Give Yourself the Gift of Kicking Murphy Out For Good

tiny gold christmas gift
Financial peace of mind is a gift truly worth to give yourself.
This time of year, many people start considering vacation ideas and designs for the next year or a new TV or appliance for the home. It is understandable why people shop for these things this time of year. You’ve worked hard the whole year, there are holiday bonuses coming, you want to reward yourself and your family. There are many justifications for the spending. These justifications are met with encouragement; the holidays are when over 70% of consumer spending happens during the year, so substantial discounts lubricate the decision-making gears, removing resistance from buying.
Now, imagine owning a home and having a terrible storm come through your community. Your house is fine, but the roof is damaged, and after insurance you still have a bill of $5,000 to pay. Or you are driving and accidentally run over some debris on the road and you need to replace a couple of tires and a bent wheel, costing you another $600? What if you got sick and had to be out of work for an extended period of time, with medical bills and lost wages for a month or two to recover from your illness? Maybe the market hits an unexpected downturn, causing a layoff at your work, and unfortunately you are laid off.
How would you pay for it? Would you be able to pay in cash, or would you need to use a credit card or get a loan from a friend? If you have to borrow the money, how quickly could you pay it back? How much in interest would you be paying? If you had to withdraw money from a retirement account, think about the potential taxes and penalties you would be paying, let alone the lost growth of those assets.
Now, what would happen if two of these things happened within a month of each other? Or three? Or more? Without income, could you pay your monthly expenses? Put yourself in these shoes for a moment and be truly honest with yourself – would you be carrying debt, accruing interest, and stressing out as the costs mount?
If this sounds like you, I’ll be blunt – you need to get your priorities in order. You need to think about what being comfortable truly means. Is it about having the latest iPhone, Apple Watch, Nintendo Switch, or large-screen 4k television? Is is about going on an Instagram-inspired adventure costing you thousands of dollars? Or is comfort knowing that you have the resources to tackle any problem, any situation, and be able to afford it? Protecting yourself, protecting your family, maintaining a healthy and happy life, is far more important. When I question people about this, I never get argument about which someone would choose – a television or their child’s education, a new iPhone or having an extra $20,000 or more at retirement. And yet time and time again, we put what we want now ahead of what we will need later, and it kicks our butt over and over and over again.
Aren’t you tired of getting your butt kicked by Murphy rearing its ugly head in your life?  If you are, I have a few thoughts for you on what to do with that holiday bonus.
1. Take that holiday bonus and instead of spending it, save it in your emergency fund. Your emergency fund should be 3-6 months of expenses – not income, but expenses. The idea here is that even if jobs are cut, wages are cut, the market drops and bad things happen, the regular expenses of your household are covered for an extended period of time.
2. When you buy gifts, be deliberate about how much you want to spend, on whom, for what. This means being brutally honest about not just what you can pay for, but what you can actually afford to give. No family member or friend should ever want to see you financially suffer just to hand out bigger gifts. It is not worth it. You are worth it to be disciplined about this.

3. A recent study from Virginia Tech talks about the “paradox of gift giving” – that more isn’t always better. Better to give one concentrated gift than a number of small gifts – the value of the one gift is perceived to be greater than what opening lots of small things feels like, because we remember the lows of the small gifts, not the highs of the bigger ones.
4. When saving for your emergency fund, do not try to get cute with it putting it into a risk-exposed asset like stocks or bonds. Your emergency fund is meant to defend you from life risk, so it is counterintuitive to expose it to risk. A combination of checking and/or high interest savings is fine, so long as it is easy and immediate to access and doesn’t require selling an asset to do so. As you build wealth, your emergency fund will represent a very small portion of your overall assets. Being clever can threaten the integrity of those savings.
Murphy never schedules in advance, and never forewarns us when it wants to rear its ugly head in and cause pain and suffering to ourselves, our families, and our finances. By giving yourself the gift of an emergency fund at 100%, you won’t take away the pain of writing the check when something breaks or goes wrong. But you will be able to sleep very well at night, knowing that even if that happens, you can cover it without taking on debt and without worrying if something else goes wrong tomorrow. That’s a very liberating and valuable gift if you ask me.

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Your Holiday Emergency Preparedness Plan

 

defocused image of illuminated christmas lights

Lights and Cheer and Credit Card Charges are Coming! Wait, what . . . ?!?

Every year, millions of Americans prepare to celebrate the holidays with their families. From decorating our homes to preparing delicious food, making sure travel plans are solid and that everyone’s gifts are covered, we want to make sure everyone has a happy holiday season.
And then January comes. And perhaps the bill that is associated with all that “cheer” hits like a Mack truck, and maybe the better part of a quarter or even half a year is spent paying off those expenses. That’s a lot of money in interest charges, a lot of money being pulled away from things that are likely more important, like retirement, like the emergency fund, things that we know we need in case something bad happens, because bad things can happen to everyone. For the average American, it takes until March or April of the following year to pay off holiday charges. That’s a quarter of a year gobbled up with holiday spending.
The thing is, the holidays mean different things to different people, be it a time for reflection, for celebration, or looking ahead to a better year, but they all share one quality. The holidays draw out our emotions, and that often includes how we spend and save money during that time of year. Want proof? According to Deloitte’s “Holiday Season” survey, between 2000 and 2017 there was only one year, ONE YEAR where more than half of Americans said they would spend less than previous years during the holidays.
That year was 2009. One year.
I want you to think carefully about about the financial impact the Great Recession had on wages, on the economy, on jobs, on families. Does that statistic make any sense at all? Financially speaking, no, it’s pretty illogical. This galvanizes the point that our spending decisions, many times, are not based on strategy or logic, but based very much on how we feel.
Here’s a little more evidence: According to VisaNet’s Business and Economic Insights, over 9% of holiday purchases happened during between Thanksgiving and Cyber Monday, with 27.1% of spending occurring in the two weeks before Christmas, the heaviest days between 12/22-12/24. In each of these cases, urgency, either caused by the sales being promoted or by the time left before the holiday, caused an emotional reaction and spending reflected that.
That’s why right now, when I meet with clients I am talking with them about what I call their Holiday Preparedness Plan. Akin to an emergency preparedness plan, where you make sure to have non-perishable goods and medical supplies and flashlights and know where to go in the event of a natural disaster, the Holiday Preparedness Plan is made to help make sure my clients know what money is planned to be spent, in what way, on whom during the holiday season. We work together to budget food costs, travel costs, extras that may come up, and make sure that those expenses are addressed so there is no “surprise” come January. It’s not an effort to be stingy, but it is an effort to be intentional about what you spend.  I want you to enjoy the holidays the way you mean to, but not dread the bills in January wondering why you spent so much and worrying about dipping into savings or spending several months paying money back to Visa and American Express.
During this month, either for yourself with your partner, take some time to relax, enjoy a beverage, and spend a half hour drafting your Holiday Preparedness Plan. Make your list of people you’re getting gifts for, set a dollar amount for each, and check it twice. With the average shopper potentially spending upwards of $1,000 this holiday season, having a detailed plan of attack and sticking to it could make a big difference in how much “cheer” you have when the holidays are over and 2019 has begun.

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