Financial pros offer money tips for 2018
Just as the new year can serve as a natural starting point for becoming physically fit, it’s also a good time to focus on becoming more financially sound.
Rather than haphazardly managing personal finances for another year, consumers can begin 2018 with an approach that will leave them better off economically by the time next New Year’s Eve rolls around.
The Milwaukee Journal Sentinel asked five Wisconsin financial professionals for some ideas that could help consumers do a better job of handling their money and improve their personal financial situation.
Here are some tips that emerged from those conversations.
Pay off debt, especially credit card balances.
Household debt in the United States reached a record level in 2017, with balances on credit cards climbing more than 3%. Not good, the financial pros said.
“High-interest, double-digit interest rate credit card debt is just such a killer, especially if on a monthly basis you accumulate it and then you’re paying the minimum,” said John Petrie, director of investment advisory and a principal in the Milwaukee office of Aspiriant LLC. “It’s hard to get well financially when you’re stuck behind high-interest rate credit card and other high-interest loans.”
Said Michael J. Francis, president and chief investment officer at Francis Investment Counsel in Brookfield: “Pay off all your credit card debt, because it’s really expensive.”
Banker Joe Fazio also said the first priority of a person who wants to get healthier financially should be to pay down debt.
“Review what you owe and what it costs you. Look for alternatives to refinance at lower cost. Or, simply pay down more, faster,” said Fazio, president of Commerce State Bank in West Bend and author this year of the book, “This might be a dumb question … But How Does Money Work?”
Kim Sponem, president and chief executive officer of Madison-based Summit Credit Union, said it’s important to get specific.
“Rather than say, ‘Oh, I’m going to reduce my debt,’ or ‘I’m going to increase my savings,’ be really specific and creative about what you actually want to do differently,” Sponem said. “For example, instead of saying, ‘I want to reduce my debt,’ I might say, ‘I’m going to increase
my auto pay on my car loan by $20 per month.’ Or I might say, ‘I’m going to pay off my car loan by whatever date by mailing two or three extra payments.’ ” Create a budget.
Consumers need to seriously consider exactly how much money they have to work with — and what happens when it becomes available, the financial pros said.
“I always start with a budget. Very few people take a hard look at where the receipts are coming in and where things are going,” said Marquette University Professor Kent Belasco, who is director of the commercial banking program. “That’s probably the biggest thing anybody can do.”
Personal finances go awry when people buy what they can’t really afford, Petrie said.
“If you are living above your means, you just have to stop living above your means,” Petrie said. “That is so important to living a good life, financially and otherwise.”
Save, save, save.
Always set aside some of your paycheck for savings, the advisers said.
“Have a disciplined savings plan,” Petrie said. “Being disciplined about saving not only to meet short-term needs but longer-term needs — and that balancing act between the two — is just so critical.”
Fazio noted that the federal government automatically takes money out of your paycheck for Social Security and said you should follow suit and automatically take money out for your retirement. He said people should maximize their 401(k) plan at work, with savings going into it automatically each payday.
“Because money comes out of your pay before you see it, it does not have a chance to stop in your hands and look around for something to spend itself on,” Fazio said.
Francis also emphasized taking advantage of the 401(k) plan many employers offer their workers.
“Capture every matching dollar your employer is offering you. It’s free money,” Francis said.
Sponem suggested consumers open a new savings account at their credit union or bank and label it as a special account. The new account would be in addition to a regular savings account.
“Label it for whatever it is that you’re saving for,” Sponem said. “It might be an emergency fund, it might be your next car, it might be your down payment, it might be something for college. Label it, and then decide how much per pay period you’re going to put into it.”
In the case of an emergency fund, she said, Summit recommends everyone have an account with $600 “because that will get you through a lot of emergencies.”
“So your New Year’s resolution might be to open an emergency savings account, and you’re going to put in $20 per (two-week) pay period,” Sponem said. “That will get the savings account to $520, which is close to the recommended amount. That would be a year-long type of goal.”
Sponem also recommended that if you receive a pay raise, put half of it into whatever type retirement savings plan you have.
If you invest, manage the risk. After a year in which the stock market has boomed, it might be tempting to think it’s the slam-dunk way to easy money. Be careful.
“We are living in a market environment today where the market performance has been so good over the past several years that investors are feeling pretty good about things,” Petrie said. “But these are times when advisers get more and more concerned about risk.”
Petrie added, “If you’re a high net worth individual who has a big investment portfolio or if you’re just getting started building assets inside of your employer’s plan, make sure that you’ve got the right balance. … Be mindful of the fact that the markets don’t just go up, the markets also go down.”
Francis isn’t against the idea of people buying shares of individual stocks, as long as they research the companies and are serious about the market. But, Francis said, “You have to be really passionate” about it.
“If you’re the typical investor who just wants to get involved in markets, I’d say open up an account at Vanguard — open up an account with $500, and start putting it into a couple of index funds,” Francis said. “A total U.S. stock market index and a total international market index would be great places to start salting some money away. That way you own the market and you’re paying very little in management fees, and if things continue to do well, you’ll be able to participate in that as the market and economy grow.”
If an investor saves well and has money he or she won’t need for at least five years, investing in mutual funds “should be part of the conversation,” Sponem said.
Check whether your data was compromised as part of the Equifax breach, and if so, consider freezing your credit files.
In September, credit bureau Equifax reported a breach potentially involving the personal information of 143 million American consumers — mainly their names, Social Security numbers, birth dates, addresses and, in some instances, driver’s license numbers.
A credit freeze makes it harder for someone to open a new account in your name using the hacked information. But it won’t stop a thief from making charges to your existing accounts.
Petrie said people should find out whether their data has been compromised.
“Equifax will tell you. Go to their website. It’s easy to do,” he said.
If you opt to freeze your credit files, you have to do it with all three main bureaus — Equifax, TransUnion and Experian — individually. Credit files can be unfrozen if you want to apply for a credit card or loan.
“By freezing your credit, it puts you in a good place that if your data was compromised somebody is not going to take your information and open up a new charge card or open up other forms of debt that will end up being a headache financially and otherwise,” Petrie said.
But no matter what you do about freezing your credit files, get in the habit of reviewing your credit card statements, Petrie said.
“Staying up to date on your credit card balances and looking at your statements and making sure that there’s no funny business going on is just really, really important, regardless of what you decide to do with the Equifax situation,” he said.