There are folks who make millions a year. They hit it big on Wall Street or their company takes off. But they're in the minority. Not many people are in their financial league.
Check out this statistic: The average single woman who heads her household makes $18,545 a year. Making ends meet can be a hard, harsh reality. When a single mom adds the cost of raising children to her list of financial responsibilities, reality hits even harder. But don't despair.
Whether you make more or less than the average single mom, whether you're single, married, divorced, childless or child-blessed, young or old, there are ways you can get ahead financially and feel more secure about your future. Here is a list of steps that can save money and help you develop a successful investment strategy.
After years of working with clients who have had to start over due to a divorce, bankruptcy, theft, medical problem or bad investment, I understand how important financial security is. You want to enjoy a comfortable life, while avoiding the stress of paying out more money than you have in rent, bills and living expenses. You also want to save money for life's necessities and luxuries.
Let's look at the necessities. Are there ways to cut back on what you spend on your home, transportation, banking, credit accounts and medical fees without making painful compromises? Yes. With time, you can save money on practically every debt in your life.
The bottom line: Your mission is to live within your means (keep everything in reasonable proportion to your income) and always get the most value from any expense. You can achieve this by taking the time to comparison shop, research all of your options and know-before you buy-that the item or service is something you truly can use or enjoy.
Here's my list of ways to slice your expenses:
Most doctor and hospital fees are unexpected and unavoidable. Still, there are a few moves you can make to reduce your out-of-pocket medical expenses. The best way to save, obviously, is to take care of yourself with a proper diet, exercise and preventive care. Routine visits to your doctor ultimately will help cut your long-term medical costs.
Be sure to have insurance. But if you don't, keep in mind that many doctors are sympathetic to people without insurance. They will often reduce fees to the uninsured as a courtesy and as a way of promoting their business in the community.
Research your options before you select a doctor. Make sure he or she will offer quality service but also be sensitive to your out-of-pocket expenses. Whether you have an insurance plan or not, you can usually negotiate fees with your doctor or medical provider. Don't be afraid to ask and always obtain the agreement that they will accept the insurance payment or your prearranged payment for services as payment in full.
Americans unnecessarily spend millions of dollars each year on banking services. With the advent of deregulation over the past decade, financial institutions have become more competitive. That means most banks? are willing to woo your business with attractive offers. Use this to your advantage. Decide what your needs are. How many checks do you write? Do you need the canceled checks returned to you? Do you need to use ATMs in various locations?
Once you know your needs, shop around. Most banks offer accounts free of service charges; all you need to do is ask the branch manager to waive them (checking account charges of $10 a month quickly add up to $120 a year, $1,200 in 10 years).
You may be able to lower or eliminate fees by maintaining a minimum balance or having your paychecks directly deposited into the bank by your employer. Direct deposits are also convenient and provide greater security than mailing or carrying a paycheck to the bank.
Experts suggest you have two types of savings accounts: one has six months of overhead expenses in case a career catastrophe hits, and another is for long-term retirement savings. Find the financial institution that offers the best interest rate and start saving now.
Most people don't need more than one or two credit cards. Visa, MasterCard, Discover Card and American Express are accepted worldwide. Fewer credit cards reduce the possibility of theft as well as the amount you can charge, owe and pay in interest.
Americans are more indebted now than ever before because of easy credit and undisciplined spending. Our nation's consumer debt topped $1.7 trillion in September, 1996 -$100 million more than the year before, according to the Federal Reserve Board. (One in four of us hasn't paid off our credit card debt from two Christmases ago.) Not surprisingly, the American Bankruptcy Institute and Visa USA fear that 1.1 million households will declare personal bankruptcy, leaving a scar on their credit record for ten years.
Your goal should be to only charge what you can afford to payoff when the bill is due each month. If you don't pay it off, you're adding as much as twenty percent to the item's cost. Paying just the minimum each month can keep you in debt for a decade. If you already owe on a credit card, make paying it off your top priority. The number one cause of personal bankruptcy is accumulated debt on high-interest credit cards.
