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Saturday, December 31, 2016

How I Use Evernote, My Most Essential Free Online Tool

A few weeks ago, I answered a mailbag question from Jim, who wanted to know how I use Evernote. I gave him an answer that almost stretched into something that needed to become its own article, but instead I cut it short and asked for readers to contact me if they wanted a full article about my uses for Evernote. Over the next few days, several readers contacted me requesting the article (and more than a few swapped some Evernote tips with me), so what follows is that requested article: a detailed guide to how I use Evernote, my most essential free online tool.

So… What Is Evernote?

Evernote is a simple digital tool that lets you keep and organize notes of all kinds – text, pictures, sound recordings, and mixed media. They store all of the notes for you in the cloud and you can access these notes from anywhere. There’s a very smooth app available for iOS, Android, Mac, Windows, and Linux, plus their website itself allows you to access and edit notes, so you can access them pretty much anywhere.

I absolutely do not recommend storing any valuable personal data in Evernote, but that’s not the purpose of it. The purpose of it, at least as I see it, is to serve as a mental filing cabinet for ideas and bits of information that you’re going to want to use and access later.

I personally use Evernote perhaps two or three dozen times a day. I’m not kidding or exaggerating in the least. It is such an essential part of my daily activity at this point that I would really struggle without it. For me, it’s a mix of an infinitely long pocket notebook and a filing cabinet with magic search capabilities that takes up essentially no space.

How I Use Evernote

I currently have Evernote installed on my desktop (where I do most of my writing), my laptop (where I write when I’m traveling), and my phone. All of them are synced up to the same account, obviously, so I can seamlessly share notes and access them between all of those devices. In the rare event that I need to access Evernote somewhere else, I can look at the web version, but I genuinely cannot remember the last time I did that.

“Things”

Throughout the day, I have one note in Evernote that’s constantly open and being added to; I call that note “Things.” In “Things,” I just add anything and everything as I discover it or think of it. I might add a photo of a gift idea for my son, followed by a quote that I read on some website, followed by an article idea for The Simple Dollar, followed by the Twitter handle and name of someone I just met along with a reason that I should follow up with that person, followed by an appointment three weeks from now that I should stick in my calendar… you get the idea.

My “Things” note within Evernote is much like a pocket notebook, in other words, except it’s just one long run-on note. I separate the notes by just hitting return a few times, typing “=======” (or something similar), then hitting return a few more times and adding the next item. It’s pretty straightforward.

I probably find myself adding something to “Things” twenty times a day. It’s just a catchall for things I need to do, things I need to remember, and things I want to refer back to later for some reason.

Processing “Things”

Once or twice a day, I’ll sit down at an actual computer – either my laptop or my desktop – and process the content of “Things.” I go through each item in that note and decide what I need to do with that item.

Items that are obviously tasks that need to be done later go into my to-do list manager (I currently use Omnifocus, but Todoist is a similar and much cheaper alternative); if they’re really quick tasks, I just do them immediately instead. I then delete that item out of “Things.”

Upcoming events go straight into my calendar (I currently use Google Calendar). I then delete that item out of “Things” once it’s in my calendar.

Most of the rest of the stuff is moved into standalone notes within Evernote, usually sorted into various notebooks. I have a pretty hefty number of these notebooks: a “Future Projects” notebook for things that might develop into larger projects down the road, a “Recipes” notebook for various recipes (though these tend to wind up in Paprika these days), a “Thinking” notebook with things that I want to give further thought to in the future, a bunch of notebooks devoted to various ongoing projects, and on and on and on like this. I’ll talk about a bunch of these below.

My goal is to empty out “Things” at the end of that little session, leaving a blank note, a few little tasks done, and items that are where they’re supposed to be.

Naming Notes

I have a few simple rules of thumb that I follow when creating notes.

First of all, I want the name to convey as much information as possible about what’s in the note. Aside from “Things,” my note names are pretty descriptive. Quite often, the names of notes about Simple Dollar articles wind up being part of the name of the actual finished article, for example.

Another great example is how I store gift ideas. Often, the name of the note lists both the recipient and the name of the gift idea. The note itself usually just contains a picture, a link, and/or some description of the idea. That way, when I’m browsing through my “Gift Ideas” notebook, I have what looks like a long list of ideas. (I can filter that list based on tags if I so choose).

Tagging

Each time I create an individual new note, I also add tags to it. I just use the ten or so most obvious words or brief phrases I can think of that are associated with this particular note. I try as hard as I can to not overthink this and usually the tags are really obvious.

Why use tags? The truth is that I have thousands of notes in Evernote. Some individual notebooks have more than a thousand notes themselves. Even if I’m really great at giving smart names to my notes, tags make it possible to quickly pull up subsets of notes on a particular topic.

For example, my “time management” tag has 46 notes currently associated with it. It looks like about ten of them are potential Simple Dollar articles, another 20 or so are book quotes, another ten or so are future projects, and there are few more sprinkled in other areas. This quickly reduces what could have been a very arduous task of searching for my notes on “time management” down to a couple of clicks and a much more concise and focused list of notes.

