willing to adjust the terms of their debts.
Samuel K. Freshman and Heidi Clingen are authors of The Smartest Way™ to Save, Why You Can’t Hang on to Money and What to Do About It. They offer only their opinion, which does not constitute professional, financial, or legal advice. To receive a copy of The Principles of Financial Independence or submit questions, email them at Heidi@TheSmartestWay.com __________________________________________________________
DEAR SMARTIES
Living TheSmartestWay™
DEAR SMARTIES: I feel very sorry for all people who were caught in Bernard Madoff’s scheme. Obviously, some very smart people were completely fooled by him, such as advisors to Steven Spielberg and Jeffrey Katzenberg. I like what Kevin Bacon said, "There are a lot of things I'm grateful for: my health, my family, my career, my family's health. We'll march on. We have to. There's nothing you can do about it."—Sympathetic in Salem
HEIDI: Kevin is brave and he is right. Other things in life matter more than money. Nevertheless, the victims of financial terrorist Madoff offer a warning to us all: Anyone, and I mean anyone, can be a victim. When you have a hunch, investigate it. When you have a question, get the answer.
Also, as a woman, I can say to other women sincerely, don’t let men “pat you on the head” and tell you not to worry about your finances. Follow your hunches. When something sounds too good to be true, sadly, it probably is.
SAM: Bernard Madoff created a financial holocaust. Nevertheless, the fraud signs were there for those who looked. For every person who invested, there was another person who turned him down. If a proposal looks too good to be true, it is. Don’t invest in things you don’t understand.
DEAR SMARTIES: I thought that my credit card interest rates were supposed to last for the life of the card. My FICO score is excellent, so I wasn’t worried. But suddenly, I get a notice that my rates are being raised to prime plus, which is almost 20%! That means thousands of dollars in interest per year. How can this be? –Stunned in Salt Lake City
SAM: John Adams, one of our Founding Fathers, once wrote, “All of the perplexities, confusion, and distress in America arise, not from the defects of the Constitution or Confederation, not from want of honor or virtue, so much as from downright ignorance of the nature of coin, credit, and circulation.”
Few people predicted these tough times we’re in, so you’re not alone. Nevertheless, people must understand the nature of credit and how easily it can highjack their finances. Credit agreements often allow the lender to change terms. You must read the fine print.
HEIDI: Currently, these kinds of interest rate adjustments are legal. Don’t ask me why. It’s happening across the board, so everyone, be forewarned.
DEAR SMARTIES: We’ve funded our IRAS and 401(k) s and want to know what we should do next.—Prepared in Pittsburgh
SAM: Look at what your future needs are going to be. Don’t assume that (1) you will always have the same earning power, (2) your retirement accounts will grow at a healthy rate, (3) you will have that job until retirement (4) your health and marital status will remain the same
HEIDI: Build an emergency fund that gives you real confidence. You just never know when you might need it.
Samuel K. Freshman and Heidi Clingen are authors of The Smartest Way™ to Save, Why You Can’t Hang on to Money and What to Do About It. They offer only their opinion, which does not constitute professional, financial, or legal advice. To receive a copy of The Principles of Financial Independence or submit questions, email them at Heidi@TheSmartestWay.com.
