SMART MONEY
BY ANNA- LOUISE JACKSON
Illustrations by Katherine Streeter
HERE’S AN ALARMING STAT: In a 2023 survey by SleepFoundation.org, 77% of respondents admitted they’ve lost sleep over money-related stresses. Unfortunately, there aren’t enough weighted blankets in the world to ward off the financial bogeyman. “If you’re up worrying, it may be that your subconscious wants you to stop avoiding something and take action,” says Elana Feinsmith, a certified financial therapist, certified financial planner, and founder of Oak Financial Coaching in Sunnyvale, California. Instead of checking under the bed, check in on your accounts. Keep reading for three common concerns—and steps you can take to put them to bed.
WORRY: I’m Drowning in DebtEverything has become more expensive, and many of us have had to let our credit card balances grow. The total outstanding credit card debt in America surpassed a record-high $1 trillion in 2022, according to the most recent report from the Consumer Financial Protection Bureau. And with credit card companies charging higher interest rates and fees, it’s easy to find yourself underwater.
You may want to cower under the covers when thinking about your balances, but it’s vital to know exactly what you’re up against, says Alec Quaid, a Denver-based certified financial planner at Poterack Capital Advisory. “My view is very straightforward,” he says. “You can sink your head in the sand and hope it all works out, or you can look at your problems and start to fix them, one day at a time.” How? Schedule a meeting with yourself to sort through your situation. With your bills and accounts pulled up on the computer, list your income, each credit card balance, and each card’s interest rate on a spreadsheet.
Once you have a clear picture of your earnings and expenses, use an online debt-payoff calculator to determine how long it will take to get your balances to zero, assuming nothing changes, Feinsmith says. (Experian, the credit reporting agency, offers one on its website.) You can also play around with the numbers and see how the timeline changes if you put more toward your debt—an extra $50 a month, say, could knock off years.
Now, onto payment plans. Financial experts recommend two approaches to chipping away at credit card debt. One is the “snowball” method, which means paying off the smallest balance first, and then the next smallest, and so on, while making minimum payments on your other cards. The other is the “avalanche” method, in which you prioritize paying off the cards with the highest interest rates (still hitting the minimums on everything else). With the avalanche method, you’ll pay less interest over time, Quaid says. With the snowball method, you’ll get the satisfaction of wiping out an entire balance early on—and that can help with motivation. “The best strategy is the one that works for you,” says Marguerita Cheng, a certified financial planner and the CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland.
While opening another credit card when you’re already maxed out isn’t always the best idea, it can make sense to apply for a card with a promotional 0% interest rate for a period of time, such as 15 or 21 months, Cheng says. You could then transfer the balance on a high-rate card to the new, interest-free one. Note: This only works if you pay the entire thing off within the given time frame.
The best-laid debt-payoff plans can go awry if you don’t simultaneously address your spending. So examine your credit card bills and really think about where your money goes, Feinsmith says. “Sometimes people imagine they’ll feel happier if they have x in their lives,” she says. “Usually they feel better for just a few moments.” To identify which spending habits you want to change, she suggests color-coding discretionary expenses based on how they make you feel. Print out your statements and strike through each item with a marker. Green is for purchases that make you happy, yellow is for items that make you think twice, and red is for stuff you can do without. Visually, you’ll get a sense of how much of your money goes toward things that are meaningful to you.
“You can sink your head in the sand and hope it all works out,
or you can look at your problems and start to fix them, one day at a time.”
WORRY: I’ve Lost Track of My Old 401(k) AccountsAs of May 2023, an estimated 29.2 million 401(k) accounts have been forgotten about, reports Capitalize, a platform used to transfer retirement accounts. Amid the chaos of changing jobs, old accounts may slip your mind—until they creep into your thoughts at 1 a.m. years later. The first action step is taking inventory, Cheng says. Make a list of past employers (use your résumé for reference), and write out the companies responsible for managing retirement plans at each place, Quaid advises. If you don’t know, call the HR departments at your former employers. Even if a workplace is now defunct, your retirement funds are still lingering in an account somewhere. You can use a service like the National Registry of Unclaimed Retirement Benefits, a secure database, to track them down.
Next, you have four options as to what to do with the money: Keep it where it is, roll it over into your current 401(k) plan, roll it over into an IRA plan, or cash out. Moving funds into your current plan is the simplest way to transfer them. If you put them in an IRA, you’ll need to select your investments, such as mutual funds, individual stocks, or bonds. As for cashing out, doing so before the age of 591/2 comes with a 10% tax penalty for early withdrawals in most cases.
Opting for a rollover? Contact the company that handles your current 401(k) or IRA, or the institution where you want to open an IRA if you don’t already have one, and find out what info you need. There are a lot of moving parts, especially if you’re consolidating numerous old accounts, so you may want to talk to a financial adviser or a rollover specialist at the company that manages your current accounts. “For people who don’t understand this stuff, it can be hard to do on your own,” Quaid says, adding that most financial planners are happy to hop on the phone with the client and financial institution to handle the logistics of the transfer.
WORRY: I’m Not Saving Enough for the Future
Retirement often feels like such a far off goal that saving for it takes a backseat to more immediate priorities, like paying down debt, building a cash reserve, or covering a family vacation. To tackle this financial concern, begin by picturing your ideal retirement, Feinsmith says. What do you want to be doing? Where do you want to live? How many trips do you hope to take? On average, people over 65 spend about $52,000 per year, according to the most recent U.S. Bureau of Labor Statistics report. Will that number fund your dreams?
Of course, there’s no crystal ball that can predict exactly how much cash you’ll need or for how long. In lieu of that, consult a retirement calculator, like the one on the AARP website. You’ll input info like how much you’ve already saved (the general rule is to put away at least 15% of your annual income each year), your current age, when you want to retire, and your annual salary to ballpark how much you’ll have amassed by the time you stop working and how much you’ll need to save.
Once you have a figure in mind, decide what you can do to reach it. If you’re in a good spot with no credit card debt and a six-month emergency fund, make it your business to max out retirement contributions this year. The 2024 limits are $23,000 for a 401(k) and $7,000 for an IRA. The IRS allows people who are at least 50 years old to add an extra $7,500 to their 401(k) and $1,000 to their IRA. If you’re paying off debt or building up short-term savings, still try to contribute as much as you can. “I’ll nudge clients and say, ‘Can you increase your contribution by 1%?’” Cheng says. Every bit helps, and while a 401(k) is worth it for the corporate match, any savings is good. In fact, one of Cheng’s clients recently retired at the age of 56 because of a goal he made 20 years ago. He started by saving $10 a week, and that helped him build momentum to find other ways to save money. “You don’t have to be perfect as long as you’re making progress,” Cheng says.
Another idea: As soon as you pay off a fixed expense, like a mortgage, take 50% of what you used to pay and route it to a high-yield savings account.
IF YOU FEEL overwhelmed by all this talk of finances, consider working with a professional. Check their credentials on investor.gov, a database operated by the U.S. Securities and Exchange Commission. It lists licensed investment advisers registered at the federal and state level, as well as broker-dealers registered with the Financial Industry Regulatory Authority. Savvy Ladies (savvyladies.org), a nonprofit organization that pairs you with volunteer financial professionals, is another helpful option—and it’s free.
In the meantime, when nagging money worries take hold at night, try this: “Envision what it would feel like in the future once you’ve accomplished your goals. That can calm the nervous system,” Feinsmith says. Like most scary things, financial fears maintain their power by lurking in the dark. The only way to gain the upper hand is to expose them to the light. “I know it’s scary to address the issue,” Cheng says. “But by not addressing it, you’re not going to find out what options you have.”