Leslie Ransom, CFP®
847.868.2252
Leslie Ransom, CFP®
847.868.2252
Recently, I have heard concern from clients and friends about their banks. Perhaps their concern comes from the Wells Fargo scandal last fall, Killer Mike’s call for people to put their money into black owned banks, or the more recent news about banks funding the Dakota Access Pipeline. Whatever the motivation, it’s no surprise that most people don’t trust big banks. Big banks are profit-making ventures that are responsible not only to customers but also to their shareholders, and sometimes it seems that the customers come in second place.
Despite a desire to speak with our wallets, the effort to find a new bank can be daunting and some people are concerned about higher fees, fewer ATMs or less technology if they go with a local bank or credit union. In fact, many credit unions offer higher interest rates and have lower fees since they are not paying out dividends to their shareholders at the end of each quarter. Smaller banks are also able to offer better rates as they have fewer shareholder obligations.
Credit Unions are nonprofit cooperatives that exist to serve their members. You can become a member of a credit union through an employer, an organization such as a church or social group or a community. While they cannot serve the general public, the rules of membership have become very expansive and are often based around location. Credit Unions often offer great educational tools to help you manage your money. Additionally, when they issue loans they are literally putting money back into the community they serve. If you are interested in looking for an available option near you, the Credit Union National Association offers a great search tool to find an option near you.
If you cannot find a credit union near you or one that appeals to your needs, you might consider a smaller local bank. While they remain a for profit business, the fact that they are smaller often means they have stronger ties to the community and are more likely to know their customers. Also, most of them are not publicly traded and therefore have a smaller burden of dividend payments to their shareholders. Many small local banks include mission statements on their websites which speak to their community values and goals. You can also look to a few websites such as the Global Alliance for Banking on Values, Community Development Bankers Association, or the Independent Community Bankers of America. You can also ask around to your friends and family to hear their feedback on smaller banks and how they see them in your community.
Many online banks offer better rates than their brick and mortar companions but they may not offer you the separation from big banks that you are seeking. For instance, Ally bank is associated with the lending arm of General Motors (GMAC) and Simple is owned by BBVA (Spain’s 2nd largest bank). With any institution that you intend to use for banking, take a look behind the scenes to see if their ethics align with yours.
If you have looked around and decided that you want to move your money out of a big bank, you should make a list of all the parts of your life which are touched by your banking needs. You will want to make sure that any bank or credit union you chose to work with can accommodate your banking needs. Consider not only if your new bank offers the same services but what fees might be associated with them. These might include:
Once you are sure that your decision is the best for you both in terms of convenience and personal values alignment, you are ready to make the switch. I would recommend that you make the switch in stages:
If you are moving more than one account (checking, savings, etc) follow similar steps for each of them. You just want to avoid any unnecessary charges for overdrafts or missed payments.
Once it’s all done, you can sit back and feel more comfortable about how your money is being used. Then you just need to think about your credit cards ?
Happy New Year!
The new year is an interesting time. We are simultaneously looking back at the year that was and anticipating what the new year will bring. We know very little has changed from the night before but we embrace the idea that January 1st begins as a clean slate and we can make changes to our lifestyles that will make it better than the year before.
As I look back on Year One of Indie Financial Planning, I realize that I need to spend more time sharing my thoughts and ideas with you here. So, as 2017 is just beginning, I have a few ideas to help you jump start any resolutions you may have to get your financial life in order.
As you begin to write up your 2017 resolutions, look back at the past year to help motivate yourself and establish reasonable goals. For instance, if you resolved to read a book a week in 2016 but only managed to get through a few “think pieces” posted on Facebook, you should consider what stopped you from reading more. Maybe things were so busy at the beginning of the year that time and energy were lacking. After you missed your goal for a couple weeks, you decided it wasn’t going to happen. Or, maybe you started reading a book and it just didn’t click with you (even though lots of friends said it was great) so you put it down and didn’t pick up another for a while. When you are looking at a new resolution, perhaps saying 1 book a month makes more sense. Or, perhaps, you should embrace the idea that you prefer James Ellroy or Stephen King novels to “Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right” despite what the New York Times Book Review said. Accepting time limitations or your personal interests rather than what people say you should do will help you succeed. Maybe, after you get through a book or two by March, you will start finding ways to make more time or find different genres that interest you.
