#AskDWM

+ What is the first step to handling money better?

One of the first steps to handling your money better is to understand your money habits. I suggest writing down or looking at your expenses (mobile banking app, Personal Capital) to see what you have been spending the last couple months. This will help you get insight on what you really value. Knowing what is important to you and what you spend your money on is crucial to seeing where you can cut back or save more.

+ I’m almost in my mid 30’s and I just keep buying things I don’t need and keep verging on going into debt. How do I stop spending?!

Well, I believe you made the first critical step by acknowledging that you have a bad spending habit. But before you go into debt, here are three things you can do to help curve that spending habit to get you back on track:

1. Start budgeting! This will help show you where your money is going; in turn, you can cut back where needed.

2. Put a hold on using your credit card and delete the auto-fills to your favorite shopping sites. If you pull out your credit card to input your numbers during checkout, you might rethink those unnecessary purchases during the time it takes you to put them in.

3. Try using cash for the next month. Using cash allows you to visually see the money coming out of your wallet. If you know you have to make the cash last for a certain period of time, this will help you cut back on your spending.

It’ll definitely take some discipline, but if you need any help, feel free to reach out!

+ What is the best way to start saving/budgeting as a new graduate with an empty bank account?

First off, congrats on reaching that milestone! Adulting might seem scary at first but it’s manageable with the right tools in place. Before getting that first check, set a small personal savings goal to reach. It can be something as simple as saving $25 a week for 3 months. This will help you build a good habit of putting money aside for the future instead of blowing every dime. This can be achieved by setting up automatic transfers or even using applications like Digit that save for you. In terms of budgeting, start by writing down your monthly income and expenses to see where you stand at the end of each month. Understand that it’ll take some time to get use to and don’t beat yourself up if you spend over your set limit. But as long as you’re saving money and not going into the red consistently, you’re doing great! If you have any questions feel free to contact me.

+ How can I set my child up for financial success?

Great question! There is no standardized formula to set our children up for financial success, but here are three things I plan to do when I start having children.

1. Teach them about the value of money, savings, and debt early. Having a strong foundation is one of the keys to financial freedom.

2. Set up a 529 Savings Plan. This type of account is a tax-advantaged savings plan for your child’s future education expenses. Taking on unnecessary student loans can take a toll on our finances when we are trying to save for the future.

3. Help build their credit history early. We can put our children on our credit cards at pretty much any age (depending on the credit card provider). By the time our children are of age, they will already have a history that will allow them to potentially get better rates on borrowed money (car loans, mortgages, etc). In return, this will help them save hundreds/thousands over the long-term.

+ How do you create a realistic budget?

One of the first steps to creating a realistic budget is tracking your spending. After you understand your money habits, develop some financial goals! It can be something as simple as saving for a trip or starting a small emergency fund. Next, write it down or use an application like Mint or Personal Capital to stay on track. This will allow you to see where your funds are going and adjust where you see fit. I definitely plan to talk about budgeting very soon so stay tuned! In the meantime, if you need any help building a budget or want to chat Iive, check out the services page for some of my coaching sessions.

+ What method do you use for budgeting?

I actually developed my own budgeting allocation called the “40/30/20/10 Rule”. The rule represents the percentages for each category found in the budget. 40% is for your fixed expenses, 30% is for your variable expenses, 20% is for your savings/investing, while the 10% is for your checking account. Since this rule has been working great for me, I have implemented the rule into my coaching sessions and work with the individual to tailor it to their financial situation.

+ What is the best kind of savings account to get?

The best kind of savings account that everyone should get is the one that has the highest yield (APY). We call these High Yield Savings and they are growing in popularity as of late. It’s one of the best ways to earn as much interest as possible while you’re saving your money. There are plenty of banks that are offering around 1.50%. Just to name a few: Marcus by Goldman Sachs, Barclays, and Ally. (Rates are as of April 2020)

+ What is a "sinking fund" account?

Think of a "sinking fund" as a specific savings goal to be utilized at a certain period of time. For example, you can create a "sinking fund" for christmas presents or even that trip to Mexico you wanted to go on. Once you determine your budget and timeline, you're good to go! A "sinking fund" can be an easy way to save for your specific goals and prevent you from falling into the debt-cycle when using your credit card for major purchases.

+ I am trying to capitalize my savings. Which would be better for me to start with? A Roth IRA or high yield savings account?

Hi there! Before going into what you should start with, I think it is important to understand some of the key differences between the two.

• Purpose. Typically, individuals use Roth IRA's (or other related vehicles like IRA, 401k) for retirement reasons while high yield savings can be used for some of your short or long term goals like your emergency savings, home buying, or that trip next year.
• Access. Once your money is invested in the Roth IRA, you can't withdraw your money without a 10% penalty until you reach 59.5 years old unless its fall into the IRS Penalty Free Categories (e.g. buying first home, qualified medical expenses etc). On the other hand, with a high yield savings you have the ability to withdraw your money as you see fit.