Sure, it takes an extra few seconds when creating a note to come up with a number of tags that might be appropriate for it, but when I’m actually looking through those notes later on, having them all tagged is really, really valuable.

Article Drafts

Pretty much every article that you’ve read by me on The Simple Dollar in the past year has been drafted in an Evernote note. Using Evernote, I can start rough drafts of articles, polish them up, and then post them quickly to The Simple Dollar when I think they’re ready. The fact that the articles are available on every platform that I might ever want to use with a consistent format and consistent tools is wonderful, and the fact that they’re all stored in one place is even better.

I keep the articles for The Simple Dollar in one “stack” of notebooks (a “stack” is simply a collection of notebooks on one topic; it’s a way to better organize notebooks). One is named “Ideas,” another is named “Outlines,” a third is named “Unpublished Drafts,” and a fourth is named “Published.”

When I have an idea for an article for the site, usually little more than a possible article title and a sentence or two in description, it’s a new note in “Ideas.” At some point, usually when I’ve looked into a particular idea and brainstormed some more, I’ll flesh that particular idea into an outline of a post, usually a brief phrase or a sentence describing each paragraph along with any key links I might want to include and any key pieces of information I’ll want to share. That note moves from “Ideas” to “Outlines.” When I then turn that into a full article that I haven’t quite decided to post yet, it sits in “Drafts” – these usually need editing or can be pulled from in an emergency. If I actually use an article, I move that note to “Published” and add the published date and URL to the note.

This enables me to keep a nice archive of my writings all in one place.

Book Manuscripts

I have four (yep, four) ongoing book manuscripts for books that I’m researching or thinking about or working on in some stage. Each one is – surprise! – stored in Evernote as a “stack” of notebooks.

I actually follow a model much like the notebook for The Simple Dollar. One notebook is usually notes for the book, usually organized by potential chapter, but also with plot and character notes if it’s fiction. A second is for outlines of each chapter. The third/fourth/fifth/etc. notebooks are for individual chapter drafts.

One advantage to keeping notes and drafts like this within Evernote is that it’s easy to transform a finished product within Evernote into something I can publish to the Kindle Store or other e-book stores using FastPencil, which can literally slurp out my notes and convert them straight into a document that can be edited a bit and then almost directly uploaded to the Kindle Store. Once I hit a final draft I’m happy with, it will be pretty easy to self-publish it should I choose to go that route.

Daily Journaling

As I’ve mentioned often on The Simple Dollar, I do some journaling every single day, usually in two sessions – one in the morning to “vision” the day ahead and again in the evening to reflect on the day’s successes and failures. Again, this is stored in Evernote.

I just have a single “Daily Journal” notebook, within which I add a note named with the date and, if there was a noteworthy event that day, a very brief description of that event as well. Most of my notes are just titled with the date.

The first half of the note is my morning “visioning” of the day. I usually write down what my main focus or two of the day is, a few things I’m grateful for in my life, and a reminder to myself of any new habits I’m trying to build so that I keep them front and center. I do this on paper and take a picture of it into Evernote, for the reasons described above on notes for classes.

I do the same thing in the evening. I take out a sheet of paper, look at my morning notes from Evernote, and then reflect on the successes and failures of the day. Did I do things well? If I did, what caused that success and how can I keep it? If I didn’t, what went wrong and how can I avoid it? I also usually list five to ten memorable events from the day.

Notes for Classes

Evernote is really good at storing class notes or notes from a book if you’re trying to learn about a topic or taking a class of some kind.

Having said that, I am also a huge believer of taking notes by hand for classes and for actually integrating information. If I’m trying to learn something from a book or an online lecture, I use exclusively handwritten notes. I find that I retain and process that information far better if I do it by hand. This is a concept that has a lot of scientific evidence to support it; in other words, it’s a practice you may want to consider yourself for note taking. Just leave the electronics closed, listen and/or read, and take notes with a pen or pencil right onto the paper.

So what does this have to do with Evernote? It’s where I actually store all of those notes! Whenever I fill up a page with notes, I take a photo of that page with my phone within Evernote. I add it to a notebook that’s centered around the book that I’m studying or the class I’m taking as its own note.

The magical part is that Evernote makes the text in that page of notes searchable. If I’m looking for instances where a particular term shows up in my notes, I can just search that notebook and, like magic, all of the places where I wrote that term in my notes are returned to me as results. Along with tagging those pages of notes, I can pretty much zip through my notes on any topic.

As a result, Evernote now contains more than a thousand pages of my handwritten notes that I’ve taken over the years from online classes, books, and other things. I just took a picture of each page of notes straight into Evernote, gave it an appropriate title with some appropriate tags, and now I can find and search all of them and I don’t have to retain the physical notebook.

How do I organize them? As I said, I usually start a notebook – a collection of individual notes within Evernote – for each class that I take and each book that I’m studying in depth. So, for example, I have a notebook called “Yale Pl Sc 114 – Introduction to Political Philosophy,” which contains all of the lecture notes I took as I went through the free Open Yale course Introduction to Political Philosophy. Each page of notes was named after the lecture title, so the first one is named “#1 – Introduction: What Is Political Philosophy? (1/6)” (because I have six pages of notes on that lecture. Within that note is just an image of that particular page from the notebook I was using.

