This week: Making the most out of your money agenda, which generations are racking up the most debt, avoiding financial deception, breaking the debt cycle, and how many credits you should really have.
Financial resolutions are nothing new under the sun. In fact, four thousand years ago the Babylonians became the first society to make New Year’s resolutions (and historic records show they even made promises to the gods to pay off debts!) Getting serious about savings and making a solid financial plan are important elements to starting 2018 in a strong way. It’s time to sit down and get the agenda set. Here are 7 tips to get the ball rolling:
- Know your (money) pitfalls. It’s important to know your weakness. Whether it’s a bad financial habit you want to break (bye-bye daily latte stops), r a goal you didn’t quite meet, just being mindful about your spending habits can help you adapt or adopt new ones.
- Create a short-term goal ( achievable 2018). Break down big goals into smaller, bite-sized pieces. For example, rather than totally going debt-free in one year, rethink spending habits and create a budget to follow.
- Identify those long-term goals too. Think big picture like retirement plans or whatever keeps you motivated through 2018 and beyond.
- Make a list of the tools you need. Whether it’s a mobile app (e.g. the conscious banking app from Aspiration), books, or other online resources, find the right tools that motivate and inspire you to save smarter, budget better, and invest more wisely.
- Choose your team. It could be a partner, spouse, or even friends or family – just find a financial accountability partner to hold you accountable for your money dreams.
- Make time. With busy daily agendas, people find it hard to think about personal finances. Simply making a conscious decision to scroll a little less on social media and sit down for 5 minutes to curate a budget can literally turn finances around completely.
- Allow room for setbacks. It’s ok to mess up. Allow room for potential setbacks in your budget/financial planning. What’s most important is to begin and remember that any progress is one step closer to achieving prosperity in your personal finances.
American credit card debt has become a trendy topic in today’s headlines, but who really tallies up the most debt (and worst credit scores?) Just last year, the U.S. debt hit a record 1.02 trillion according to the Federal Reserve. Let’s talk about which generations racks up the most points to get a different perspective on debt in America:
Ranging from ages 18-20, Generation Z had an average credit score of 634. This is an age group that is just getting started on establishing credit and they typically have an average of just 1.44 credit cards per person. A typical credit card balance was $2,047 for them.
This age group (21-34) is perhaps one of the most talked about, especially on social media. Their average credit score is 638. The overall debt for millennials is around $222,000 and they have increased their mortgage debt to $198,303.
Gen Xers (35-49) have an average credit score of 658 and they have accrued the highest average mortgage debt of all the age groups at $231,774. This group also had the highest rate of late debt payments at 0.54%. For Gen Xers, their average non-mortgage debt was at $30,334.
This generation, ranging from ages 50-70, has an average credit score of 703 and their average mortgage debt is $188,828. Financially, they’re in pretty good shape with a low late payments rate of 0.3%.
This group, (age 70 plus) has an average credit score of 729 and an average mortgage debt of $156,705. Better yet, their other debts are low which is why their late payment frequency is at 0.12%.
As technology progresses, the ways financial companies can coerce us into believing they are there to improve our lives can be overwhelming. Now, more than ever, it is important to get smarter about our personal finances. The more we learn, the more empowered we become, and the less likely we are to fall victim to schemes. Here are 2 simple ways to sniff out financial deception and stay afloat:
Only work with a full-time fiduciary.
One of the reasons it’s paramount to get picky about choosing your financial fiduciary is because many who claim they are fiduciaries are only part-time financial advisors. Set your own, strict standard by choosing to only work with a full-time fiduciary.
Pro-tip: If you’re looking to get something in writing, the strongest and clearest language can be found in the Fiduciary Oath which is required of anyone who is a member of the National Association of Personal Financial Advisors (NAPFA.)
Only work with an advisor who puts you at the center of planning.
Not every fiduciary is a good advisor, so due diligence is essential to finding the right fit. Any advisor insists that their investment philosophy or planning process is the secret to your success is to be wary of. What are some signs that you’re working with a self-centered planner?
- They dominate the conversation with their accomplishments (or their firm’s success.)
- They state that your recommendations are generic or aren’t framed within the context of your own values and goals.
What about the signs that you are working with a client-centered planner? Simply put,
- You remain the focus on both the micro and macro level.
Every planning engagement should begin with what’s most important to you and your family (before even moving on to your money.) Later on, each conversation with your financial advisor should fly back to your values and your goals.
It’s hard not to grimace at the latest credit card debt stats. In fact, U.S. credit card debt reached an all-time high in 2017 and the average American household debt was around $16,000. Why is it that 68% of U.S. adults have no idea how to handle their debt (or even think they’ll be debt-free?) Let’s find out why Americans are dealing with more debt than ever and how we can strategize a plan to pay it off, once and for all.
Why all the debt?
The answer is fairly simple: Americans tend to live paycheck to paycheck without any long-term savings set aside. In fact, 59% of U.S. adults have less than $1,000 of savings in the bank and 39% have no savings. Period.
This explains why people with no savings tend to eagerly swipe their credit cards when unexpected expenses hit. It becomes a vicious cycle: not paying the credit card bill in full, carrying that balance, and accruing that interest.
How do we break this cycle?
Forget becoming another statistic, you can get out of debt.
Step 1: You have to be willing to change the way you manage and spend your money. Following a budget is necessary to narrow your path and steer you clear of debt. Write down expenses, find out where your money is allocated daily, weekly, monthly, and yearly. Of course, it’s important to cut out any unnecessary costs, especially during the beginning stages.
Step 2: Find a side gig that fits your interests. Whether you work as a freelance writer, sell items on eBay, or drive for Uber, bringing in a secondary income is an excellent way to make more while you save more.
Step 3: After making more cash monthly, come up with a solid plan for paying off debt. Take a peek at your various credit cards, find out which ones charge the most interest, and work on paying off the highest first.
Pro-tip: Consider contacting each credit card company you owe money to and asking them for an interest rate reduction. If you have a history of making your monthly payments on time, your credit card company may comply.
Step 4: If you have a good credit score, consider looking into a balance transfer offer. Transferring existing balances onto a single card with a lower interest rate means you will spend less to pay off your debt and have an easier time managing it.
Credit cards can become a transformational tool to help you make important purchases, build credit, and earn valuable perks – but with great power comes great responsibility! Let’s uncover the answers to one of the most commonly asked credit card questions so we can swipe a bit more responsibly next time.
What’s the magic number?
The average American holds 3.1 cards (with an average balance of $6,354), but there’s no one-size-fits-all answer. In truth, it depends on just what you will be using the credit card for. It’s also important that you become disciplined about paying the balance in full each month. If you feel confident that you are able to pay off your entire balance every month, opening more credit cards could actually boost your credit score.
Pro-tip: Part of your credit score is determined by the credit utilization ratio. You can get this number by dividing your balance by your credit limit. You’ll want to use 10% of your available credit line, if possible (and no more than 30%.)
What happens after you open your new card?
After you open the new card, the amount of the overall credit available to you actually increases. Assuming your spending habits stay the same, your credit utilization ratio will automatically improve. Not to mention, with regular use, your credit card can offer a host of perks like airline miles, hotel points, and cash back. Find a card that suits your lifestyle, and it could pay off big time in the future.
The bottom line.
If you have tendencies to overspend, you’re better off sticking to fewer cards or even zeroing out your use of them. Most importantly, are you paying off the balance in full every month? A “yes”, means you’re prepared to go out and open up more cards and utilize different cards for different purposes.
Photo by Andres Garcia