Tag Archives: debt

OMG: 36% of Americans Have NO Retirement Savings

broke-lebowski-meme-generator-i-ve-got-four-dollars-almost-five-c6f85d

 

The concept of “retirement” always seemed a bit funny to me — after all, why save up all of your recreational time for the years when your body is expediting its rate of decomposition? Retirement wasn’t always a thing just as engagement rings were not always a thing (read a good recap of how retirement came to be on The New York Times.)

It turns out that when you’re older, keeping your mind and body busy with work can help you live longer (no really, it’s proven that retirement has a detrimental effect on health in old age.) Research from the Institute of Economic Affairs and the Age Endeavor Fellowship found that both mental and physical health can suffer — increasing the likelihood of clinical depression by 40% and having a diagnosed physical condition by 60%. That said, not everyone has the luxury of working until they kick the bucket, even if they wanted to, and even if it would be better for them statistically speaking. Between disabilities caused by your body slowly falling apart and the fact that many employers just don’t like old people, most employees stop work well in advance of the time their soul peaces out.

For “us millennials” we have this opportunity to determine what we want in our retirement or non-retirements, to at the least have a choice that many boomers now don’t have because of the great recession. Continue reading

When a Friend is Deep in Debt

I’ve mentioned my friend Jessica* a few times before, often discussing her poor spending habits. Now, Jessica is a great girl with the best intentions. She’ll always put a friend or loved one’s needs before her own. I don’t have that kind of patience or selflessness, and I admire that trait in her. However, I’m worried about her debt, even though it’s not my problem, and wish there was a way I could help her.

This month, she revealed to me that she is $12k in debt. While that isn’t terrible, what is painful to watch is that this girl, with all her talent and skills, could easily obtain a job (even a minimum wage job) and pay off her debt within a year or two. But, being selfless as she is, she refuses to leave her administrative position with the family’s business, which has suffered greatly with the economic collapse.

Jessica consolidated a few of her credit card balances and has managed to pay off $3k of her debt, bringing it down to the current $12k total she owes. She works a few small jobs here and there, but what the small jobs do is make it impossible for her to obtain steady work. Without a college degree, I know it would be hard for her to find a decent job, but isn’t it worth working a job you dislike for a little while to pay off your debt and build an emergency savings fund?

It hurts me as a friend to watch her constantly worried about her debt, her bills, and how she’s going to afford the next month. She lives in a house owned by her parents so luckily doesn’t have to pay rent, but it sounds like there have been months when the parent’s house has been close to going into foreclosure. The whole family is so nice and I just wish I was rich enough to buy them all out of debt, but then I also wish I could buy the whole country out of debt and teach everyone to live within their means. Too bad no one would listen.

Today, I asked Jessica what games we’d be playing on New Years at her party night and she said she might buy a new game with her Christmas money. I just wanted to write back and say don’t buy a game, however much money you got, put that into savings. Pay down your debt. Don’t buy a game with it. But I can’t do that. I can’t help at all.

Reader Question Thursday: How Do I Get out of Debt, Fix My Credit, and Save Money? Part 1

Every Tuesday I’m going to try to answer a reader question. The question can be about anything related to personal finance. You can also ask me a question about anything you’ve read on my blog. If you ask me a question I don’t know the answer to, I’ll do the research and get the answer for you. 🙂

Please ask me question(s) in this post so I can get started and pick one to answer next week. Today, I’m going to answer a reader question from last night. Feel free to chime in with your advice by posting a comment.

