Seeing the Forest Through the Sales

Seeing the Forest Through The Sales by Judith Heft

Forest-through-the-trees syndrome is a condition that afflicts us all at some point in our lives: We get so entrenched in what we are doing (the trees) that we cannot see the big picture (the forest). And while this is true in all aspects of life, personal finance is like Patient Zero of forest-through-the-trees syndrome. 

One of the things that I find myself repeating over and over again is that a sale is not a sale if you have to pay interest on the item. Stores offer all sorts of incentives to sign up for their credit cards, like offering 10% off of everything you purchase on the day you sign up for the card. But ask yourself: Am I going to pay down the balance right away, or am I going to let this “sale” item accrue interest? 

Here are some tips for looking beyond the sales rack: 

  • Just say “No”: It wouldn’t kill you to stay out of stores altogether.
  • If you are unable or unwilling to pay your credit card balance off in full every month, take it out of your wallet.
  • Avoid trends and buy high-quality items. Blue jeans were cool, are cool, and will always be cool. 

When you think about it, you probably only wear 20% of the clothes in your closet, 80% of the time—so reining in clothes shopping habits will most likely have a 0.16% chance of affecting your day-to-day life. 

Of course, this advice is of the easier-said-than-done variety. If willpower is an issue, I’m not ashamed to share the tactics I’ve used: Put your credit card(s) in a large bag of water and freeze it. That way, if you get impulsive, you’ll have to wait a few minutes to get access. 

Another mistake people make time and time again is to go about their lives with no concept of their monthly spending. I say monthly because all of the things that really matter—rent, mortgage, phone—are billed in monthly increments. How should you go about it?

  • Track your income and expenses using Quicken or other accounting software in order to get a real sense of your situation.
  • Sign up for online access to as many things as you can (credit cards, bank accounts, utility bills).
  • If you don’t use a computer (no judgment here!), go out and buy yourself some spiral notebooks and write everything down. 

Taking those most basic steps to understand the ebb and flow of your finances is vital, but what should you be looking out for once you have all the data? Well, how many of these do you have: 

  • Memberships on dating apps and websites;
  • Subscriptions to magazines and newspapers; or
  • Kids who play online games? 

I had a client who let her son use her credit card for online games—one of the games that have “in-app purchases” on the App Store. It turns out that her credit card was being charged every time her son played the game—and whenever he wanted to purchase special powers, get to a new level of the game, etc., it was a dollar. This ended up costing her $1,000. Note: Pokémon Go has “in-app purchases”! 

Having the wherewithal to pay for your kids’ college or to build a wheelchair ramp for your dad is important. By looking at the big picture and using that information to inform your choices, you’ll find yourself in a much better position to meet such challenges head-on. 

Contact me for more information!

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Poll: What Is Your Biggest Financial Regret?

You can learn from your mistakes. Hindsight is 20/20. History forgotten is history repeated. These may be clichés, but there is more than an ounce of truth to them. That’s why I decided to reach out to my friends and ask the question, “What is your biggest financial regret?”

My friends being as awesome as they are, the answers I got were not only interesting but thoughtful. And as our first commenter notes, there is a common theme:

The two things that I see with almost every client is that they did not start saving early enough towards retirement or for financing the education of their children. The result is, in many cases, having to cut back on lifestyle to finance these two goals. The alternative in education financing often is burdening their children with exorbitant student loans.

Next up is someone who works in the financial industry with some of their own inside information:

The biggest financial regret I made is that I put my children’s private high school and university education at a higher priority than my own retirement.  

Today, as a professional comprehensive financial planner,  I sometimes counsel my clients differently.  

Of course, it’s unique to each client, but some clients should save into their tax deferred accounts first, because those funds aren’t counted in the university’s scholarship and grant pool. And today, there are so many more opportunities for the children to qualify for grant and scholarship money—and are often needs-based.

If the child needs to take out subsidized Stafford loans in junior or senior years (interest starts six months after graduation), the parents’ funds continue to grow in the interim, and when the parents turn 59-1/2, they can withdraw funds to cover the children’s shortfall—if there is one.

Depending on where the child begins his career, there are also many more sign-on bonuses where a company will cover the child’s student loans once he/she is hired.