Looking back at your financial year can also help you develop good habits in the new year. Did you want to do something in 2016 but had to postpone or downsize the event due to a lack of funds? How can you use this to help you in 2017?
After you have a list of your expenses, look at your monthly take home pay (after taxes and any other expenses have come out). What is the difference between your pay and your Static and Savings Buckets? This is what you have left for the Dynamic bucket. Can you give yourself a consistent weekly or monthly amount to fund your Dynamic Bucket that will leave you extra for savings? Looking at your expenses this way and trying to shape your spending moving forward will be easier than trying to adjust after the fact.
Making resolutions is a natural response to a new year. While you are getting ready to dust off your gym shoes, take a little time to review the basics of your financial situation and set yourself up for a more secure financial year in 2017. If you need a little extra help getting a start on your budgeting and planning, you know where to find me!
Last week I got an email telling me I could get $30 off a purchase of $150 or more if I used their company credit card. It was very tempting. I started putting together an order. A few items I’d been meaning to get. It was nowhere near the necessary $150. I started trying to think of things I wanted to build up my order. Then I stopped. I didn’t really NEED anything in the order. While 20% off is a pretty good deal, I still had to spend $120 to get that deal. Since I have only recently launched a new business, I really can’t afford to spend money without reason.
The experience got me thinking about how easy it is to run up credit card debt. We are bombarded with “deals” from all sides. The promise of cash back or airline miles to make us think we are getting something for free. Or we are told we need a credit card to build a credit.
Household credit card debt is on the rise again in the US. According to Value Penguin, the average American household has $5,700 in credit card debt. If we look only at households who carry a balance on their cards (ie: do not pay the full balance each month), that number rises to $16,048. If that amount was carried on a card with a 17% interest rate (most cards charge between 13% and 24% interest) payments of less than $230 per month would not cover the interest and the balance would continue to grow. If you were to pay $250 each month (with no additional charges), it would take over 14 years to pay off that balance and you would end up paying nearly $42,500.
It is important to understand the cost of using a credit card and ways to keep the balance from getting away from you.
Create a Budget: If you ask most people how much they earn in a month, they can give you a pretty good idea. However, if you ask them how much they spend monthly, you will probably get a blank stare. Taking a long look at your income and spending might be very enlightening. When you start to see how those trips to the coffee shop or the “occasional” pizza start to add up, you may be surprised. Since your credit card is not tied to your bank account, you can run up a quite a bill without seeing a change in your checking account balance. Don’t think of a budget as restrictive. It is a structure that allows you to monitor your cash flow and maximize your spending and saving. If you are not keeping track of your cash flow, when the credit card bill comes along, you could be in for quite a shock. At the very least, check your balance once a week to keep your spending in check. Budgeting software such as You Need A Budget (YNAB) or Mint allow you do download your transactions. Without a budget and some thought to articulating goals to save towards, you are probably going to overspend.
Start an Emergency Fund: This is a key part of any financial plan. Ideally this will hold between 3 to 6 months of expenses in cash. You may think you have better uses for that cash but you will be happy to have it there when the car breaks down unexpectedly or a computer virus crashes your hard drive. One of the surest ways to get into debt is to find yourself in a situation where you must pay (hospital bills and car repairs are prime examples) but don’t have the funds on hand.
