With money tight these days, who isn’t watching their pennies or looking for ways to stretch their dollars? What about some free advice on how to stretch your dollars or if you’re fortunate to have some extra dollars, advice on what to do with it?
This is the fourth year that we at the Beacon Journal have partnered with the Consumer Credit Counseling Service of Northeast Ohio (CCCS) and the Financial Planning Association of Northeast Ohio (CHECK) for two free Financial Call-In programs. The volunteers from both organizations first started staffing this special program in 2008 during our Reclaim the Dream series on personal finance. They saw the value in the service so much that every year, they agree to come back to take your calls.
While the volunteers might not be able to answer in-depth every burning question you have about your finances, they certainly can give you a good start and point you in the right direction. And their expertise is wide ranging and can help a range of callers — from someone who might be in a dire financial situation to someone who has an investment question. Or perhaps you’re a middle-class family who is just feeling a little financial pinch like so many and you have a general question. Give us a call.
The call-ins will be: 6 to 8 p.m. Wednesday and 9 a.m. to noon Saturday. Call 330-996-3644.
In anticipation of the call-ins, I gathered two credit counselors and two financial planners for a quick lunch meeting to ask them for some good advice to get people thinking about what they might want to call and ask. Frankly, each of these subjects could be a column on its own, but in the interest of covering a lot of ground, here goes:
In today’s world, credit scores are not just a lending mechanism anymore, said Victor Russell, regional operations manager with the CCCS.
They are not just an indicator of whether you have paid your bills on time or are a good credit risk, but they’re being used by landlords and employers or insurance companies to determine your premiums, Russell said. I’ve even had conversations with people who have made a choice to avoid credit all their lives and thought it was a responsible thing, but instead now are hurt by the lack of credit history.
It’s important for everyone to at least have an idea of what their credit score is. The credit score is based on the information in the credit reports, so it’s important to check all of your credit reports to make sure the information creditors are using to come up with the score is accurate. Everyone can get one free copy of their credit report once a year by going to www.annualcreditreport.com or 877-322-8228. You will have to pay for your credit score and you will need to share your Social Security number in order to pull your report. The most widely used is the FICO score. Or often a lender will be able to share with you your FICO score; the models may vary, but it is important to look at the FICO score. Many of the credit bureaus have their own proprietary scores, but those are different and not the FICO score.
Consumers should not only pull their credit reports when they want new credit; they should be in the habit of periodically checking it, Russell said.
The most important thing about re-establishing credit after you’ve had a problem like a bankruptcy or a foreclosure or a run of not paying your bills is that “time will heal it,” said Jay Seaton, CCCS area president. Seaton said if you’ve lost track or you haven’t been paying your bills on time, start paying them on time and little by little, your scores will get better.
“Don’t fall for scammers that suggest there’s some magical quick way to improve the score. There isn’t,” Seaton said.
If you’re falling behind on your bills, pay at least the minimum and pay on time, said Ted Sadar, a certified financial planner with Sadar Financial Management in Akron and Russell.
Cash-flow management is just a fancy way to say “know where your money is going,” Sadar said. It can also be called “budgeting,” but a lot of times people don’t like the word budget or the connotation that they have to categorize their spending and can only spend “x” on something.
Whatever you call it, “let’s track where you are spending it, every nickel, every day,” Sadar said.
And Sadar is not only suggesting that people who are living paycheck to paycheck do a cash-flow analysis or figure out where their money is going.
“Even if you’re financially healthy, it’s refreshing to know if and when you do need to buy a car, do you have $250 a month or $199 a month or $350?” he asked. Sadar said typically, 70 percent of a person’s expenses are going to be fixed expenses, or things such as the mortgage, car payment or bills that may not be able to be changed. But there is 30 percent that can be influenced.
One silver lining in this recession has been that it’s become “chic” to save or stretch your dollars. While there used to be a negative national savings rate, the savings rate is now at 5.5 percent, Russell said.
“People are more aware of the importance of saving money because my job isn’t as secure as it was before,” he said.
When I asked Sadar and Charles Grimm, a senior certified financial planner and vice president of Key Private Bank, whether the typical advice of having an emergency savings fund of three to six months’ living expenses is still the recommendation these days, Sadar argues that people should actually have more or up to a year’s worth because credit is harder to get.
I told Sadar that I often hear people say they can’t put away three to six months’ worth of expenses when money is so tight, so they just don’t do anything. What advice did he have for those folks? Sadar argues that everyone has some disposable income. Look at the type of phone someone has or the “toys” or “gadgets” they have, he said.
“Everybody has money. It’s discretion on where you want to spend it. Maybe they can’t buy all of the things they used to buy,” he said. In the old days, cable TV used to be a luxury; now its almost considered a necessity to many, he said.
Grimm suggests starting off with short or long-term goals. If you’re a younger person and retirement is a long time away, maybe your immediate goal isn’t to save for retirement, but to build up an emergency savings.
When I asked Grimm and Sadar if it was better for a young or middle-aged person to save for an emergency fund or retirement, Grimm said it wasn’t for them to say. But Grimm would suggest that all employees at least take advantage of “free money” if your company matches any 401k contributions.
Sadar said if you’re in a situation where you are middle aged or younger and you have a little bit of disposable cash to save, the No. 1 enemy is revolving credit card debt of any type. That’s going to cost you a lot in the long run. (Sadar said mortgage debt is not considered “bad debt” in the same way and especially these days when mortgage debt is cheap with low interest rates.)
After that, Sadar’s advice is to go for the emergency savings account. That’s because with credit being tighter and people not able to use their home’s equity for loans or lines anymore, the need for that emergency savings fund is even more important.
“The biggest thing you find when the rug gets pulled out from under you is if you’ve got retirement funds, there are lots of penalties [to withdraw early]. If they’ve got a reserve of three to six months, they’re going to handle life a lot easier,” Sadar said.
Betty Lin-Fisher can be reached at 330-996-3724 or email@example.com. Follow her on Twitter at www.twitter.com/blinfisher and see all her stories at www.ohio.com/betty