But to answer your question. If you are just starting on your savings journey, I personally think a high yield savings is the best route to go at the moment due to the access you will have to it. Get your savings account to a healthy amount (e.g. $500, $1000 or 3 months of fixed expenses) then reassess your total financial picture (e.g. income, debt). It is very important to invest your money as a means to grow it, but it is also important to have a solid foundation. Trust me, it is a balancing act so let me know if you have any more questions. And remember, with investing in a Roth IRA there is the possibility for your account to lose value. Don’t invest any money you are not willing to lose.

+ Would you still recommend the Marcus by Goldman Sachs savings account or do you have another preference?

Hey there! I personally still use Marcus by Goldman Sachs because they offer a competitive APY for their savings accounts (As of April 2020 it is 1.55%). However, there are several other High Yield Savings we can all consider when determining where to save our money. Here are a few other options to consider:

• Ally Bank: Offers an APY of 1.50% with a $0 minimum balance. Also, they have a free checking account as well if you are looking for a savings account that is more easily accessible when compared to other platforms.
• Barclays: Offers an APY of 1.50% with $0 minimum balance
• Capital One: Offers an APY of 1.50% with $0 minimum balance

Ultimately, we should all be looking to get the most interest for our money while saving!

+ How much should one have in their savings at 25?

Hey there, great question! So there isn't a set formula on how much one should have saved up during each year of their life. However, I think the bare minimum anyone should have saved up at any point in time is 3-6 months’ worth of their fixed expenses in their emergency fund. If you haven't started an emergency savings yet, shoot for $1,000 first, then go for the 3 months’ worth of fixed expenses. When we start talking about retirement, that’s when things get a little complicated for each person and there is some personalized retirement planning needed. The earlier we start saving for retirement, the better because compounding interest will work in our favor. As a starting point, I personally think any person in their 20's should aim to save/invest at least 15-20% of their take home (including 401k contributions) to be on a solid trajectory for the future. If you need help coming up with a personalized savings/budget plan for your 20's, feel free to check out the coaching page to sign up for a session.

+ I have an emergency savings but what I’ve been struggling with is how do you know what’s an emergency vs. what you can afford. Any advice on this?

When it comes to determining a true emergency, I think we should ask ourselves a couple questions:

1. Is it unavoidable?
2. Is it truly needed?

If you answer yes to both, I think it is safe to say its a true emergency. For example, if your car needs a major repair and its your only form of transportation. Or even a sudden job loss and that job is your only form of income.

+ What’s the best platform for a Roth IRA?

The best platform for a Roth IRA depends on what you are looking for in the platform. There are a few factors we should all consider when deciding where to park our money: cost, user involvement, and product offerings. Depending on the platform, cost can be calculated on the amount of funds you have in the account or on a per trade basis. I’ve seen platforms charge up to $4.95 per trade versus 0.25% (annually) of the money in the account. Next, how involved do you want to be with your Roth IRA account? Some platforms invest your money for you (robo-advisors) while there are other platforms where you are responsible for choosing the investments. Lastly, consider what products you are able to invest in. There are platforms that strictly focus on Exchange Traded Funds while others offer products such as single names and mutual funds. For the reason’s above, that led me to parking my money with one of the top robo-advisors out right now, Betterment. Feel free to email me if you want to chat more.

+ Which 401k plan (or Roth IRA) do you recommend?

Whoever you choose to open your IRA or have your 401k with, will have different options for plans. It ultimately depends on your situation and how involved you want to be in the process. I know people that pick and choose how they want their plans allocated (e.g. stocks versus bonds). While people like myself, choose target date funds/plans for convenience. Target date funds/plans allows the investor to deposit their funds and let the fund manager do the heavy lifting. Over time, the fund manager usually adjusts the risk exposure based on the date the investor selected. I believe target date funds are best for beginner investors or for people who just don't want to do the heavy lifting when it comes to choosing their investments. As always, please don’t invest anything that you are not willing to lose and do additional research to understand what works best for your situation.

+ Considering the new tax laws, would you recommend contributing a higher percentage to your 401K versus transferring to a savings account? In the event a person is in need, they can always borrow from their 401 and avoid the high tax contribution.

I believe there should be a balance. Yes, it is true that one can borrow from their 401k but there could be a 10% penalty associated with the borrowed money if you borrow prior to reaching the retirement age and it falls out of the IRS Penalty Free categories. These categories consist of: buying your first home, qualified medical expenses, and qualified education expenses. Anything outside of those categories will most likely be assessed the withdrawal penalty. In my opinion this is where having a healthy emergency savings comes into the equation to prevent one from having to borrow from their 401k and incur the fees associated with early withdrawal. There are definitely other ways to decrease your Adjusted gross income (AGI) ultimately decreasing your taxable income such as contributing to a traditional IRA or Health Savings Account (HSA). So ultimately, we shouldn’t ignore having liquid savings to decrease our taxable income because Uncle Sam will certainly get his money regardless. However, if your emergency savings is healthy I am all for contributing more in vehicles that will make your money work for you. As a reminder, don’t invest any money that you are not willing to lose.

+ What are your best suggestions for rebuilding credit? I have collections accounts and no credit cards from poor money handling decisions. I only pay student loans. Should I hire a credit specialist or obtain a secured credit card?

