The situation described in the letter you printed from Deep in the Hole two issues ago (Dec. 2019 Vol. 35 Issue 5) is indeed “heartrending.” While it might seem impossible to pull this gentleman out of his financial hole, we should thank him for his honest portrayal. His story serves as an excellent cautionary tale for young people.
For the first time in U.S. history, it is believed, the present generation of young adults will not fare as well financially as their parents did. This means that young people need to be especially conscientious about their financial planning as well as about their ideas and values regarding money. (It’s an important topic for shidduchim as well. See sidebar.) We are fortunate to have an organization like Mesila to help those looking for financial guidance. It is precisely because Orthodox families incur additional expenses for food, education, and more that it is incumbent on them to be financially savvy. That includes Jewish educators preparing the next generation to be able to afford the demands of Orthodox living.
I am not a financial advisor or accountant, but my ideas about money and saving were shaped by growing up in a household steeped in the values of the Depression, ideas reinforced by the anti-materialist movement of the 60s and the mantra of the 80s: “recycle, reuse, repurpose.” For those raised without that history but ready to take their financial futures into their own hands, here are 10 money ideas recommended by all the financial advisors I know.
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To start the process:
1) Pay yourself first: Even in the early years of one’s career, when this may not seem possible, paying yourself first – that is, saving regularly – is a habit that underpins the idea that you are building for your future. That future may mean being a full-time learner, philanthropist, or simply a person able to retire. But it can be done only if your future comes before the array of shiny objects begging to be bought today.
2) Make a budget: List everything you spend on a monthly basis and add it up. What are you actually spending? Where might you be able to cut costs? Accountant Eli Pollock recommends putting your budget on Quicken and checking that you are on track weekly.
3) No credit card debt: If you must borrow, do it from a bank, friends, family, or the community organizations designed to help. Credit cards are a convenience, not a strategy! If you can’t pay a credit card in full when due, do not use one. Credit card debt is a never-ending downward cycle.
4) Take a shopping vacation: Not a vacation to but from shopping. Other than food, is there anything you really need to buy in a week? (Maybe that could be the week that, after your recurring bills are paid, you eat only pasta and Shabbat leftovers!) It is possible to view this exercise as a fun challenge, not a deprivation.
5) Live below your means: This will entail differentiating between “needs” and “wants” and may require some soul searching and conversations with your partner. Jordan Page, a blogger about frugal living and mother of eight, advises spending only 70 percent of what you earn. Impossible? Go back to your budget and see where you can shave costs. Still not possible? It may be time to find new ways to increase your income.
6) Review recurrent charges: Check your bills for hidden fees, inaccuracies, and services you didn’t order. Consider changing your phone and internet companies. Competing companies offer good deals to get your business and may be willing to pay to bring you over. Insurance plans – car, home, and life – are continually changing. Even if you like your broker, it pays to see what else is out there to potentially save thousands of dollars. Hassle? Too time consuming? See step one.
7) Engage your family: Married? Establish a “date night” when you discuss finances. Keeping with the concept, pack a picnic in one basket, your bills and receipts in another, and take them to your favorite private venue. Have kids? Craft kosher “piggy banks” and show them how to save coins that they can later put in paper rollers and take to the bank. Read sale catalogues and figure out the discounts together.
8) Review the prepackaged foods and disposables you buy: Prepared food, whether take-out or from the supermarket’s freezer case, is many times more expensive than homemade food. Can you make your own snacks and ready-made dinners? Can you cook in bulk, freeze, and just “reheat”? Homemade food is both more healthful and more cost effective. Can you ask your children to wash the dishes instead of using paper? (Corelle is child friendly and a space saver.) It will save you money while saving the environment: a double bonus.
9) Look for “free money”: If your company offers a matching 401k, sign up NOW. Save the maximum that your company will match even if means eating macaroni and cheese for a month. Check out websites like Baltimore Rummage, Freecycle, and Baltimore Mommies (on Facebook), or Craigslist, which list items for free or way below cost. Then there are the nearby consignment shops and thrift stores – such as Goodwill, Hadassah, and Ruth’s Closet – for clothes (including Purim costumes). Sign up for apps that make or save you money when you spend. For instance, Ebates (Rakuten.com), Honey.com, and GetUpside.com (mostly for gas) find the lowest price for a particular item or give you cash back. Of course, all of this saving only works if you buy just those items you actually need. (See step five.)