Tamara “Tam” Major said…

“…i’m 25 and i wanted to read what others were writing at my age. ive really enjoyed reading your blogs the past few days – but i honestly have no idea where to get started saving in the finance world. my husband and i just got married and my plan for the new year is to get our credit up, get out of debt and save as much as possible. if you have any suggestions on where to start id really appreciate your input.”


thanks,
tamara

Tamara, great for you in doing research on how to get your credit up and get out of debt. I’m not sure how much of my blog you’ve read, but I’ve never been in debt for many reasons that have nothing to do with my being good with managing my money. But now that I’m a personal finance blogger and looking to save, I apply many of the principles of getting out of debt to saving money (though not always perfectly, as my readers will attest.)
That said, there are many great personal finance bloggers who are or have been in debt, and have impressively pulled themselves out of debt in relatively short periods of time by being really smart about their spending.
Let’s break this question down into three parts… I’ll start with part one in this Reader Question Tuesday… how do you get out of debt?
Some of this may be obvious to you, so forgive me for starting with the basics. Making a budget (and sticking to the budget) which includes a significant debt repayment each month is going to be key. I don’t know about your spending habits so if you already do this and are extremely frugal and have absolutely no funds to spare for debt repayment, then this advice may not be as relevant for you. However, if you buy things you don’t “need” — even if that’s a latte from Starbucks or a song off iTunes, it’s time to re-think your spending patterns.
Suze Orman is a great resource for debt reduction. She is a tough-love type advisor, which is what people need when they’re in debt. (And when they’re out of debt and living on a limited income). I don’t always agree with her but at the core she’s probably the best resource for learning how to get out of debt. I skimmed her book Young, Fabulous and Broke when I first got out of college and found it provided some great advice for 20 somethings who are in debt. You probably get get it at your library, or read it at the book store if you don’t want to buy it right now.
Secondly, I recommend reading all the wonderful personal finance blogs available where people have written about how they got out of debt. Since I don’t have these stories, on the debt end you’re probably best off reading some of these other blogs. Here are a few to check out:
Give Me Back My Five Bucks (by Krystal at Work) — Krystal has $17,000 of debt and got out of debt in ONE YEAR! Now she’s started an emergency fund, savings, a retirement portfolio, and I bet her credit score has improved too. She has a sub-section of her site about getting out of debt where she provides a lot of advice through experience.
Also check out Ugly Debty, Out of Debt Debt Again, Blogging Away Debt for starters. Lots of the personal finance blogs out there were started by people in their 20s and 30s about getting out of debt. If you are so inspired, start your own blog to track your process and goals. I find it is really helpful to have your goals read by the public… even if only one other person is reading your blog, you’re accountable to that one person. You’ll think twice before buying that latte.
Another helpful tool that I write a lot about is Mint.com — on Mint you can connect all your credit cards, debit cards and see your debt-to-income ratio, track your budget and your expenses. Sometimes just getting a clear picture of where your money and where you can be saving is a huge help in getting out of debt.
Figure out how much you can afford to live on, realistically, but cutting back on things that you think cost too much in your life. Make a budget based on that. Pay your debt off first. If you have time to do side jobs, do them, and put that money straight to your debt. The quicker you can pay it off, the better.
Without knowing how much debt you’re in, what your income is, what kind of debt (education? car? credit card?) it’s hard to give you specific advice about how to get out of debt. If you comment with some more details, I’ll post them in this blog.
Also… readers… please chime in with your advice for Tamara. 🙂

How Will I Pay for Grad School?

It has become increasingly clear to me that in order to pursue the career I want to have, I’ll either need a miracle or a masters degree. I’m mostly looking forward to the latter, after all, my undergrad years were tainted by depression, self-doubt, immaturity, and academic confusion. It really is time for me to go back to school, focus on what I want professionally, and hopefully thrive.

The cost of thriving, however, is keeping me questioning if grad school is worth it. There’s also plenty of other options that may work out just as well in the long run in terms of my professional life. I can take classes, read lots of books, teach myself, work my way up in the world. But I’ve done that with my current career and while it’s been fun, I don’t think I could stand to start from scratch entirely. The programs I’m looking at offer great connections and job prospects (esp if the economy starts picking up by the time I graduate. If it doesn’t i’ll prob be unemployed anyway.)

All that said, I am still freaked out about the cost of grad school. Sure, as of May I will likely have about $35k in savings, but that’s for my retirement and emergency fund. School will cost me about $100k for two years if I count in the cost of living. I may be able to work part time to offset some of those costs, but still, even if I could get it down to just the cost of tuition (about $60k total) that’s, like, double what I’ve been able to save in the past 25 years of my life. And I’ll be losing upwards of $120k for two years that I would have made if I remained employed. So the whole thing would cost me $200k or more. Yikes!

