Life Lessons 101

Everything you needed to know, but was never taught in school.

Is Social Security Running out of Money?

by Leave a Comment

So the answer is Yes, and No. Should you worry, the answer again is Yes and No, or how much are you willing to slow the issue.

The Problem

OK, you might think that is not a good answer, but it is correct. The statements about Social Security running out of money, is actually it not being able to make full payments. (example)

So, and this is just as an example, let’s say you should expect $1,000 dollar a month payment. We’re using that number just for simplicity. Being only able to pay 78%, means that instead of $1,000, you’d only get $780. If you were supposed to get $2,000, you’d get $1,580. Either way, it’s a fairly serious cut in payments, and it will be in that position in just a few years.

So you will get some funds, but you are at risk of losing some. This is most likely going to affect young Gen Xers as they just hit retirement. Older Millennials will be right behind them.

Why is is a Problem

Most people are surprised to learn that Social Security doesn’t pay what you are used to making, rather it is a portion. So their lifestyle takes a hit right off the bad. When you drop that further, it makes normal every day life more difficult as well.

Outstanding debt is harder to pay, and it makes it difficult to make normal necessary payments.

This wasn’t considered as big of an issue when most people had paid off their house by the time the retired, but with more people renting, and buying homes later in life, you could run into a situation where you still need to make a house payment, car payment, etc.

Why is it Running out of Money

Social security needs incoming money to continue to make payments. Workforce participation has been dropping, and that hurts the money coming in. With the Pandemic of 2020, 2021, 20?? there has been layoffs, people quitting, people retiring early, etc. This is reducing the number of people putting money into the system and increasing in the number of people taking money out of the system.

How Bad Will it Get?

In theory, Social Security could essentially run out of money and not be able to pay anything. However, that would be political suicide for anyone in office, and their party, so our government probably won’t let that happen.

Instead, they will increase the payments going in (increase taxes), reduce the payments going out, change the age you and withdraw from, or other things to keep it going. I’ve be surprised if they let it actually get that low, however, they’ve known about this issue for 20+ years, and they like to kick the can down the road. The longer they wait, the harder it will be to solve this problem.

What can you do?

So the real question is, what can you do? You can always run for office, but one person trying to fix a problem that the rest of the politicians only seem to give lip service too doesn’t sound likely.

Instead, consider opening a 401K or similar retirement fund. The earlier you do it, the better, however, anytime is better than never. It’s much like the best time to plant a tree was 20 years ago – so you can enjoy sitting in its shade today. The second best time is today, so it can start to grow and be ready in the future.

Additionally, look at getting out of debt. Anything you can do to get out of debt to reduce future payments will help you. Doing so will help you more than you can imagine.

Do I need life insurance?

by Leave a Comment

As a young man, I didn’t think much about life insurance. I mean, the odds of me dying young were slim…

However, something happened about the time I turned 25 that changed my mind. It was the birth of my first child. Before that, I was married, but we both worked and either of us could support ourselves on our own, had a small apartment and no real debt.

However, after the my first son was born, my wife stopped working to provide care for him full time, as he needed it. Having two people to care for changed my perspective on many things. Add the small house we bought shortly after, and things started to come into focus even clearer.

Having someone who depends on you financially meant I need to be able to provide for them, even if I wasn’t there. I still wasn’t making a lot, but wasn’t sure what I needed and what I could afford. Many places will either tell you things like “10 times your salary” or “as much as you can afford”. I thought those were a little foolish as each situation is truly different.

So here were some things I put into my thought process.

First, I looked at my debts

I was looking at things like house payment, car payment, student loans etc. Most of these I had worked to pay down or eliminate. However, the house payment took a little more time, so I added those all together.

As you get older, and have been paying down on many of these larger loans, you may find that you can lower the amount of insurance you need. This is good because insurance prices normally go up as you age.

Second, I looked at my salary

I thought about how much time my wife and I thought it would take her to get a new job and get up to speed. Not having any debt payments over her head would help, but things like dealing with the grief, kids without a parent, etc could slow things down. Depending upon if your partner is currently working as well, and you need both salaries, or if they work only to bring in extra income, or they don’t work outside of the home. You will also want to consider their education level, will they need new job training, job prospects, etc.

All of these factors will vary the amount you want to look at. Talk it over with your spouse.

Typically this is a multiplier of your annual income, such as 4x for four times your annual salary, 10x your annual salary, or something in between. Know that without any debt, and assuming you wouldn’t expect your spouse to get into more debt right away, 4x your annual salary may last for 6 to 8 years, maybe even more! To get a better idea, look at your budget.