Sort through the flood of credit card offers you receive in the mail and select one that waives its annual fee and has a low interest rate. Cardweb.com publishes information appertaining to all types of payment cards.
You may also be able to get a lower rate and no annual fee from your current card issuers by calling them.
Some cards offer a bonus of frequent flyer miles or merchandise rebates. These will benefit you only if you would have bought the services-Delta tickets, GM car, Apple computer-without the rebates and if you don't pay any interest on charges.
To curtail any impulsive spending, some financial advisors recommend that you only use your credit card on Tuesday and Thursday. Why? They're work days and most people are too rushed and too tired to shop for more than essentials.
If you're in serious debt now, make an appointment with a counselor at a nonprofit consumer credit organization, such as Consumer Credit Counseling Services in California at (800) 777-7526 (PLAN). Unlike credit repair clinics that charge high fees and do little in return, these low-fee agencies understand the system and teach you how to stay out of debt.
If you're curious about your credit rating, call each of the three major credit bureaus and get a copy of your record for a small fee (unless you've been denied credit, then there is no charge):
If you find an error, notify the Bureau in writing and send documentation.
Buying a new car can be a nightmare. We're haunted by aggressive salespeople, limited offers and deals being refigured (not in your favor) up to the final moment. You can save yourself grief and thousands of dollars by comparison shopping among at least four different dealers. Carry a pad and pencil and make it brutally clear that you're shopping prices and will be contacting other dealers.
“Your mission is to live within your means and always get the most value from any expense.”
Magazines, such as Consumer Reports, list prices as well as evaluate different vehicles. Your homework might also include comparing gas mileage, warranties - and repair histories of the cars you're considering.
Experts say you should allocate no more than twenty percent of your monthly take-home pay to car payments.
Over the past decade, leased vehicles have become more popular. When shopping for surveillance vehicles, we've found auto leasing to be, at least initially, a better offer. Monthly lease payments are generally lower than purchase payments.
But step on the brakes for a minute. Weigh this benefit with your long-term needs. In addition to the monthly lease payment, factor in the amount you'll get for your trade-in, your down payment, initial fees and the price over the course of the lease. How do these costs compare with knowing that when your loan is paid you will own the car?
If you decide to lease, pay close attention to the terms. Most leases limit your annual mileage to 12,000 miles per year or lower. Any mileage accumulated over this limit is charged to you at a rate of 12 to 15 cents per mile. Most people exceed the mileage limit, but don't consider the surcharge when they grab for the keys to that shiny new car.
If you intend to keep the car longer than a few years, buying pays off.
Loans, typically four or five years long, cost a lot over the long run. Pay cash for a vehicle if you can. If you can't, look to the major automobile manufacturers that offer low-interest loans. Before you sign on the dotted line, however, inquire about loans at several financial institutions, including credit unions and your bank.
Your vehicle is probably one of your most expensive purchases. As such, you should treat it as a long-term investment. Day-to-day maintenance can ensure that you keep big repair costs down. While you're pumping your own gas to save hundreds of dollars a year, take the time to check the oil in your engine and the air in your tires. Have the oil changed every 3,000 miles and bring your car in for regular servicing.
Another piece of advice: Know your car. We've investigated many car repair shops and their employees over the years. Consumers spend billions of dollars each year on unnecessary and poor quality auto repairs because they don't know how often parts should be replaced (check your owner's manual) or what's covered under the warranty (refer to the warranty; it's rare that a mechanic will alert you to a repair that's covered by the manufacturer).
One mistake people make is to take their car to a dealership after the warranty has expired. Although the dealers may provide excellent service, they usually have higher overhead and charge more than other skilled mechanics in your community.
Make sure the independent mechanic is well established and has valid certification.
By doing a little research and comparison shopping, you can save hundreds of dollars each year by purchasing auto insurance from a reputable, low-priced insurer. Many states' insurance departments maintain price lists by various companies (in California, it's the California Department of Insurance at (800)927-4357). Newspaper ads often compare competitors' prices.