10) Invest: When you are 20-something, age 65 is a lifetime away, and saving for retirement seems crazy – until you realize the magic elixir that makes money grow: time and compounding. Einstein is credited as saying, “Compound interest is the eighth great wonder of the world.” You don’t have to wait for the stock market to go down or worry when it has that it’s not a good time to invest. If you invest in a retirement account on a regular basis – called dollar cost averaging – compounding takes care of the rest. If you don’t want to do it yourself, find an honorable broker to help you invest in a group of no-load diversified mutual funds, and watch your savings grow.
Good luck and happy saving!
Dating Conversation Starters
by Jill Moroson, MSW
Talking about money may not seem like proper dating etiquette, but it is an essential part of getting to know someone. At issue is not an income figure but how two people feel and think about money. Here are a few questions – best left for after the first date and not posed interrogation-style – that might lead to some interesting conversations:
1) Who was “in charge” of the money (paying the bills, investing, balancing checkbooks, etc.) in your home when you were growing up?
2) Was money ever discussed at the dinner table? Elsewhere?
3) Did you get an allowance? (It may be fair here to ask how much and how it was spent.)
4) Isn’t it amazing that a person in the U.S., the major capitalist country in world, can graduate high school without having learned how to balance a checkbook or the difference between simple and compound interest?
5) Did you know that if you started at age 30 and saved $500 per month in a mutual fund that averaged 8% a year, you would be a millionaire by 65? (By the way, the stock market has averaged a 10% return for over a century.)
6) Try this lesson in compounding in the guise of a fun riddle: Would you rather be given a million dollars now or get a penny today and double that amount every day for a month? (Spoiler alert: The penny option wins!)
7) For the nerds out there, if you are not afraid of scaring away your date, check out the compound interest calculator online at MoneyChimp.com (and elsewhere).
If your date makes comments like: “I think money is evil” or “I don’t care about money” or “My parents always fought about money” or “My parents never spoke about money,” please realize that these are important issues in need of further conversation. You may want to contact Mesila before your next date!
Sidebar 2
Already in Credit Card Debt?
by Jill Moroson, MSW
The amount of money people owe to credit card companies nationwide has just reached $1.45 trillion, or approximately $8000/household. People who end up in credit card debt often despair of ever getting out of debt, but it is worth every effort to try.
First, understand how credit cards work. If you pay only the “minimum amount due,” you could be in debt for over a decade and pay thousands of dollars in interest. What appears as a recommendation is actually a dangerous descent into debt disaster.
Start by calling your credit card company to see about renegotiating terms or other possible programs available to help, including any program for hardship cases. You might mention how long you have been a customer at the bank that issues the card. If you get no results, let your bank/credit card company know you will be transferring your debt elsewhere and see if they will budge.
Research other companies/banks that offer a “balance transfer” option which entails getting a new credit card with no or low interest and transferring your debt to that card. Be aware that these deals will offer either 0% interest with a transfer fee or no transfer fee with a low (4 to 5%) interest rate. (Rarely is there a 0/0 deal.) Also, this low or zero interest rate is for a limited time only, usually 12 to 15 months. If you do get this deal, make sure you pay every penny before the rate goes back up.
If you have good credit and a job, getting a bank loan at a much lower rate than any credit card may be an option. Suntrust Bank has offered these loans. But always look at the fine print and ask about rates, charges, penalties, and time limitations.
Finally, there are services that can help, but do your research to avoid the bad ones. Not-for-profit options I have investigated but not used are In Charge Debt Solutions and Debt.org, both of which start with a free counseling session by phone. Credit Card Counseling Service requires meeting with a counselor in person. These companies can consolidate your credit card debt and lower the interest rate for a minimal set up and monthly fee: maximum $75 each. There is no minimum debt amount, and payoff generally takes between three and five years and leaves your credit score intact.
A for-profit company with which a friend had a positive experience is Freedom Debt Relief. This company requires a minimum debt of $15,000. They take a 20% fee but will negotiate a “settlement” with the credit card companies that can cut the debt in half, so that the total outlay ends up less and stops all additional interest and fees. Be aware, however, that this approach will damage your credit score for up to seven years.
Money guru, Dave Ramsey, discourages people from using either type of debt reduction program but doesn’t offer an alternative beyond better money management. He is absolutely right in that regard. Please do your own research before using any debt reduction company. Once debt free, exchange your credit card for a debit card.