To me, this is the absolute best way to store notes from your classes and from any books you’re studying in depth. It takes no physical space, you can see your original notes in full, you can search them with ease, and they’re available on practically any device.

(This is usually a task that I do independently of my general “Things” note, as are many of the specialized tasks that I mention here. “Things” is just a catch-all for items that I don’t really know what to do with immediately or want to tag later.)

Receipts

This is something that I’ve just started doing in the last few months, but I’m basically never returning to any other method of doing things. I use Evernote to take pictures of my receipts and then toss them in the trash afterwards.

This takes advantage of the text recognition feature that I discussed above so that I can quickly search my receipts for, say, “milk” or for the last four digits of my credit card number or for a particular store and pull them all up instantly. I find that this works insanely well along with You Need a Budget 4 for the purposes of digging through my receipts and figuring out where all of my spending went.

Pictures of Insurance Policies

This is as close to “personal information” as I keep in Evernote, but this is so useful and will be beyond useful in the case of a true emergency, so I go ahead with it.

I have a notebook in Evernote that stores recent images of our key insurance documents. I have pictures of our recent car insurance, homeowners insurance, life insurance policies, and health insurance card. This is a great backup to have in the case of a serious accident or a house burning down or a major crisis when I’m not able to find the documents. I know I can just turn to Evernote at those moments and the info I need is right there.

Miscellaneous Things

I use Evernote for so many things that I could honestly go on listing them all day long.

I have a long note full of books I want to read someday. I reference that list almost every time I go to the library. (This is in a “Misc. Lists” notebook.)

I have a long note full of movies I want to watch and TV shows I want to binge-watch at some point, though this list seems to grow and rarely has anything removed from it, as I just seem to spend less and less time watching TV and movies.

I have a notebook with literally hundreds of projects I’d love to work on someday. I’ll make a note where I’ll throw down all of my ideas and excitement related to a project, but often just doing that is enough for now. I’ll probably never return to 95% of these projects. If a project ever blows up into something I want to actively work on beyond just a quick brainstorm, it turns into its own notebook.

I use Evernote Web Clipper a lot. It’s a tool that’s integrated into my web browser which allows me to just click a button and save the text and images from that article into a note in Evernote. I give it a few tags and save it in an “Articles” notebook. This is great for searching down the road!

I take pictures of business cards when I receive them, along with a note on who this person is and why I would want to follow up with that person.

I could literally list minor uses like this all day, but I think the idea is clear: Evernote is just really, really useful and I’ve come to rely on it as something of a filing cabinet extension of my brain.

The “Freemium” Question

So, as I mentioned at the start, Evernote is free to use. The free version of Evernote allows you to upload 60 MB of text, images, and audio to your account at no cost. If that’s not enough space for you, they have enhanced accounts at various levels that add greatly to that monthly upload limit, allowing you gigabytes of monthly storage.

My philosophy with online tools that use a “freemium” model is a simple one. If a tool seems useful in concept, I start using the free version. Many, many tools stop right there; they’re not useful enough to me to replace other tools or they don’t create their own niche. They don’t become essential, in other words.

When a tool does become essential, two things happen. One, I usually have some significant need for the features of the “premium” account. With Evernote, I blow away that 60 MB of uploading each month. Two, I don’t want that product to ever go away because I’ve come to rely on it, which is absolutely true with Evernote.

So, I invest the money each year to pay for the premium version of Evernote and I don’t look back. It’s an essential tool for me.

What About You?

If you haven’t already tried it, I strongly encourage you to give Evernote a try with a free account. Sign up, put it on your phone and in a clear place on your computer, add the Evernote Web Clipper to your browser, and try using it for some of the things I mention above.

For some of you, it’ll click and you’ll start using it more and more. For others, it’ll become a forgotten tool, and that’s okay. Everyone organizes their lives differently, and I think Evernote just clicks with some people and doesn’t with others.

Good luck!

The post How I Use Evernote, My Most Essential Free Online Tool appeared first on The Simple Dollar.

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What to Do if You Win the Lottery: Five Steps to Take When You Hit the Jackpot

Over the course of a few hours, you’ve gone from regular middle-class schmuck to millionaire. How? Despite shark-attack odds, you purchased a winning lottery ticket worth millions of dollars.

Step one to not mucking this up is to sign the back of your lottery ticket, like now. If you should drop it or lose it without your name slapped on the back, it would be far too easy for someone else to claim your jackpot as their own.

What goes down next depends on you. With the right moves, your lottery win could boost your lifestyle across the board. But, with the wrong moves, your winnings could easily cause your life to fall apart.

That’s right: Winning millions of dollars overnight isn’t always the dream it’s made out to be. For every lottery happy ending, there’s at least one person who lets their newly-won millions destroy them.

Five Steps to Take When You Win the Lottery

If you don’t want to be a statistic, it’s wise to read up on the best ways to handle your lottery winnings before the unthinkable happens. That way, you’ll know exactly what to do if you actually win.