Before you can compare prices, though, you have to determine how much automobile insurance you need, as required by your state, .and what is necessary to protect you and your family from financial disaster. Consider the following when choosing a policy:
You should also consider having an umbrella liability policy and uninsured motorist coverage. However, consider dropping any coverage that duplicates your medical insurance coverage (you can't collect twice for the same expense). To dramatically reduce your premiums, consider raising your deductible to $1,000.
Be sure to check your automobile policy before renting a car. Most of the extra insurance that rental companies want you to purchase is covered by your existing policy. Determine this beforehand and don't buy what you don't need.
Life insurance protects against the loss of your financial assets and income. If your family's financial status will not be jeopardized by your death, you don't need it. Many financial advisors also feel that you don't need to take out life insurance policies for children or for yourself if you have no dependents.
We do a lot of investigative work for insurance companies and yet we still view life insurance as a mysterious game of chance, even if you have a family.
To make the best decision, first become familiar with the definitions of words such as "premiums," "death benefits," "policy terms," etc. Read consumer books or magazines on the subject to understand the benefits of various policies-term versus whole life-as well as their shortcomings and cost.
Then contact insurance companies and be straightforward with your questions. Since you're prepared, you'll confidently cut through any sales tactics that may be thrown your way.
As with any service, investigate several insurance companies to find the best policy and most affordable rates available. Many companies will offer reduced rates to individuals who pass a complete physical.
Once you have a policy, don't put it away and forget about it. After you've had a policy for several years, update it. Many older policies that cover a 500year-old man's family with a $150,000 death benefit may cost $500 to $1,000 a year, while a new policy for the same benefit may only be a few hundred dollars.
ReliaQuote offers search access to a large variety of life insurance plans from highly rated life insurance companies.
Homeowners' policies cover various risks regarding your property, such as fire, theft and earthquakes, all at varying levels. And there are twenty different indexes of damages. The better you understand the terms and what the policies can offer, the easier it will be for you to avoid gimmicks and poor coverage.
Shop around. Some states compile price surveys (the California Department of Insurance is at (800) 927-4357). Avoid unnecessary optional coverage. Many homeowners' policies offer coverage for stolen credit card coverage up to $1,000. However, most credit card companies already provide protection when your card is lost or stolen. Often, $50 is the most you're responsible for.
Raise your deductible to $1,000 and always purchase "replacement-value" coverage instead of "market-value" coverage. Most valuables depreciate in value over time. Market-value coverage compensates you based on the item's "blue book value" (a $400, 28-inch TV is valued at $200 when used. You'd receive $200 for it under this policy). Replacement-value coverage reimburses you based on the cost of replacing the damaged or stolen valuable (with this policy, you'd receive $400).
Inventory your possessions. The easiest way is with a camcorder. This will serve as proof when you make a claim. If you're renting, a tenant's insurance policy covers you if your belongings are stolen or damaged by fire or water.
You can flex a lot of muscle when buying or selling a home. Start by negotiating brokers' fees. Why pay a realtor thousands of dollars to sell your property when there's a broker on every corner, many willing to cut their fees.
As the buyer, don't work with a real estate agent who only shows you properties he or she has listed (this is only to the agent's advantage; it doubles the commission). Find a broker who will work for your best interest, be aggressive with your options and help you stay within your budget.
Your home is probably the most expensive item you'll ever purchase ... over time. If you can reduce your interest rate, your monthly payment drops-a benefit you'll appreciate month after month until you sell or pay it off. Use your good credit to negotiate for the lowest possible interest rate. Lenders are competitive. Most newspapers run a chart of mortgage rates offered by many financial institutions.
If you have time, wait for interest rates to drop. A ten percent rate will have to fall eventually because the market will freeze up until it drops between seven and nine percent. It's worth the wait. The difference of one-quarter percent can be $100 a month on a large mortgage.
We prefer a fifteen-year mortgage over a thirty-year one. By paying more each month, you'll save thousands of dollars in interest charges. For example, a $200,000 loan at eight percent to nine percent will cost $100,000 less with a fifteen-year mortgage.
Some homeowners with thirty-year mortgages voluntarily pay more each month. This way, they shave off some of the interest by paying off the loan faster but they retain the flexibility to pay only the agreed upon rate if an emergency crosses their path.
