Savvy Ladies Community

Top Financial Fears

This weekend, my family and I decided to go for a picnic in the park. So we filled a basket with Dean & Deluca foods and headed outside our door to Battery Park. There, the smell of grass, the sun, and the majestic beauty of the skyline behind us should have been a wonderful experience . . . except everywhere around us, people were voicing their concerns about the crumbling economy and its impact on their financial well-being. Do I have exceptional hearing or something? I am not sure why those around us were so loud about their financial woes. A construction worker reported that it’s been months since his employer last paid him on time. A new mother was packing up the baby room in preparation for the foreclosure looming at the horizon. An investor said his doctor refused to prescribe him any more sleeping pills, but instead advised him to take his money out of the markets.

Unable to drop the topic, when I got home, I went online to research financial fears in the

US

today. These turned out to be the most common:

1. The rising cost of living. Nearly two thirds of Americans worry about their salaries not keeping up with rising costs of living, such as food, gasoline and medical expenses.
2. Job security/recession. More than a third are anxious about losing their jobs. Almost nine out of ten are concerned about the recession, and two thirds worry about the future of their investments in the shaky stock markets.
3. Debt. Credit card debt seems to keep the most people up at night, followed by student loans, medical bills, and home equity lines of credit.
4. The housing crisis. Some worry they’ll be forced into foreclosures, others suspect that high mortgage payments will force them to trade their homes for less nice ones. Still others fret over repairs and maintenance they cannot afford, and almost everyone seems to worry about falling house prices.
5. Savings. More than two thirds of people between 31 and 50 are worried because they either have nothing set aside for retirement, or can’t afford to save.

For whatever it is worth, if you are concerned about these things, you are clearly not alone. If you’ve been reading this blog regularly, you also know that there are steps (many of them small) you can take to reduce these worries and regain control over your finances.

Stacy Francis, Savvy Ladies

www.savvyladies.com

What Are Roth IRAs and How Do They Work?

This question popped up during a recent seminar, and as we dove into the topic, it turned out almost every attendee was at least a teeny bit confused about them. In case you are, too, I am going to provide some clarity below, highlighting the main difference between Traditional and Roth IRAs.

The government sets limits for how much individuals may contribute to traditional IRAs. At present, the maximum is $5,000 per year and individual. When you set this amount (or less) aside in an IRA account, you can deduct it from your taxes if your adjusted gross income is below $3,000 (single) or $8,000 (married). When the time comes for you to retire, you pay taxes on withdrawals from your IRA account (meaning, both the money you’ve saved and the returns you have made on your savings).

Contributions to Roth IRAs, on the other hand, are made on an after-tax basis. Therefore, you do not have to pay taxes when you withdraw the money. Since (hopefully) by the time you retire, you will have much more money in your account, theoretically, Roth IRAs are more advantageous.

There is, however, one major exception to this rule. If you expect to be in a significantly lower tax bracket when you retire, a Traditional IRA may make more sense. Say, for instance, that you are paying 36% tax right now, and will be in the 7% bracket in your senior years. Then it could be more advantageous to go the traditional way and pay the taxes in the future.

Both Traditional IRAs and Roth IRAs are complex and complicated, and many factors should weigh in when you decide which one to go for. Hopefully, this will help.

Stacy Francis, Savvy Ladies

www.savvyladies.com

How to Manage Student Loans

A girl in a recent Savvy Ladies seminar had just received her first student loan bill, and subsequently, her first panic attack. What was she supposed to do? There was no way she could spare that much money per month. Could she make smaller-than-minimum payments?

The answer is yes, she could. But for most people, it may not be the best idea. Here’s why.

Around graduation time, most students’ mailboxes are stuffed with offers from banks to refinance their debt and shrink their payments. So it is certainly possible. But the problem is, the longer you stay in debt, the more interest you are going to pay. And paying interest is basically throwing away money. While there are certainly worse kinds of debt than student debt, if you can stay on your regular payment schedule, it is generally wise to do so.

Another thing to note is that even if all your debt is with the same company, it is most likely split between a few different loans with different interest rates. If you do not stay on top of the company, they will apply your payments toward the lowest interest loans first – the exact opposite of what you want them to do. By making sure your money goes where you want it to go, you can save a ton of cash.

Of course, as I told the girl in the seminar, there’s no reason you can’t pay off your loan earlier just because you have refinanced it. For her, refinancing now but striving to pay it off as soon as possible is probably the best option. What will work in your case will depend on your unique set of circumstances.