I think one of the first things that needs to happen is getting a handle on the accounts that are in collection. This will help get those remarks off your credit report sooner in addition to cutting down the amount of debt you have. I do believe that getting a secured credit should be apart of your equation to rebuilding your credit but since you mentioned poor money habits, that needs to be addressed as well. I would definitely love to work with you to get a handle on your debt and come up with a tailored game plan to help you rebuild your credit. Use the code “BUDGET” to receive 15% off the initial session. Also, feel free to check out my blog post on Credit Scores to gain more insight on the factors impacting your score.

+ I currently have personal loans, student loans, and credit card debt. Which one do you think I should focus on paying off first?

Great question! The order in which you pay off your debt is a common thing people struggle with. In this particular situation, I would focus on the debt with the highest interest. By tackling the debt with the highest interest, you are saving in money on that compounding interest and ultimately time because the interest can prolong the loan. This could help save you hundreds if not thousands of dollars in interest using this method. This is also known as the avalanche method. However, some people might want to pay the smallest debt off first to get that boost of motivation (snowball method). I actually go into detail about these methods in a recent blog post.

+ Aside from scholarships, how can I attend my dream school without that shadow looming over me?

First off, I just want to say congrats on getting into your dream school! With your Expected Family Contribution being roughly $30k for the first year, I can understand why that might be stressful especially if you don’t know how you will pay for that. Here are a few options you can consider for the upcoming year.

• Test out of some classes. Collegeboard offers test that could potentially give you credit for those gen eds that we all have to take. And its a lot cheaper than $30,000.
• Ask the school for more money. There is nothing wrong with writing a letter to the financial aid office explaining your situation. You might be surprised you could get more aid which could make the financial burden a little less.
• See if Columbia offers any income share agreement for students. It would be a way to get financing for your school and after graduation, you would pay a percentage of your salary to pay back to the school.

And the last option to really consider is getting student loans. Before taking them out, consider your post-graduate earning potential from your major to make sure you will have the ability to pay them back after graduation. Trust me, the loan provider will be expecting their money back. But overall, there is no right answer on how to finance your college career. In a perfect world, we all wish school could be free! You ultimately have to do what you are comfortable with!

+ Would you recommend paying off student loans first or investing in a home?

Whew! This is a loaded question. It’s difficult for me to give a concrete answer due to me not knowing your current situation at hand. However, there are a number of factors we should all consider before deciding whether to invest or pay down our debt. One key thing I think everyone should have before deciding is a nest egg (emergency savings). This will provide some sort of cushion for your finances that is liquid enough for times of need. Following that, understand what interest rates you have on your student loans. Typically, I believe anything between 3-7% is a good low interest rate that is manageable when compared to the typical credit card interest rate. Lastly, understand your current debt-to-income ratio. A lot of mortgage lenders calculate this when determining if you qualify for a mortgage. But ultimately, you have to be comfortable with the level of debt that you have at once. Again, please do not invest any money that you aren’t willing to lose. But let’s chat if you want to take a deeper dive into your question.

+ Is it financially better to lease or buy a vehicle?

Vehicles are one of the main depreciating assets that we will all need or want at some point of our lives. In terms of whether to buy or lease really depends on your lifestyle/financial situation. But here are 3 factors we should all consider when making this decision (for the sake of comparing apples to apples, this will be for brand new cars).

• Monthly cost: In most cases, the monthly cost of leases are cheaper than owning. With a car loan, you are paying for the entire price of the vehicle plus the interest on your loan. While leasing, you are mainly paying the depreciating cost of the vehicle during your term.
• Maintenance: This is covered the entire time of your lease due to the manufacturer warranty. If you buy the car, you will be coming out of pocket for these types of expenses once your warranty is over.
• Flexibility: There are no yearly mileage restrictions unlike leases which usually impose a limit of 12-15k mile a year. However, you have the ability to get a different car every 2-3 years without the hassle of trying to sell your vehicle when leasing a vehicle.

Based off those 3 factors, we are leaning more towards leasing. No matter the option you choose, make sure to shop around to get the best bang for your buck.

+ Does getting married impact your credit score?

Great question! Although my fiancée and I have “excellent” credit scores, this has definitely crossed my mind. The act of getting married does not impact your credit score at all. Your credit history, payments, and balances will not suddenly appear on your spouse’s credit report just by getting married. This is due to our credit scores being associated with our social security numbers and when we get married, our social security numbers are not combined. If you and your spouse decide to open a joint credit card or become authorized users on your current cards, that is when you may see an impact to your score based on credit history or credit utilization.

+ I have $3,000 in debt that I want to pay off. What are the best steps to doing this on a low budget?

Great question! One of the first things you should do is create a budget to visualize all your expenses. In return, you can see where your money is going to and cut back accordingly. Some things we could all consider are cutting our cable bill and getting a firestick, cooking at home more often, or even taking public transportation if needed. The next thing do is pay more than the minimum! That is the only way you will tackle your debt faster and trust me, anything extra will help. When it comes to handling debt, shoot for milestones. This could be paying off a balance on one of your credit cards or simply paying off a certain amount by a specified time. However, DWM is here to help so if you need helping putting the pieces in place, feel free to contact me for a one-on-one session!