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It’s been difficult this week to write about personal finance because dishing out financial advice seemed inconsiderate given what’s going on in our country right now.
No matter whether you believe protesters are justified in looting, vandalizing, and even burning down the already struggling retail stores, I’m sure the horrific killing of George Floyd and the subsequent events that followed affected you in some way.
My skin color isn’t black, so I dare not claim to understand the injustice and all the intricacies of unfair treatment that the African American community has suffered throughout the history of America. But as an Asian immigrant moving to Canada as a child who now lives in the US, seeing the breathtaking video of the murder stirred plenty of emotions and brought out memories I didn’t even know I had inside me. [ continue reading… ]
Have you refinanced your mortgage yet? And I know this sounds like a commercial, but you are likely missing out on some savings if you haven’t looked at refinancing options.
With rates at historic lows, many homeowners already cashed in by refinancing in the last couple of months. In fact, the mortgage lender I worked with a couple of months ago told me that he’s been in the business for a few decades and he’s never seen the amount of volume they were pushing through.
And I believe him, because we were exchanging emails and phone calls all hours of the day, seven days a week. He’s been working nonstop, and likely raking in the cash.
Luckily, we can join in on his party if we can get a better rate on our mortgages. And while you are thinking about loan options, ask the lender whether adjustable-rate mortgages (ARM) makes sense for your situation. [ continue reading… ]
Is there such a thing as a secure job in this day and age? Even if you are a top performer at your current company, is your position truly safe if a natural disaster can wipe out your company’s revenue for months at a time? The harsh reality is that with the current state of the economy, there’s always the possibility that you could lose your day job and thus put your household finances in a major pinch.
Sometimes losing your job is voluntary though. Do you hate your current profession? Do you have other priorities? There could be more important things in life that require you to quit your day job, even if it means taking on additional financial risk.
How do you prepare if you are facing a 50% pay cut? I want to share with you how Steve, one of our readers, handled it. [ continue reading… ]
Sandy knows she is growing her savings by having a surplus each month and putting it in high yielding online savings accounts. When she was puzzled about budgeting, she wrote in to ask:
I have $100,000 saved up in bank accounts by following good frugal practices that you and others outline. I however don’t budget and never keep track of my expenses. I know I’m saving money because my account grows every month. Why should I budget?
Good question Sandy.
I know it’s tedious to keep the expenses tracking up-to-date. Plus, it’s not like neglecting to enter all the data has any immediately noticeable impact on us anyway. However, maintaining a budget is like maintaining a bridge. There may not be problems even if you neglect maintenance for a long time, but consequences can be disastrous when an accident finally occurs. There are many reasons to make a budget and keep track of all expenses aside from growing a surplus. I list a few below for your consideration: [ continue reading… ]
Did you know that part of the recently passed The Coronavirus Aid, Relief, and Economic Security (CARES) Act lets you withdraw $100,000 from your retirement funds without incurring the 10% penalty normally applied for early withdrawal? For a typical family with two working adults, that’s up to $200,000 of funds the government is letting you tap into without being penalized.
The provision didn’t get much coverage in the media, and that’s why not everybody knows about it. Still, having access to this money right now must be very tempting for those who are in limbo because of the shutdown. Is withdrawing now worth it? What are the details?
Raiding Your Retirement Account Due to Coronavirus
Basically, you are allowed up to $100,000 in distributions from qualified retirement accounts for reasons due to coronavirus in 2020 and the IRS won’t levy the typical 10% early withdrawal penalty.
To further sweeten the deal, taxes based on the withdrawal can be spread out over three years to lessen the tax load for any particular year.
And as if the incentives aren’t enticing enough, you also get to contribute the amount you withdraw back into another eligible retirement plan within three years if you so choose. [ continue reading… ]
Imagine that you are shopping for a used car and see a nice one on the lot. After negotiating back and forth with the salesman, you manage to agree on a price that’s several thousand dollars less than the list price. I bet you would sign the title feeling like you got a great deal. Now imagine if the list price was a few thousand dollars lower to begin with, but the salesman refuses to negotiate.
You end up paying the same price, but the feelings you have about the purchase is probably quite a bit different.
This is one of the mental money traps you can fall into.
There are a few more, and this is a long read. So grab some coffee, and let’s get into five of these today and what you can do to avoid the pitfalls.
Mental Money Trap #1: Outsmarting the Anchor-Price Comparison Trap
The used car lot example is called price anchoring. By having a relatively high list price on used cars, customers will remember that price tag and decide whether they got a good deal or not based on that initial price.
The tendency to use the first piece of information we hear or see as our “anchor” for making subsequent spending decisions is called the anchor price comparison trap (some also refer to it as the relativity trap or focalism). This happens most frequently in categories that are new to us, where we have nothing to compare to the prices we encounter.
Whatever you choose to call this behavior, it’s a verifiable bias built into our mental wiring, and it can cost us a lot. The good news is that you can outsmart your own tendency to create pricing anchors with a few simple strategies. [ continue reading… ]
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