Stacy Francis, Savvy Ladies

www.savvyladies.com

Shrinking Your Bills

“The problem with saving,” the woman on the elliptical next to me at the gym the other day told me, upon learning that I am a financial planner, “is that it’s so boring. I feel like I can never do anything fun.”

This, fortunately, couldn’t be less true. Try the tips below to save tons without missing out on a thing.

1. Medical expenses. The average person on a company insurance plan pays $3,600 per year in medical bills – split between insurance premiums and deductibles. Save by seeing your primary doctor first when you have a problem (specialists charge more), by shopping for items such as eyeglasses and contacts online, and by asking your doctor for a free sample when you are considering a new medication or product – to avoid paying for something you may not use. Of course, a healthy lifestyle also helps.
2. Cable, Internet, and phones (mobile and regular). To get the cheapest plan for you, analyze your usage patterns (now and in the future), and be realistic when doing so. Don’t try to save $5 per month by squeezing yourself into a 300-minutes-per-month cell phone plan if you use 600 minutes. It will come back and bite you.
3. Electricity. This is an easy place to save – and you’ll be helping not only your bill but the planet, too. Those energy efficient light bulbs really do save you money. Every single light bulb in our home is energy efficient. To shrink your electricity bill further, install motion detectors to make sure lights aren’t left on when you or the other people in your family leave a room. We also have energy star utilities and our bill has been cut by 25%.
4. Car. This is another place where you can save tons of money without missing out on anything fun. Make sure you don’t overdo oil changes (every 5-8,000 miles is sufficient), keep your tires in shape and rotate them regularly, get your car to a mechanic right away if a weird symbol lights up on your dashboard, and most importantly: slow down. Cars use far less gasoline when you go slower. Plus, it’s safer and better for the environment. Hey, what about a hybrid car? That’s another real way to save.

Stacy Francis, Savvy Ladies

www.savvyladies.com

Selecting Your Stocks: Technical Analysis

In the last entry, an email I received inspired a discussion about fundamental stock analysis. This entry covers its counterpart, technical analysis.

According to technical analysis, value is truly in the eyes of the beholder. Rather than paying attention to the book value of a company, technical investors define a company’s worth as whatever people are willing to pay for it. Technical investors therefore spend as much time analyzing charts as fundamental investors do perusing balance sheets and income statements. According to technical analysis, stock prices tend to follow certain patters -- some long term and others shorter term. The price for a certain stock can be in a short-term upward trend even while in a downward trend overall. So if the charts look right, a stock trading for ten times its market cap may very well be a good buy.

It is impossible to say which out of the two works the best. There are investors who make billions using either, and investors who lose everything they own and then some. What I can say, though, is that the problem with either type of analysis is that they assume investors think and act rationally. If a company’s assets are worth a certain amount, fundamental investors trust that’s where the price is eventually going to settle. Similarly, if the price of a stock breaks through a certain resistance point, technical investors almost take for granted that it is going to climb for a while. The problem here is that -- as you know -- most people are not rational especially in the stock market. It is therefore extremely difficult to predict their behavior; what makes them buy or sell a stock and when. So while both techniques bring valuable information to the table, it is important not to take them too literally.

Stacy Francis, Savvy Ladies

www.savvyladies.com

Selecting Your Stocks: Fundamental Analysis

I got an email from a client this morning, raving about this exceptional new stock everyone was talking about. It had already tripled since going public, and all the charts looked amazing.

Curious, of course, I went online to do some research. The company was in the mining industry, and had one early stage project, which, if everything worked out according to plan, would bring home a cash flow worth around $3,500,000. The market capitalization (the current price per share times the number of shares outstanding) was $40,000,000. Basically, the company was trading for more than ten times its worth, and yet this woman considered it an exceptional investment.

This is an excellent example of an instance where the two main schools in stock evaluation -- fundamental and technical analysis -- contradict each other. For someone who selects stocks using fundamental analysis, which deals with the book value of a company (its assets, in whatever form they come), buying this stock would be absurd. To the fundamental investor, companies trading below the value of its assets are good buys, whereas companies trading above this number are no-gos. And a company trading for ten times the highest possible value of its assets . . . well, you get the picture.

For a person using technical analysis, however, it could make perfect sense. In my next blog entry, I will explain how.

Note that selecting your stocks should follow this blog on the next day.

Stacy Francis, Savvy Ladies

www.savvyladies.com

Laid Off? How to Get Back on Track

Laid Off? How to Get Back on Track

I think most of us know someone who has lost his or her job recently. To me, this recession became a reality when a client called mid-afternoon (and mid-latte) yesterday to let me know her company had let her go. Now, being a long term Savvy Ladies devotee and subject to my continuous reminders, she has enough money stashed away to survive six months without income. But of course, she was still devastated. What did I think she should do?