Applying for a mortgage before you buy gives you a sense of financial comfort-you and the bank will know what you can afford to spend (generally, home payments are twenty-five to thirty percent of your monthly take-home pay). Also, you can lock into lower interest rates in a volatile market.
Many of these suggestions also apply when refinancing your existing mortgage. The rule of thumb is to refinance if you can get a loan that is one to one and-one-half percent lower than your existing one. Over time, the savings will more than compensate for the loan fees.
A true-life story
We have had hundreds of clients retain our services for the purpose of determining whether an investment is or will be beneficial. Many heed our advice but you would be shocked to know that many do not. We always ask the question "Why pay for an expert's advice and then ignore it'?" This phenomenon can be painful to watch, especially if the client is someone rebounding from a divorce. It also can be an emotional roller coaster, with everyone providing information and guidance at every turn.
Andrea Miller-Reed is typical of the numerous clients who find themselves heading down the financial highway after a separation. Andrea was married for 28 years and raised four children. They are all grown now. She readily admitted she hadn't a clue to which way to proceed financially. She initially turned to her children and friends who possess no special talent in the financial arena; in fact, this is why we chose to highlight her case. She is very typical of clients who become emotionally and financially torn between friends and family. As she tried to untangle her life, they bombarded her with conflicting advice. Everyone became her mentor on life and finances.
At one point before she retained our services, she was receiving advice from her soon-to-be ex-husband. This is the financial "death penalty." Be assured, a separating spouse is the last person to arrange your future. Andrea came to us for help- and the best part of her story is that she listened to our advice and the people to whom we referred her.
During a divorce preceding you must seek out people who can provide crystal-clear advice. Those primary advisors must give you the rock-solid impression that they are protecting your assets and interest. Andrea gently discarded the advice of family and friends and sought out an attorney, a certified public accountant, and a professional money manager. All three had proven track records.
When I spoke with her in January 1997 she said she was so thankful for our advice. She gave me some additional hints to share with you:
1. Never rush into anything.
2. Woman's intuition is a powerful tool -and not to be ignored.
3. Make decisions slowly.
4. Take numerous notes when talking to experts.
5. After you make a decision, don't second- guess yourself.
Andrea now lives in Southern California and is benefiting from the fruits of her patience and newly acquired financial wisdom.
Your accountant can advise you as to whether or not the refinancing-based on the rate, points and fees charged-would be smart for you at any given time.
Few would advise you to refinance in order to take out some of the equity in your home. Remember, every $1,000 you use now is being financed over a fifteen- or thirty-year period. That amount will more than triple over time.
Home-equity loans have the same defeating purpose. It's risky to take out a loan secured by your home, especially if you're already having financial problems. Unscrupulous home-equity lenders target homeowners with poor credit.
But, if you're financially comfortable, home-equity loans make sense in paying for such things as cars and college education. Under the regulations of the Internal Revenue Service, some home-equity loans are tax deductible. Before you sign, contact your investment advisor or accountant.
Retailers thrive on impulse buys, those last-minute, really-don't-need-it items, like Chia pets and electric toothbrushes. Doing this occasionally is okay, but if something costs more than a day's pay, make sure you'll be as happy with the purchase in five years as you are the day you bring it home. This is especially true with major purchases - refrigerators, stereos, computers, TVs and VCRs. Too often, we buy before we investigate.
Comparison shopping will save you money on everything you're searching for. Most retailers will match their competitors' prices, so buy from the one that offers the best service, convenience or free financing for six or twelve months (a great deal unless you allow the plan to backfire by not paying it off on time and, as a result, incurring finance charges).
Since we're fortunate enough to have clients all over the world, we often have to hop on a jet and fly away. We've found that the best way to save on airline tickets is to plan ahead. You can chop your air fare from Los Angeles to New York in half by booking at least seven days in advance. Also, the more flexible you are with your schedule, the more opportunities you'll have to save money. You can occasionally reduce your rates by staying a certain number of days and flying back on a slow day, such as a Thursday or Sunday. Also, many of the popular routes, such as Los Angeles to Honolulu or New York to Miami, are less expensive when flying out of peak seasons.