Know How Your Card Use Effects Your Credit Rating: People tell you that you can’t have a credit rating without a credit card. And, of course, credit ratings are used for all sorts of things from loans, apartment rental applications and sometimes even job applications. Your credit rating is also a factor in the interest rate you pay on your credit card. How you manage your credit card is more important than just having a credit card. While the ultimate formula for credit scores is a bit mysterious and involves ALL debt and bills, these are two important factors:
Pay Your Bills on Time: Any late payments on any bill will negatively affect your credit rating. You don’t necessarily get any brownie points for paying bills in a timely matter but one late payment on a $50 bill will be a ding on your record. The issue is that you made a late payment, not the size of the bill.
Watch Your Debt Burden: Your debt burden is the amount of debt you have with respect to your credit line. If you regularly hit the limit on your card, your credit rating will be negatively affected. Lenders want to know you can manage your credit. In general, it is recommended that you keep your debt burden at less than 30% of available credit.
Learn to Use Your Card to Your Advantage: If you track your charges and make sure you are staying within your spending limits, credit cards are a valuable tool in your overall financial picture. Take advantage of what they offer.
Are You Paying Too Much For Perks? If your card charges a fee, what are you getting for that? Is it really worth it? I get offers for an airline card which would let me get on board early and check one bag free but there is an annual fee of $99. If I don’t make at least 2-4 trips where I plan to check a bag (figuring a $25 bag fee) that card is not worth the perk. There are cheaper ways to get free miles. There are plenty of cards that offer cash back with no annual fee.
Pay Attention to Your Billing Date: Know the monthly cutoff date for your card. This way you can buy yourself an extra month to pay off a purchase. I have one card that closes around the first weekend of each month and one that closes around the third weekend of each month. The date of my purchase may determine which card I use. Items that are charged early in the cycle will not come due for nearly 2 months whereas a purchase made days before the end of the cycle will be due much sooner. Having an extra 3-4 weeks to pay for a high ticket item could be very beneficial.
Don’t Believe the Hype: Cash back sounds like a great thing. In fact, it is a great thing. Just keep in mind that if you do not pay off your credit card in full each month, that 1%-2% you are getting back is being offset by an average of 17% interest. That is a losing formula. Additionally, you should realize that those miles or cash back are being paid for by the merchants who accept your card. You may see merchants who offer lower prices or special perks to clients who pay cash or they may insist on a minimum amount to charge. In the recent past, Blue Cross Blue Shield of Illinois has stopped accepting credit cards to pay premiums and the City of Chicago charges a fee of 1.86% if you want to pay a parking ticket with your credit card.
Credit cards are a great tool. They facilitate purchases online, they allow us to carry less cash around and they give us a little extra time to come up with funds for major purchases. You just need to remember that those benefits come with huge penalties if you do not take responsibility for your charges. Take some time to think about what your goals are (buying a home, taking a vacation, retiring before you are 65) and whether you are saving enough to reach those goals.
Thanks to Michael Kitces.
https://www.kitces.com
It’s been nearly 2 months since you made your resolutions for 2016. How are you doing? Me? I decided I need to get more fit. I sat down the other day to really think about what I needed to do to stick with it. I tend to overdo it at the gym and either hurt myself or make myself too sore to keep it up. Then I remembered that a friend had asked if I go to the gym nearby. I took a look at the gym’s website and saw they were offering a special on personal training sessions. I found my answer. I talked with my friend and she is excited to have someone to join her for classes or workouts. I added personal training sessions so that I do things right and I have accountability for making those sessions. Plus, my friend and I can catch up while we cool down.
It is well documented that having a buddy or someone to hold you accountable is an important motivator when you are working towards a goal.
What about your financial goals? Will accountability help you there? Of course it will.
Saving for any financial goal is fraught with the same pitfalls as any other challenge.
Having someone to help you define your goals, outline ways to reach them, motivate you to keep going and hold you accountable to working towards them will greatly improve your chances of success.
Indie Financial Planning is just getting started but I am looking forward to helping you start building new financial habits.
Welcome to the new Indie Financial web site. It is my hope that this site will provide a clear explanation of my services and capabilities. If you have any questions, I encourage you to contact me.
Thank you!
Leslie