Retirement surfaces again in this next testimonial, but it also brings up the issue of “staying home with the kids”:

1) Not scraping together the money when I was 26 years old to buy a townhome in Hoboken. I could see that it was just ready to emerge and since then real estate has done very well there.

2) Although I have saved more than most people my age for retirement, as I approach 50 (I just turned 48), retirement and the amount of money needed for that seems “right around the corner,” and I am worried about my ability to save enough to live as comfortably as I want.  I wish that I had saved more, earlier. Especially because this would have not been a huge impact on my overall lifestyle, yet would have meant the difference between buying 5 new shirts that month or 1. Even that small amount would have added up to a lot so that now it would not feel so daunting! I know I”ll make it there, but wish I was further along.

3)  I took 1.5 years off when [my son] was born and another 2.5 years. Although I know I did the right thing for him by being around more, it was a big financial impact, and I lost 4 years of income in my highest earning years. So although I don’t know if I ultimately would have done anything differently, I do sometimes lament that I could have been a lot further along now in securing financial security.

Some comments were as humorous as they were insightful:

  • That I did not get long-term care insurance when I was young enough to make it affordable.
  • I didn’t start a retirement savings plan early in my career.
  • That my husband is also a self-employed person!!!!!!!!!!!!!!!!!!!!!!

And lastly, the single, solitary bit of wisdom that didn’t mention retirement:

  • Purchasing a timeshare with my partner that we never use and cannot sell!
  • Breaking the lease for our office space and being taken to court with the result being tens of thousands of dollars of rental to be paid out of pocket!

My friends have spoken. Now it’s your turn: What was the worst financial mistake that you have ever made?

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Chips and Dips: The Smart Cards Have Landed

If you haven’t received one yet, a chip card is most likely on its way to you.

Judith Heft & Associates, Stamford, ConnecticutChip cards (also known as smart cards or integrated circuit cards) are your new frenemies, and they are not going away.

The “Fren”

Chip cards prevent fraud, plain and simple. If you remember the Great Target Data Breach of 2014, then you know how easy it is for hackers to intercept card numbers and even duplicate the cards themselves. And it’s not just retail establishments—criminals have been able to coopt the ATMs of major banks, record the magnetic impression of the inserted cards, and then put them to use buying things like Adidas tuxedos in Moscow or what have you.

The new cards work by dipping the card into a reader, and exchanging an encrypted, unique code with the merchant. The chip itself is resistant to being duplicated, and the information it exchanges with the card reader does not include the account number on the card.

Europe and Canada have been utilizing chip-based cards (using PINs instead of signatures—a topic for a whole other blog post) for years, and many Americans traveling there have been caught unawares and faced great inconvenience when their magnetic swipe cards proved to be useless.

Even if you are not an international traveler, chip cards should make you feel safer reaching for the plastic in every environment here at home.

The “Eh, Meh”

There are also some important differences between magnetic and chip cards that are occurring behind the scenes. The driving forces behind the change are Visa and MasterCard. In order to persuade retailers to make the switch to chip, the two payment system giants are changing the way disputed charges are handled. Whereas disputed charges have historically been refunded by Visa or MasterCard, neither company will continue to do so for non-chip cards in the future—so if your card was fraudulently used to buy something at Wal-Mart, it is Wal-Mart (not Visa or MasterCard) which must reimburse you. Will this really affect us as consumers? The jury is still out, hence the big “Meh.”

The “Ees”

Not everyone likes chip cards, especially cashiers. As we make the transition, these poor souls have to contend with customers who a) may not know when to use them, b) may not know how to use them, and c) do not like waiting an extra few seconds for their transaction to process. Several executives of Wal-Mart have made public comments critical of the new cards, as well.

The Takeaway

I personally think we should embrace the new system. Waiting five more seconds at checkout may seem like an eternity, but it’s really just five seconds. If, before chip cards started coming out, a pollster would have asked people if they could tolerate spending five more seconds at checkout to avoid fraud, most people would have agreed to it. It really is a small price to pay for more peace of mind.

In fact, a chip card would have saved me from credit card fraud several years ago. Looking over my statement, I noticed a series of incremental charges from midwestern states. According to my bank, that card had been swiped—even though it was home with me in Connecticut the whole time.

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