To learn the next best steps for any lottery winner, we reached out to several financial advisors to hear their advice. Here’s what they said:

Step 1: Keep your mouth closed while you hatch a plan.

While winning the lottery might make you want to scream from the rooftops, telling everyone of your good fortune is probably the last thing you should do.

“Keep the big win quiet and to yourself,” says financial advisor David G. Niggel of Key Wealth Partners in Lancaster, Pa. “The news will spread quickly and you’ll be attacked by some unscrupulous characters asking for a handout.”

Trust us, you don’t want to hear from all 367 of your extended family members while mapping out your lottery winnings. By keeping the story secret, you can have some time to think.

Furthermore, staying mum on the topic will give you time to bring in professional help.

Step 2: Hire a team of professionals.

Speaking of professional help, you need some… and quick. Before you cash in your lottery winnings or tell anyone outside of your immediate family, you need to make sure you’ve got your ducks in a row.

But, who should you hire? According to Niggel, your team should include a “fee-only financial advisor to handle investments and planning” for starters.

Notice he suggests a fee-only advisor. Where some financial advisors earn huge commissions from selling certain investment products, fee-only advisors are paid a flat fee for their advice and are obligated to act in your best interest, not their own. Since you have millions of dollars at stake here, the last thing you need is a financial advisor who earns a percentage of what they sell.

Other professionals you need include a CPA to handle your taxes, and a lawyer to set up family trusts and help you avoid scams, notes Niggel. Make sure you’re hiring individuals who have clear-cut fee schedules that show exactly how much you’ll pay.

Step 3: Get ready to pay up.

While winning the lottery can mean pocketing millions in cash, it also means paying out… you guessed it, millions in cash. Not only will you lose more than half of your winnings if you take the cash up front — the advertised jackpot is usually based on the long-term payout schedule — but you’ll need to pay taxes, too.

Let’s say you win a cool $60 million playing Powerball. If you take the full $60 million over 30 years, you’d 30 average annual payments of around $2,000,000. Out of that money, however, you’d have to pay federal and state income taxes. With most of that money falling in the top tax bracket of 39.6%, you’d owe almost $800,000 in federal taxes alone every year.

If you chose to take a lump sum up front, on the other hand, your $60 million jackpot would immediately fizzle to $35.9 million. That year, you would owe more than $15 million in federal taxes alone.

State taxes obviously vary based on where you live, so you’ll need to figure out that part quickly. While winning the lottery can be a load of fun, it can also be a case of “mo’ money, mo’ problems.” The more you make each year, the more money you’ll need to pay out.

Step 4: Have some fun, but also save up for a rainy day.

When you win millions of dollars, it can be tempting to splash some cash around right away. If you want a new Cadillac Escalade, for example, you can just go buy one. Want a mansion? You can afford that, too. Want to take your kids to Disney World? Load the kids in the van and you’re off.

While all of this is great, you’ll want to be smart with your money, too. And this is where your team of professionals will come in handy. They may tell you some of what you want to hear, but it’s their job to help you stay rich, remember?

While the advice you get from your financial advisor may vary, Seattle-based financial advisor Josh Brein says the best thing you can do is diversify your investments.

In other words, don’t bet the farm on anything – no matter what anyone says.

“The best way to protect yourself against losing that money as fast as you made it is to not put it all in the same spot,” says Brein. “You may be tempted to go heavy on real estate or buy a ton of company stock from just one company because you think it’s a smart investment. However, you should resist the urge to risk too much of that money at one time and in one place.”

As Niggel notes, you should also try to avoid rushing into any big financial decisions. While spending and investing can be exciting – especially at first – you don’t want your enthusiasm to cloud your judgment.

“Take some time to let the winning sink in before you quit your job or go out and make some large purchases, such as the gated mansion or luxury vehicles.” Says Niggel. “Be patient and cautious and listen to your gut about decisions that need to made.”

Step 5: Watch out for pitfalls and predators.

While winning the lottery may seem like a dream come true from a distance, the reality of winning doesn’t always pan out the way you think. A quick google search of “curse of the lottery” will turn up countless stories of lottery winners whose lives fell apart, for example. Try as they might, many people just cannot handle having a large sum of money at their disposal.

Take Jack Whittaker of West Virginia, for example. It was 2002 when Whittaker won the $315 million Powerball jackpot on Christmas day. As ABC news notes, Whittaker’s initial lottery plans were golden; he planned to build churches in the area and give back to his community, all while creating the perfect life for his family.

Within a few years though, the money had reshaped his life in ways he never wanted. Constantly inundated with requests for cash, Whittaker was afraid and alone. His granddaughter, who had once been the light of his life, was found dead behind a dumpster – the victim of both drugs and crime. Years later, Whittaker wishes he would have ripped up the lottery ticket the day he won.

“More than 70% of people who win the lottery end up being broke within a few years,” says wealth advisor Kirk Chisholm of Innovative Advisory Group, adding that professional athletes who suddenly earn millions have a similar failure rate.

“The problem is human psychology,” says Chisholm. “Most people are not disciplined with their money. They spend what they have and save the rest. Ideally, they should save first and spend the rest. Saving should always come first, otherwise you will rarely have enough to save at the end of the year.”

