What to Do With Extra Cash Flow?

How to you get a boat load of extra cash flow? You pay off $600,000 in student loans, that's how! Boom! That's what our latest caller did, $600k in student loans. Incredible.

Have a money question? Email us, ask jill [at] jill on money dot com.

Financial Threats You CAN Control

Earlier this month, the Economist Intelligence Unit updated its list of the Top Ten Global Threats. They are:

1. China experiences a hard landing
2. Currency volatility and persistent commodity prices weakness culminates in an emerging markets corpo
3. Donald Trump wins the US presidential election
4. Beset by external and internal pressures, the EU begins to fracture
5. "Grexit" is followed by a euro zone break-up
6. The rising threat of jihadi terrorism destabilizes the global economy
7. Global growth surges in 2017 as emerging markets rally
8. The UK votes to leave the EU
9. Chinese expansionism prompts a clash of arms in the South China Sea
10. A collapse in investment in the oil sector prompts a future oil price shock

While any one of these events could throw the world’s economy into a tailspin, they are out of our control, so it may be smarter to concentrate on the Top Ten Financial Threats that are within our ability to manage.

1. Ignoring your Cash Flow: It is hard to live within your means if you have no idea where the money is going. Regardless of your income level, the key to reaching your financial goals starts with a simple task: tracking your income and expenses.

2. Borrowing too much: Whether it’s for a house or for your child’s education, carrying too much debt can prevent you from addressing important financial goals and may also create a huge emotion burden.

3. Not establishing an emergency reserve fund: Bad luck can occur at any time, so it is vital to save an easily accessible, liquid cushion of 6 to 12 months of expenses if you are still working - 12 to 24 months if you are retired.

4. Carrying No/Insufficient Life Insurance Coverage: If you have dependents, prepare for the worst-case scenario by purchasing adequate life insurance coverage. In most cases, term life will do the job.

5. Not Contributing to Retirement as Early as Possible: Ask any retiree about the biggest mistake he or she made and it will likely be “I should have started saving sooner!” Establishing the automatic saving habit early pays huge dividends in the future.

6. Tapping Retirement Funds Early: While the IRS allows for hardship withdrawals in certain instances, too many workers who leave their jobs, cash out plan assets and pay a tax penalty, instead of rolling over the funds into another retirement account.

7. Failing to Properly and Efficiently Manage Retirement Funds: Whether it’s not rebalancing, owning too much company stock or using high-fee funds, retirement savers are costing themselves money with easy-to-rectify oversights.

8. Claiming Social Security Early: You can claim SS retirement benefits as early as age 62, but doing so will permanently reduce your (and your spouse's, if he or she plans to claim one-half of your benefit) monthly income by as much as 25 percent.

9. Not drafting a will/power of attorney/health care proxy: Don’t create a mess for your heirs-draft the necessary estate documents NOW.

10. Not Seeking Help When You Need It: There is no shame in admitting that you need help with your financial life. If you want customized services,work with a professional who has earned the CFP® certification or is a CPA Personal Financial Specialist. You can ask for referrals from friends or colleagues or use the search tools offered by the Certified Financial Planner Board of Standards, the Financial Planning Association, or for fee only advisors, go to the National Association of Personal Financial Advisors.

Mid Year Money Tips 2016

Global uncertainty, volatile markets and elections are out of your control, but as we start the second half, here are some Mid-Year Money Tips. Check even a couple off the list and you will be in better financial shape and feel virtuous for having completing them! Track your Money: In the age of easy to use apps like Mint, Digit and Level Money, not to mention bank apps, there is no excuse for getting a handle on what’s coming in and more importantly, what’s going out!

Attack your Consumer and Student Loan Debt: Create a list of outstanding debt and divide it into two categories: Consumer (credit card/auto) and Student Loan. Put the highest interest rate debt at the top, followed by other loans, in descending order. Attack the highest interest loan first and once you whittle it down, shift the money towards the next highest one.

Check/Repair Credit: About half of Americans (46 percent) say they have checked their credit score within the past year, according to a Bankrate.com survey. That is simply crazy—you need to know what’s on your report and your score BEFORE you try to borrow money to buy a car or house. Go to AnnualCreditReport.com to review/correct your report and be persistent-it can often take time and energy to have errors removed.

Refinance your Mortgage: Mortgage rates are flirting with near four-year lows and house prices have increased. That means that a lot of homeowners who may have been unable to refinance may now qualify.

Insurance: Homeowners. Don’t wait for a natural disaster to occur before you review your policy. The three biggest mistakes are: 1) under-insuring; 2) shopping for price only/not comparing apples to apples; and 3) not reading policy details. Also, check to see if you have at least 20 percent equity in your home -- if so, you may be able to drop your Private Mortgage Insurance (PMI). Auto. If you have an old car worth under $5,000, eliminate collision and comprehensive coverage and increase deductibles. Liability. You may be able to earn discounts by purchasing car, homeowner’s and umbrella liability insurance coverage from one company. Life. Needs often decline as you age, so you may be able to get rid of an old policy or consider replacing an expensive policy with a cheaper term one.

Retirement: Still haven’t calculated your number? You are not alone. According to the Employee Benefit Research Institute’s Retirement Confidence Survey 2016, less than half (48 percent) of workers report they and/or their spouse have ever tried to calculate how much money they will need to have saved so that they can live comfortably in retirement. Go to your retirement plan website or use EBRI’s “Choose to Save Ballpark E$timate”.

Investments: The fallout from the Brexit vote was a good reminder that market gains can quickly evaporate before your eyes. The end of the quarter is the perfect time for long-term investors to rebalance accounts so that allocations remain in check. If possible, choose auto-rebalancing so you don’t have to worry about the direction of markets or when its time to reallocate.

Estate Planning: PLEASE DRAFT/UPDATE YOUR WILL! I advise hiring a lawyer to prepare a will, power of attorney and health care proxy/living will. If you insist on doing it yourself, you can use a software program like Quicken WillMaker. All of your estate documents and final instructions should be stored in a safe place – don’t forget to provide copies to your executor/trustee. Those with larger estates, or who want more control over the disposition of assets, may consider a revocable or changeable trust.