Those numbers are enough to keep me out of grad school. I’m so jealous of my boyfriend, who is going to get a free ride to grad school, courtesy of his frugal mother who doesn’t spend money on anything. So she’s saved up enough for him. In a way I want to pay for myself because it will be worth more. I think my undergrad education felt like a free ride. My parents were paying, it was what I had to do, it wasn’t for me, I didn’t understand the value of an education in line with my professional development.

Do any of you have experience with 529 plans? They sound like they might be a good idea to start saving for grad school… if the market starts to go up. Esp if I can put in a lot of money now while we’re in this recession (I feel really bad for the people who put money in before the recession and lost 30% or more). In California the tax savings on a 529 isn’t that great… well you don’t get a state tax deduction (same with the HSA) – but you do get the federal deduction. And the money you use for education can be spent tax free. I can’t figure out if that’s as good of a deal as it sounds.

Also, there is still the chance that there will be a miracle and I won’t end up wanting to go to grad school at all. Then my 529 plan will be stuck. I can use it to fund my children’s college education – but then I have to have kids. 🙂

I don’t understand how anyone has the balls to go into debt for grad school. Not sure if I do.

People My Age Are Stupid

…so says a new report by the AARP. In a survey of folks ages 19-39, the majority of them didn’t seem to be worried about credit card debt, or the fact that they weren’t saving enough for retirement.

I’m glad that I surfed on to An English Major’s Money blog about two years ago. I don’t remember how I got there, but reading her blog and other PF blogs made me feel more confident about investing and saving. I was almost too ashamed to invest or save at that point, given that I had money tucked away already. But then I realized how I needed to start making that money work for me, and not to feel bad for doing so.

But most 20-somethings are dumb about these things. If they’re lucky, they’ve got an employee-sponsored 401k plan with match, and they contribute some of their earnings to that because their employer recommended it and salesman from mutual fund firms came and pitched the horrors of not being prepared for retirement in order to sell their high-fee funds. Unlucky and they’d be in credit card debt with no savings, no “emergency fund,” and definitely no retirement fund for the future.

I’m so grateful to the personal finance blogging community for getting me on the right track.

"It’s None of My Business, But…"

My good friend has a problem with money. I want so desperately to help her get on the right path, but anything I say would come off as judgmental.

My friend, let’s call her Lisa, is an intelligent 20-something gal. She has a high school degree but dropped out of college because it wasn’t for her.

Her parents own two smallish houses in an area where real estate costs an arm, a leg, and a gold mine. She lives in one of them. She doesn’t pay anything for rent, etc.

Her parents also own a small business. She works for them part time. Since I’ve known her, the business has been struggling a bit. They’ve kept it going, but her paycheck of something like $1000 a month doesn’t always come in on time.

Lisa is knee deep in credit card debt.

Lisa owns a few pets. She recently bought a dog. She loves her dog. But the dog costs a lot of money. She’s already paying to take care of a cat and a bunny rabbit.

Recently, Lisa went on a trip with a friend who was auditioning for a show down in Los Angeles. While they didn’t stay in a luxury hotel, Lisa did pay for airfare and half of the rental car. According to her blog, her friend didn’t plan in advance, so she had to put the rental car on her credit card, which just happens to already be maxed out. Lisa took the trip just for her friend, and she’s only staying for two days, basically to wait for her friend to audition, and then return home.

It’s none of my business, but I just want to understand why someone so deep in credit card debt would buy a dog and take an unneeded trip. These purchases add up fast.

I guess some people live their lives just accepting credit card debt as the norm. But I don’t understand how they do this.

I want to help Lisa get out of credit card debt. The friend side of me wants to lend her money to pay of her credit card bills so she can not be taking on such high interest rates. But I couldn’t do that because the likelihood of that scenerio ending pretty is rather low.

Do any of you have friends who just spend, spend, spend without thinking about their credit card debt? Have you ever tried to step in and help?