Third, Look at future needs

Look toward known future expenses. Do you need to add something for college savings for your child, or do you know that having a new car would be important as you don’t have new cars and if you aren’t there you can’t go get them in an emergency.

College savings tend to be the biggest thing people consider, and it is important. Not only what college costs now, but what will it cost in the future, and should they go further than that, such as preparing them for a Masters or other degree.

A lot of that has to do with your kids, and knowing what they want.

Many people estimate that $100k is reasonable to consider for 4 years of school, but this will vary based upon if they live at home, go to a private school, etc.

I know someone who as a freshman in high school they are looking at wanting to go into the medical field, most likely as a surgeon. She is studying hard to get every scholarship she can but it will still cost her. You might need to leave more for her.

Things I forgot to consider

Funeral and other immediate costs. Funerals are not cheap. Between the cost of burial, a plot, etc, medical bills that might occur, etc, there is a lot of things you have to consider.

You might always need to consider the cost of counseling for your spouse and children, especially if it is unexpected – which in many ways I would hope it would be as a young person.

Family care was another thing I didn’t think of. This would include child care as my wife would need to return to work, lawn care, etc.

Life Insurance through work

Many people can get life insurance through work, and usually it is cheaper than through other means. This often has limits, like 5x your salary, so see if it’s enough. Several places I worked at offered me 1x my salary for free as a perk… I usually tried to max that out, as it was cheaper, but not always.

The bad news is, if you lose your job, or they change benefit packages, you may lose this perk, so don’t put all of your eggs in this basket, and/or be willing and able to quickly get another policy somewhere else.

Life Insurance through your regular provider

Additionally, you might be able to get insurance through your regular insurance carrier. I got a small policy because it gave me a multi-policy discount and I actually paid less overall having the extra insurance.

Closing Thoughts

No one like to things about life insurance, as it requires us to think about things we’d rather not…like death. But like taxes, death is the only other real certainty it seems like.

Set aside some time to speak with your spouse, partner, etc.

Having life insurance, as well as a will, are things you need, especially if you have others that depend upon you.

I don’t typically recommend talking to people outside the professionals helping you and your spouse. It seems like everyone wants to put their hand out for some free money, whether it be a worthy charity, your parents, of your siblings for a gift for your niece or nephew. Sure you can use a life insurance policy to gift people with some money, build generational wealth, etc, but that’s typically a bit extreme…and I don’t want to give anyone a unnecessary reason to want me dead.

Picking Professors (and your College)

by Leave a Comment

A lot of times when people pick a college they look at the campus, the amenities, how well the football team is doing, how closer or far it is to home, etc. However, if you care about your future career, you need to look at your professor. This is actually one of the key things that will help you not only during college, but afterward. Knowing the right professors can help you get a job, move on to grad school, etc.

True story: I was looking at going to grad school, or getting a job when I was close to graduating, so I talked to one of my professors I had for a couple of classes. He recommended a different school for grad school or suggested a couple of places I might like working. I interviewed at one of the places he recommenced and they interviewing manager goes at the end of the interview, professor ______ said I should I hire. Basically he hadn’t seen any big red flags, and so that recommendation good enough for him. I wish all my interviews were that easy.

Unfortunately, no one usually tells you that you can talk to, or at least request to talk to your instructors. So here I am, and I always recommend doing that if possible.

But what if you can’t talk to them. Maybe they are at a conference, teaching a class, etc. Well there are several things you can do.

LinkedIn

LinkedIn is a professional networking website. It allows you to look at a user’s work history, and start to get a feel for their specialty. Now, a lot of people’s LinkedIn profiles and posts are not fully flushed out. They may only have minimal data, but that is OK.

I like using LinkedIn compared to other social media sites like Instagram, YouTube, or Facebook, because often there is more than one person on a site with that name. With LinkedIn, since people put their work history, you can see better about it.

Rate My Professor

There are various websites out their that let you rate your professor. Some are better than others.

The good about them, is that this information is being made public about a school and/or professor by a set of students.

Unfortunately, the criteria used isn’t always helpful. For example, some might ask how easy/hard a class is, and if the professor is “hot”. They usually don’t focus on questions like, “how much did you learn”.

Let’s face it, a “hot” professor isn’t going to help you pass a professional licensing exam. In fact, a professor which is too easy, may not help with that either. But a professor who is hard, but helps you learn, can make your career that much more successful.

Google

Be careful with your Google results. Just as there may be duplicate people on a social media site with the same name, in the world there can be even more. I recently got a Google alert because my name appeared in a funeral notice. I can guarantee you that I am not dead, but someone else with my name did pass away.

So you might want to include other search terms as well, like the school name to get as accurate results as possible.