Airlines have toll-free numbers that you can use to comparison shop. If you prefer to use a travel agency, don't forget that they make a commission from your ticket; the higher rates create greater revenue for the agents and their offices. If you don't ask for the lowest rate and any discounts or specials, you may be quoted the standard rate.
For cybershoppers, there are a few Web sites that list last-minute bargains. Hotels, ski resorts, airlines and other suppliers feed into the Internet's immediacy and lower distribution costs.
American Express offers Internet-only deals for spur-of-the-moment bookers of airline tickets, hotels and cruise lines
Rosenbluth Travel has "hot deals".
Being money wise is a life-long commitment. There are shelves of books brimming with good tips, from stock market advice to "penny-pincher" plans. Each good idea can save a lot over the years.
Share savings and investment tips with your most money-savvy friends. For a customized approach, consult a financial advisor who can tailor an investment strategy for you.
Alter your strategies as your priorities change during different stages in your life.
From 18 to 35, your major concerns will most likely be marriage, children, and buying a car and home. You'll also begin to lay the building blocks for a long-term investment and savings program. By starting to save at 25 rather than 35 you could double the amount of your nest egg.
During the years 36 to 55, your financial responsibilities should decrease while your income increases. Caring for your parents or paying for your children's college tuition may place a roadblock in your future, unless you plan for these as well.
From 55 on, you should be relaxing, feeling satisfied that your discipline and hard work have paid off nicely. But there are several tax and estate decisions to think about. You have to consider the death of your spouse and what estate will be left to your children without the IRS taking most of your savings. Various tax planning techniques can be implemented through your accountant or tax advisor. Another decision you'll face in retirement is when to start withdrawing funds that will now be taxed.
In all three stages, you should see planning as the key to success. Here are our investment tips, which are applicable at any stage in your life.
These suggestions are not meant to be your final investment strategy. But they will point you in the right direction.
As always, don't be afraid to talk to your banker, your employer, your financial advisor, your spouse or those whose advice you value. Keep asking questions until you're satisfied. It's critical: Your financial security is at risk.
And remember: Any worthwhile investment will require planning and commitment. If you believe even the most optimistic of statistics, only half of Americans are saving for their retirement. Don't guess what your retirement needs are going to be. Make every effort to define them.
Ninety percent of the clients who ask us to look at their investments come to us after the money has already been spent. If their investments sour, it's too late to recover the money.
Instead of hiring a private investigator after the fact, consider hiring a financial advisor before you invest. These professionals can help you design an investment strategy tailored specifically to your goals.
The following suggestions may help:
Be sure to recognize that there are dozens of financial planners in your community. With so many rating a ten, you shouldn't waste your time with any sevens or eights. Use the process of elimination. If you're the least bit skeptical, eliminate that candidate. It may take some time and research, but you deserve the best.
Don't make a final selection until you're comfortable with your choice. As the client, you should always maintain control. Withdraw your money if you get nervous. Take a small risk if your research encourages you to. Your advisor should act on your wishes and help you invest in a strategy with which you feel comfortable.
Our agency is known for its "Martin List." This list is comprised of lawyers who are the top one percent in their field, whether civil, criminal, probate, family law, bankruptcy or any other field. The one that lists the names of attorneys who are expert in asset protection and advanced tax planning has been the most difficult to compile over our twenty-eight years of experience.
But good lawyers in this field are out there. We strongly recommend that you find one who can work with you to protect your assets with advanced estate planning. Do it before a personal tragedy strikes that could impact your savings.
For more information, request the brochure "Asset Protection & Advanced Tax Planning" by Howard Larsen by calling (714) 955-3600. Or consult the law association in your community.
Many of our clients have found themselves raising children while conducting business from their homes. Although it's not easy, home-based businesses can provide tax advantages and even help your children understand financial responsibility. Our clients have shown us that the venture is usually successful if the person is self-disciplined, self-motivated and can prioritize.
Here are some guidelines if you're thinking about working at home while raising children:
“All achievement, all earned riches, have their beginnings in an idea.” Napoleon Hill