This is yet another reason you should keep quiet about your winnings and hire a team of professionals first. With professional help on your side, you can set yourself up for life while setting limits on the “fun money” you can spend.

Final Thoughts

If winning the lottery is one of your goals this year, it’s smart to prepare your finances now. By learning to live with a budget, paying off debt, and investing regularly, you can build positive money habits that can carry over to your post-lottery lifestyle.

And even if you don’t win the lottery, making smart moves with the money you do have will still leave you better off. While a lottery win can help you become rich, it doesn’t guarantee you’ll stay rich. To build real wealth, you need to learn to hold onto the money you have.

Holly Johnson is an award-winning personal finance writer and the author of Zero Down Your Debt. Johnson shares her obsession with frugality, budgeting, and travel at ClubThrifty.com.

Related:

What would you do if you won the lottery? Would you add any tips to this list?

The post What to Do if You Win the Lottery: Five Steps to Take When You Hit the Jackpot appeared first on The Simple Dollar.

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Friday, December 30, 2016

Using Your Credit Card Bill as a Wake-Up Call

Here’s a little exercise for you to try out. Take out your latest credit card bill from your most frequently used credit card. Print it out if it’s an electronic bill; otherwise, just grab a pen and put the bill on the table in front of you.

Now, go through each item and ask yourself a couple of simple questions about each one.

“Was this thing a necessary purchase?” If it is, put a little + beside that item on your bill. Easy enough – these expenses should be obvious.

“Was this purchase not necessary, but actually really fulfilling when I look back on it?” Just leave it blank. Don’t mark anything beside it.

“Was this purchase not necessary, but not really all that great when I look back on it?” Put a – beside that item.

“I don’t remember what this item was at all, but I’m pretty sure it wasn’t important.” Put a – beside that item.

Now, go through and total up all of the items with a – beside them and see how much those items add up to.

That’s the amount of money you spent on things that are truly forgettable, that weren’t necessary and didn’t have any sort of positive impact on your life.

That money could have been used to pay down debts. It could have been used to save up for a down payment on a home or on a car. It could have been used to save for retirement through a Roth IRA contribution. Those things quickly turn a – into a +.

Even if you didn’t want to necessarily spend that money on those things, it could have at least been used on things that were really fulfilling when you look back on them, like a meaningful day at the zoo with your family or gas for a day trip to see your grandmother. Those things move, at the very least, into the neutral column.

This exercise isn’t meant for you to beat up on yourself. The truth is that everyone makes spending mistakes. If I go through my own credit card statements, you better believe that I’m going to mark some things down with a -.

The real purpose of this exercise is twofold.

First, it helps you to recognize how much of your spending goes toward things that are completely forgettable and have minimal life impact. People often wonder at the end of the month where all of their money has gone, and the truth is that a lot of it goes toward completely forgettable things with little impact. While it’s easy to acknowledge that truth in a general sense, this exercise makes it very specific and personal. It shows you how much of your spending is forgettable and low-impact. It even shows you exactly what those expenses are.

Second, it gives you a great deal of insight when it comes to your future spending. To me, this is the real value of this type of exercise. It shows you, front and center, how much money you’re spending ineffectively, plus it tells you exactly where you’re spending it. You can take that information and use it to improve your spending habits going forward.

How? Here’s how you can use that information to really reshape your spending.

First, look for patterns in the data. Where do you often spend money in a forgettable fashion? Is it at a bar? A gas station? A particular store? A website? Are there particular kinds of products that you often buy that you just forget about? Soda? Alcohol? Coffee? Entertainment? Look for things that show up again and again in your spending and see if you can make a short list of a few of those patterns.

Second, identify clear, specific life changes that will slash your spending in terms of the patterns you noticed. You have a few clear patterns that define your forgettable spending. What are you going to do about those things? For example, if you spend a lot of money on forgettable stuff online, consider deleting your credit card number from online stores that you frequently use, especially the ones where you buy forgettable things. If you often buy sodas or alcohol or other consumables that you simply forget about, make it your goal to cut those habits (it’s probably better for your health, too). If you find that there’s a ton of expense associated with a particular friend or social group, dial down your time with those folks and build up time with friends that don’t require spending.

Third, implement those changes. Ideally, you now have one or two real tangible changes that you can implement… so implement them. This can be a hard thing to do, so here are a few suggestions on making them click.

First, remind yourself of these initiatives every morning, early in the morning. Put aside a few minutes to specifically think about these goals. Put them on a big note on your bathroom mirror so you can think about them when you’re brushing your teeth, or put them as the lock screen on your smartphone by making an image with those ideas. I find that looking at these focus points right before or right after meditation or prayer (something I do every morning) is very helpful in terms of locking those ideas into my skull.

Second, focus just on today. Don’t worry about the failures of the past or the path ahead of you. Just worry about making sure you take care of those things today. If one of your initiatives is to cut online spending, just choose not to spend any money online today for anything. If one of your initiatives is to stop drinking alcohol, focus on not drinking today and use other outlets for your emotions. If you have an initiative that involves making social changes, make an active choice to spend some time cultivating a new friend or two today. Today is what matters.

