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You’re too old to go trick-or-treating. Goblins and witches don’t scare you anymore. Nowadays the things that go bump in the night are real-world worries—from your fear of going upside down in yoga class to how scared you are to check your bank account balance on Monday morning after a particularly carefree weekend.
Unfortunately, we can’t do anything to help your headstand (though we hear using a wall for balance helps), but we can offer advice for some of the money issues that you’re afraid to address. So, this Halloween, instead of pulling the covers up over your head, plugging your ears and singing “La-la-la-la!”—meet your financial fears head on. They’re only scary when you avoid ’em.
The fear: Wading into that pile of bills
How to Get Over It: First: “Go through them one by one,” says Natalie Taylor, a CFP® with LearnVest Planning Services. You just have to take it one bill at a time. If you keep letting them stack up, it’s just going to get worse. Once you get started, you’ll build up momentum and want to keep going.
To keep the pile-up from happening again, advises Taylor, set up automatic bill pay to cut down on the mail you receive at home. However, automated bill pay is best used on fixed expenses (such as a gym membership, Netflix, your mortgage), while variable expenses like your cell phone bill or electric bill should never auto-deduct because their cost depends on usage (say, a $100 bill one month and $150 the next).
The fear: Asking for a raise
How to Get Over It: Pick the right time. You’re itching to pull your boss aside to have a delicate conversation about giving you a pay bump but … you’ve got cold feet. We don’t blame you. The secret? First, spend a few months going above and beyond your job description. Be the star employee who’s top-gunning it all over the company—winning new business, impressing clients and knocking important projects out of the park. The best time to negotiate is when you’re riding high from a big success, and make sure you can quantify how your contribution is fueling the company’s bottom-line interests and values.
And remember: You must be your own advocate. You might think that your employer should take notice of how you’re hunkering down at your desk, head bowed and typing away, and that your hard work will speak for you. But that’s not always, or often, the case. Yes, work hard. But also: Speak up.
The fear: Paying for a medical emergency
How to Get Over It: First of all, know that your fears are merited. “This is a legitimate fear,” says Taylor. “One of the main causes of bankruptcy is medical debt. Of course having an emergency fund is super important, but the first line of defense is adequate health care coverage.” If you’re not covered through work, find out how you could potentially get coverage through the Affordable Care Act.
And, yes: By having six or more months’ worth of living expenses socked away, you can increase your peace of mind if your emergency isn’t covered. (At the very least, says Taylor, “get in touch with your insurer and find out what a maximum out-of-pocket expense would be, and make sure that your emergency fund is enough to cover it. For out-of-pocket maternity costs, for example, I’ve seen anything from $100 to $5,000, but they can vary widely.”) Don’t have this in savings already? Don’t worry, you’re not alone. The June 2013 Bankrate Financial Security Index report found that most Americans (76 percent) don’t have this much in their emergency funds. But with the average emergency room visit costing $1,233—40 percent higher than the average American rent, at $871 per month—you could be one mishap away from financial trouble. Calculate: How much should I set aside for emergencies?
The fear: The economy tanking or stock market crashing
How to Get Over It: Keep in mind that you are probably investing money for the long haul, so the trick is to not be too swayed by immediate gains or losses. Says Taylor: “I even recommend that clients write out an intention statement that they can refer to, something like, ‘I know that this is a long-term investment and that being in a well-diversified portfolio maximizes my returns in the long-term, so even if I see the market drop, I’m going to stick with it.’” In other words, with the money you invest, you “set it and forget it.” “Control your behavior so that you’ll get market-like returns,” says Taylor. “A lot of investors lose money by getting in and out at the wrong time.” You shouldn’t invest money you’d need to pull out in the next three to five years. Historically, the market has returned at a 7%–8% average, but you may get that only if you’re able to wait out the ups and downs.
And, really, a market downturn isn’t necessarily the worst thing in the world—which is to say, in Taylor’s words, “When the market drops, that’s the time to buy like it’s the sale rack at Banana Republic.”
The fear: Never getting out of debt
How to Get Over It: Maybe it’s your student loans. Maybe your spending went off the rails and you racked up too many credit card purchases. “The scariest part is not knowing how much you owe or what your payments look like and how they can fit into a realistic budget. So the first step is getting your arms around your debt,” says Taylor. How to do that? Pull your credit report and see who and what you owe.
Then put a game plan together for tackling your number. Look the amount square in the face … and do something about it. (If it’s student loans that you’re trying to tackle, and you’re a teacher or work in some other kind of public-service industry, Taylor suggests researching loan-forgiveness programs to see if you qualify.) What we want you to know: You can get out of debt, though you might need help creating and sticking to a plan.
The fear: Never saving enough to buy a home
How to Get Over It: You see all your friends who seem to be buying homes left and right … and you feel left behind because you’re still renting. “When it comes to real estate, people really get into comparing themselves to others,” says Taylor. We get it: Homeownership is an “I’ve arrived!” hallmark baked into our cultural psyche. In an October 2013 LearnVest survey, “The American Dream 2.0,” 77% of respondents say that owning a home is an achievement that they most associate with the American dream.
But it’s not an automatic rite of passage. It’s one of the biggest purchases you’ll ever make, and one you should only consider if you’re in a good financial place to make that investment. And it might be that you’re still enjoying the perks of not owning a home. “There are substantial benefits to renting,” says Taylor, who touts the flexibility of being able to upgrade, say, from a one-bedroom to a two-bedroom, without having to sell your place first, and the limited out-of-pocket expenses, because when something breaks, it’s usually not on your dime.
Still, if owning a home is your American dream, and you’re saving toward making it come true, then keep in mind that it’s a stalwart purchase. “You should generally only buy a home if you’re going to stay in it for seven to ten years,” says Taylor. “The housing market goes up and down, and you want to have time to build equity so that you’re not under water when you sell.” Another way to avoid being the proverbial under-water seller: putting a full 20% down.
The fear: Being poor in your retirement
How to Get Over It: First of all, you’re not alone. According to the National Institute on Retirement Security, the typical American family has only “a few thousand dollars” socked away for the golden years. “This is a fear more people should have!” warns Taylor, who adds: “It takes trade-offs in our regular monthly spending. We need to carve out money on a regular basis to save for later.” And the sooner you start, the better. (The October 2013 LearnVest survey “The American Dream 2.0“ revealed that most people think that they’ll be working until at least 65—though they would like to retire at age 60—and nearly two-thirds see themselves working a part-time job once they are retired.)
Start by figuring out how much you’ll need to live in retirement. Then, investigate your savings options. See if your employer has a 401(k) matching program (that’s free money!). If you’re self-employed, consider a Roth IRA or a traditional IRA. Remember: There’s no such thing as a retirement loan, so it’s up to you to think ahead.
Many of us are unprepared for the future, but it’s never too late to reboot your retirement savings. “Just get started,” says Taylor. “And you can start small, putting aside 3% of your income at first, then every six months increase it by 1%.” And know that it might take you a while to get up to the recommended savings amount. According to Taylor, a good rule of thumb is to contribute at least 5% of your income if you’re around 25 years old, at least 10% if you’re 30, at least 15% if you’re 35, and at least 20% if you’re 45.
Reprinted with permission from LearnVest. LearnVest and SunTrust Bank are independent entities and not legally affiliated. LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc., that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. LearnVest Planning Services and any third parties listed, linked to or otherwise appearing in this message are separate and unaffiliated and are not responsible for each other’s products, services or policies. LearnVest, Inc., is wholly owned by NM Planning, LLC, a subsidiary of The Northwestern Mutual Life Insurance Company.
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