“The most important thing to keep in mind,” I told her, “is that when you are unemployed, the job hunt becomes your job.” So stick to your pre-lay off routine, the only difference being that rather than hopping into your car (or the subway) in the morning, you sink down in front of your computer and get to work on those applications. If you keep at it, you will have a new job long before your emergency funding (or unemployment) runs out.

Of course, browsing job sites is not the only thing you should be doing. If you’ve been doing your networking duty, you should have a number of contacts you can get in touch with, just to let them know that if they hear of an opening, you are interested. Former colleagues, relatives, friends and college buddies can all come in handy when it comes to getting you back on your feet.

Stacy Francis, Savvy Ladies

www.savvyladies.com

Money Management for Couples: What to Do When Your Opinions Differ

Something interesting happened in my latest Savvy Ladies telephone conference. When one woman told the group that her husband’s sloppy attitude toward money was so frustrating to her, she wanted to divorce him for this reason alone, every woman in the group expressed their support. Several of the married ones even told her they could relate because they were having similar issues in their marriages.

It is no secret that “financial differences” is one of the most common reasons couples split. While sad indeed, there are things you can do to get past these issues. Below are just a few.

1. Draft a budget. Sit down together and put your expenses and financial goals on paper. Be realistic, and make sure that sticking to the budget won’t require too much effort. Remember that budgets are like diets – they never work if they’re unrealistic.
2. Communicate. It is common knowledge that lack of communication rarely solves any problems, yet so many couples fail to talk openly about their financial differences. Approach them in a calm, non-threatening way, and focus on finding constructive solutions that you work for both of you.
3. Be considerate. Whether you intend it or not, the way you manage your money will affect your spouse as well. Make sure he or she is comfortable with your spending and investment habits.

If this doesn’t work, consider seeing a marriage counselor, a financial planner, or both. They can apply an outsider’s perspective to your specific situation, and hopefully find solutions that will get you past your problems. Remember, you are far from alone.

Stacy Francis, Savvy Ladies

www.savvyladies.com

Lending Money to Family and Friends

I received an interesting email this morning. It was from a mother-of-two in her early thirties, who was broke because over the past five years, her parents had continuously borrowed money from her, supposedly to get into some miraculous investments bound to triple within six months. Of course, none of these had worked out, so they didn’t have any money to pay her back. Her children needed new clothes, she needed a new car, her husband needed a vacation . . . and her parents were giving her guilt trips for refusing to lend them more money. When she told me this story I had to keep myself from asking her parents phone number and calling them to give them a piece of my mind!

This situation may sound terrible, but I have heard similar stories before. Which is why I generally advise against lending money to family members and friends. Many friendships have ended this way, and within families things can – and do -- get really ugly. Your own children can be exceptions, but even there, make sure you

1. Put everything, including amount and conditions for the loan, on paper,
2. Have a clear payback plan, and
3. Don’t lend them another dime before they have paid back the original loan.
4. Use a lender like Virgin Money to legitimize the loan so that you protect your assets.

Like I said, in 99% if the cases, don’t do it. But if you are going to anyway, at least make sure you cover the steps above.

Stacy Francis, Savvy Ladies

www.savvyladies.com

Securing Your Job in Shaky Times

At the bar in my favorite Asian fusion restaurant the other day, waiting for a table, my hubby and I overheard an interesting conversation between

two twenty

-something women. Apparently, one of them had lost her job earlier that day, and her friend was helping her drown her sorrows in martinis.

“You didn’t see it coming at all?” the friend asked.

“Of course I did,” sobbed the newly unemployed woman. “But what was I supposed to do?”

This conversation actually took me back several years to when a dear friend of mine was laid off. We had this exact same conversation.

Actually, there’s plenty you can do to keep the same think from happening to you. One thing I continuously remind people worried about their jobs to do, is to keep learning new things. The world is constantly changing, and you need to adapt and keep up. Take an evening class or finally master that program your boss wants to implement. Ask if you can take on a new type of project. Offer to cover a colleague when she goes out of town. This does not only show your boss that you care about the company and are interested in your job – you also come across as useful and versatile; the kind of person she would separate out and hang on to in case of a mass-layoff.

Of course, there are no guarantees. But don’t forget that the happier you make your boss, the nicer the letter of recommendation she will write for you if she does have to let you go.

Stacy Francis, Savvy Ladies

www.savvyladies.com