Third, evaluate today before you go to bed. Much as you did in the morning, spend a moment or two reflecting on your initiative for the day at the end of the day. Did you manage to avoid drinking? Hooray! Success! If you didn’t, why did that happen? It’s not life-ending to have made a mistake, but it should be seen as an opportunity to figure out why you made a misstep and focus on making sure that you take care of the reason behind the curtain. I find that repetitive failures means that I need to be working on something else in my life as a daily goal because there’s some other challenge in some other part of my life that’s not working out right, so fixing that other challenge needs to come first.

Fourth, make (and continue) success chains. When I’m working on establishing a new “normal” in my life, it usually comes from consciously repeating a daily habit until it’s so normal that I don’t have to think about it any more. I find that it starts to happen around the 30 day mark but doesn’t really “lock in” permanently for at least 90 days of steady repetition. To keep myself motivated, I use the “success chain” system. I have a white board in my office where I have my top two or three daily goals listed. Next to each goal is a line of Xs. Each day, when I’ve successfully done that thing, I add an X to that line. If I haven’t successfully done that thing, I erase the whole line. I often look at this board during my morning evaluation of my daily goals, because maintaining that chain of Xs has a great deal of psychological power.

Use these strategies together to implement the changes you identified and actually cut that needless spending from your life.

Finally, see how those changes affect your spending in the next billing cycle. Skip a month, then take a close look at the first full billing cycle after you started implementing these changes. Go through it and do the same “+,” ” ,” and “-” exercise described above. Ideally, you’re going to notice a lot of positive change, probably enough that you immediately notice it in your lower-than-usual credit card balance or your higher-than-usual bank balance.

It feels good. Real good. The best part? Since it’s spending that really doesn’t matter to you, it’s easy to keep it going. You can do this.

It’s this type of cyclic pattern – looking for mistakes you’re making, looking for actionable steps to improve them, implementing those steps, and then checking the results – that is behind almost every kind of positive change people implement in their lives. Personal finance change is no different.

Weeding out forgettable spending is a particularly powerful type of change because you’re letting go of stuff that really isn’t very meaningful for you and replacing it with much more meaningful uses of your money, plus you can clearly see the impact month over month on your bank statements and credit card bills.

Give this little technique a shot. You’ll be pretty happy with the changes it brings.

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Thursday, December 29, 2016

31 Days to Financial Independence (Day 20): Finding a Better Job

“31 Days to Financial Independence” is an ongoing series that appears every Thursday on The Simple Dollar. You might want to start this series from the beginning!

Last time, we took a serious look at the steps that you should take to put yourself in position for a promotion at work. Today, we’re going to to take a look at building a game plan for moving yourself from your current job to a new one.

Why would you make that choice? There are many reasons, of course, but the one that really deserves consideration here is that changing jobs can often improve your true hourly wage significantly or else put you in a position where it will improve quickly.

The obvious route to that success is through higher wages. If your pay goes up, it’s very likely that your true hourly wage will also go up. (Remember, your true hourly wage is the total income you make in a year minus all work expenses divided by the total number of hours devoted to work plus things like commuting.)

However, you might see financial benefit from switching jobs if it drastically reduces your commute or enables you to no longer have to pay for child care or if it opens the door to a completely new ladder of potential promotions or if it gives you equity in a company. Those things indirectly impact your true hourly wage either by reducing your job-related expenses, reducing the hours you devote to work, or opening up potential increases in your wages.

It’s not just about the pay, in other words.

Is a job switch the right move for you? It’s usually a good idea if you’re unhappy at your current job or if you feel like there is little opportunity for advancement or pay increases at your current job. It’s usually a poor idea if there is plenty of room for pay increases or advancements at your current job and you’re happy there. Don’t switch just for the sake of switching.

Exercise #20 – Laying the Groundwork for Finding a Better Job

If you do see a job switch as something that’s right for you, something that will improve your financial outcomes, here are some strategies to start employing right away that will set you up for a job switch in the future, along with some strategiest to make that switch as effective as possible.

Identify a number of jobs you’d ideally like to have and discover what the requirements are. If you’re considering switching jobs, what exactly is it that you’re hoping to switch to? Are you just trying to escape a poisonous work environment? In that case, you’re likely just looking for the exact same job you have now, just elsewhere.

Many people, however, are focused on finding a new job that provides the financial benefits described above. It increases their pay, gives them opportunities to move up, or provides new challenges. Generally, these jobs tend to be ones that you’re mostly qualified for, but a bit underqualified for in a few areas.

Find listings for those jobs (LinkedIn is a good place to start). See what is actually required of them. If at all possible, talk to people who are in that position that you won’t be competitive with (people you may be competitive with may have ulterior motives for not giving you the full picture) and see what the job is actually like.

In other words, understand what your target is.

Make those new requirements your checklist going forward. Your search for new positions should have provided you with a long list of requirements and highly desired traits. Take that long list of requirements and traits, cross off all of the things that you clearly already have, and turn the rest of them into a giant checklist for the coming months in your life.