Conclusion

You’re going to spend a lot more time in the classroom with your professors than at a football game, or even in the student life center. So make sure you have good professors in the subjects that interest you.

Five things to help you get a good credit score

by Leave a Comment

Having a good credit score is important. As much as I like Dave Ramsey, and agree with 85-90% of what he says, we disagree on a credit score because it is used for so many things, not just getting/having credit. Your score can be used when you apply for a job, get insurance (especially car), apply for some place to rent, and many more cases.

Plus, very few of us have enough money to just go out and buy a house cash, so you’ll need a good credit score to make that purchase.

Here are fine things that people with good scores have in common.

Pay their bills on time

Think being a little late isn’t that big of a deal? Well on time payments are the largest influencer of your credit score. And not just to credit companies. Also things like, rent and utilities will report to the credit bureaus. So make sure you paying your bills on time, and the full amount due.

Most people agree that if you can’t pay the whole bill, at least paying something will help, but I’ve not been able to find official documentation on this helping your credit score.

Minimize use of available credit

This is how much credit you can use, versus what you use. Your credit usage percent can be calculated by taking the amount you have borrowed (total minus your mortgage) and dividing it by the total amount of credit you have available.

Let’s do a simple example. Let’s say you have $50,000 available between 4 credit cards, and you have $5,000 that you are using. You would take 5000/50000 and come up with .1, or 10%.

Most people with a credit score of over 800 keep that percentage under 7%.

I notice that moving from 4% to 7% will drop me 5 or 6 points, move that to 10% and I’ll lose almost a dozen points.

This is also why cancelling a credit card can make your score drop temporarily, because your available credit goes down, which makes your credit usage go up.

Tip: Cut up your card, but don’t cancel it so you keep the available credit, but you won’t be tempted to use it!

If you can pay off your credit card(s) every month, you will be miles ahead on getting a good credit score.

Have a long credit history

Your credit score is partially based off of how long you’ve had credit. For years, I couldn’t break a number I was trying to hit, and it was because my history wasn’t that long… because I wasn’t an adult for that long.

It’s unfair, but it’s true. It’s also why canceling an old account can hurt your credit score.

Interestingly, I had a credit card for over ten years that the company quit providing. They switched me over to a new card. One credit bureau sees it as a new account, and a closed old account. Another bureau sees it as being the same account and I have a higher score through them since I have nearly twice the history for my longest account.

Apply for credit only when necessary

Every time you apply for credit, be a car loan, new credit card, mortgage, etc, it is reported. One or two every six months to a year is OK. More than that, and it can start to affect you credit score.

The good news is that credit checks from the same type of credit only count as one check. So if you are checking with multiple mortgage lenders, that is only one credit check as long as they happen in relative short period of time.

The exception to this is credit card credit checks. This is because you probably won’t be looking to buy two or three houses at once. However, you might open multiple credit cards in short order.

Choose credit cards carefully

While this won’t hurt your score directly, people with good scores learn to read the fine print. Not all credit cards are created equal. Will you have to pay an annual fee? What rewards do you get? What is your interest rate? These and many more questions should be looked into.

Generally, I avoid any cards with annual fees. I rarely buy enough to make it worth while, and I don’t care about the status of having a gold/platinum/etc card. I’m also not rich enough to utilize the private buying concierge service that it might come with…

I look for cheap cards. Since I pay mine off every month, I don’t worry about the interest rate, and focus on the reward. Once I got one I liked, I keep it to build my credit history, instead of swapping between them every few years.

66% of Millennials have Nothing Saved for Retirement

by Leave a Comment

It’s easy to think of Millennials as those still in college, or maybe in their early twenties, but they were born between 1996 and 1980, which means they are between 25 and 41.

It’s easy for those on the younger side to not having any savings for retirement, but those in their thirties and forties should have have a plan, and be working on it, especially given the current situation with social security. Many people estimate that social security will not be able to cover even 20% of their monthly expenses when they retire.

If they are right, that means its even more important to start saving, and investing.

I recently spoke with someone who recently started saving for retirement in their mid-thirties. They are behind, and they know it, but they’ve at least started at 2% of their salary. They are also working on paying down their debt, and will contribute more later on.

There are three keys to getting enough money in your retirement account:

  • Start Early – The earlier you start, the longer your money can grow with interest. Interest is a game of time, and the more time you have, the better. The best time to invest was 20 or more years ago, the second best time is today.
  • Invest a percentage automatically – If you tell yourself you’ll put something aside, you’ll always find something else to spend. Instead, take advantage of a 401k at work or an automated draft.
  • Invest wisely – know what risks you’re willing to take, and how much you can both gain and lose. The younger you are, the more risk you can probably absorb.