It may be that you need more education. In that case, start taking classes and progressing toward the degree that you need.

It may be that you need more experience. In that case, stick with your current job if it gets you that experience, or move sideways into another job that will give you that experience.

It may be that you need certain skills. Take classes to help develop those skills, or else find ways to work on those skills in your current workplace.

You absolutely should talk to your current supervisor about polishing and building up certain skills, even if your intent is to move to a new workplace. Just simply say that you’ve self-identified some skills that you’d like to improve and ask for opportunities to do that. This is particularly helpful if those skills are ones that show up on the performance reviews at your current job anyway.

Take on tasks at your current job that are specifically chosen to bolster your resume. Many job listings are actually looking for people willing to take on extra challenges of various kinds, and many jobs offer great opportunities for taking on new challenges. When a challenging task that will fit perfectly on your resume shows up at your current job, jump on it and do it to the best of your ability.

Not only will completion of that project give you something to add to your resume that looks impressive and enable you to potentially fulfill specific requirements of the job that you want to have, it also teaches you new skills – both in terms of the technical aspects of your job and transferable skills like time management and project management – that you’ll be able to apply elsewhere.

The people that step up to the plate and take on challenges and difficult tasks are the ones that build up a nice resume and get the rewards. If you want a better job, that needs to be you taking on those challenges.

Build up lots of transferable skills. Transferable skills are skills that are useful in almost every profession out there. Communication skills, both written and verbal. Public speaking skills. Leadership skills. Time management skills. Information management skills. Project management skills. Self-directed and independent working habits. Research skills (this does not mean “know how to use Google”). Many, many, many jobs want those skills.

Think about the job that you want to have and ask yourself what transferable skills would really shine in that job. We’re not talking about the job-specific technical skills here, but the other elements that would make you successful there. What are they?

Work on them. There are opportunities in every workplace to polish those skills and there are many classes you can take to build up those skills as well. Learn to use them, not just because they look good on a resume or during an interview, but because they’ll make you a more effective employee both in your current job and your destination job.

Cultivate strong positive relationships with professional peers outside of your workplace. If you’re looking to advance within your organization, as we discussed in the previous installment of this series, cultivating relationships with people within your company is a great move. However, if you’re looking to move out, the relationships that become the most valuable ones are the ones outside the company, with people who may be evaluating you, employing you, and working with you.

If you have any interest at all in switching employers, you should be involved in local and national professional organizations. You should be attending conferences and meetings if at all possible. You should be looking for opportunities to present things to people outside your organization. And, in all of those situations, you should be focused on meeting lots of people and building real, meaningful relationships.

That’s a hard thing for some people to do (myself included). I found that simply mastering the mechanics of How to Win Friends and Influence People helped immensely with face-to-face situations, and the mechanics of Never Eat Alone helped greatly with regards to building and maintaining relationships outside of face-to-face interactions.

Which brings me to my next point…

Get involved in social media from a professional standpoint. Social media, particularly Twitter and LinkedIn, provides a great opportunity for you to get to know professionals in your field, hiring agents who may want to hire you, and many other valuable folks in terms of elevating your career. You can build relationships, learn new things, and raise your public profile from pretty much anywhere.

Many people use social media personally, but turn that idea on its ear and use it professionally. Use it to share your professional knowledge, build relationships with people in your field all across the world, and follow up on face-to-face relationships that you’ve launched.

I often use social media as a tool for following up on potential professional contacts. I’ll immediately suggest following them on Twitter or connecting on some other social media network (LinkedIn, Facebook, etc.) and then do it immediately on my phone. I usually make a note as well regarding something that I can follow up on with that person, because following up is key for building a professional relationship (or a personal one for that matter).

Make sure your resume is up to date. It is really easy to let your resume atrophy over time, especially if you’re comfortable in your current job. Don’t let that happen, especially if the idea of switching jobs is on your radar at all.

It’s a good idea to keep a current resume up on LinkedIn at all times. Review it at least once every few months, if not more frequently, and be sure to add any and all relevant skills to it. It’s not a bad idea to keep resumes on other job sites, too, particularly ones focused on your career area.

A valuable tip: don’t be afraid to highlight your unusual experiences or skills, as they’re almost always a benefit rather than a drawback. If you can speak, say, Norwegian, list that on your resume even if you don’t think it’s potentially relevant to anything you might be applying for. It might be a subtle skill that’s a big benefit at a particular company, or, at the very least, it might be a differentiator between similar candidates or a talking point in an interview.

Another valuable tip: avoid using overused terms on your resume. Don’t bother with terms like “dynamic” or “team player” or “detail oriented,” as they’re practically meaningless unless you can tie them to specific experience that you can describe. As generic descriptors, you’re better off without them.

Have a broad focus when applying for that new job. When you start actively searching for a new job, it’s tempting to look for jobs with a very tight focus. You might just look for a job in your current area that pays at least a certain amount in a certain field, for example, which quickly narrows your options.

Expand your search as much as possible. Look at jobs that pay a little less that have clear advancement opportunities or the potential for earning equity. Look at jobs that would require you to move to a new area. Look at jobs that might be a little different than what you might normally look for, like a computer programmer considering a job in IT.

The goal is to find a job that matches your skills, offers an increase in your true hourly wage, and offers opportunity for advancement. Finding a job like that might mean letting go of other factors like location.

Look for jobs based on a company rather than a job title. If you know of some companies that are known to be great to work for, look for positions within that company that you might be able to match up with. In this case, you might want to stretch even further than normal in terms of the type of job you might be looking for.

For example, if you know that a particular local employer is really great to work for and has a ton of opportunity for internal advancement, look at all of the job listings there and see what they have available. You might find something that works well for you that’s outside the scope of what you might normally be searching for.

Practice your interviewing skills. Many jobs whittle their potential candidates down based on their resumes to a small group, then interview those candidates. At that point, it’s usually your interview that decides things (unless the “fix is in” and there’s already a vastly preferred candidate for reasons you may not see… which is why it’s a great idea to build relationships so you can be that preferred candidate).

The best way to practice, honestly, is by interviewing at every opportunity until it begins to feel natural. Accept any and all interviews that you get, even if you’re pretty sure you wouldn’t take the job.

If that opportunity isn’t open to you, simply find sets of interview questions for your job and have a friend interview you. I’ve actually done this for a few of my closest friends in order to make them feel more confident about job interviews and, in at least one case, I’m absolutely certain it improved his interviewing skills and helped him get a job in his field.

Dress appropriately for the interview. Don’t show up to a job with wrinkly clothes and without taking a shower or brushing your teeth. That’s just begging for them not to hire you. Instead, show up dressed as though you want this job and you’re ready to start right now. Imagine you’re about to have a meeting where your job is on the line with your supervisor’s supervisor and 80% of the judgment is going to be a snap judgment when you walk in the door. How would you dress?

For many people, really knowing what to wear in such situations can be a bit of a mystery. I usually rely on DressCodeGuide.com for advice. For example, the advice given for business professional men seems to be utterly spot on and can be a great guide for selecting a wardrobe.

If you’re still not sure, ask around. Ask people who have earned the position you’d like to have what they would wear to an interview and do that. Make sure you’re clean, presentable, and not wearing wrinkly clothes.

Interview them as they’re interviewing you. A good interview will involve you being asked a lot of questions about your background, your skills, your personal philosophies, and so on. However, a great interview is a two way street, where you find out things about the organization and the people who work there.

During the interview, don’t hesitate to ask questions about the specifics of the job, the company itself, the company culture, and so on. Find out what the interviewers like about working there and don’t like about working there.

This can help you quickly figure out whether this is a job that you actually want or not and whether or not this position would be a good fit for you.

If you get a job offer, negotiate a little. The initial offer you’re given is usually at least a little flexible. Don’t be afraid to ask for a higher salary, particularly if you have documentation that the salary is on the low end of the expected scale.

You may also want to ask if the company offers a signing bonus or some money to help with the costs of moving. Again, it does not hurt to ask for these things; they’re not going to rescind an offer and restart the job interview process just because you asked such a question.

Another great perk to ask for – and one that I have heard “yes” to every single time I’ve asked it – is for some extra leave in your personnel account at the very start of your job. Most jobs offer some amount of annual leave and accrue that leave at some regular rate. Simply ask for some leave to already be accrued for you, so that rather than starting with zero leave, you already have, say, a few weeks of leave accumulated. Many jobs, especially in the private sector and in larger government organizations, can easily accommodate this perk and it’s one that doesn’t affect their bottom line directly, so they’re often happy to offer it if asked. You might also ask for a higher rate of leave accrual, though that’s less likely to be given, especially in government positions where such accrual is highly regulated.

Don’t burn bridges at your current job at any point in the transition. If you’re leaving a job where you don’t like the work or the conditions or have painful relationships with coworkers or simply don’t like them, it can be very tempting to burn some bridges on the way out in various ways, whether through confrontation or through leaving your job in an unstable place.

Avoid that temptation like the plague. It will bite you, especially if you’re staying in your current field.

Instead, do everything you can to transition peacefully and smoothly to your new job while preserving the best possible relationship that you can with the people you leave behind. Don’t use your last days to tell people off or to twiddle your thumbs. Use those days to cement relationships and to document standard work protocols. That time you spend will reflect incredibly well on you moving forward, which can do nothing but help your future career steps.

Next time, we’ll talk about strategies for starting a “side gig” that can provide supplemental income.

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Avoid These Life Insurance Tax Traps

Few people like to think about the paperwork and financial logistics associated with death. It often feels more comfortable to pretend the day will never come, and let such details remain undiscussed among loved ones.

Even under the best of circumstances, addressing something as important as life insurance is less than fun. But understanding if and when life insurance payouts are taxable, and what measures can be taken to help avoid paying Uncle Sam, is an essential part of sound financial planning.

“It’s easy to make mistakes that can cause unnecessary tax or financial hardship,” says Eva Victor, advanced sales attorney at the Penn Mutual Life Insurance Company. “Effective planning should identify, avoid, or remediate planning mistakes and oversights – and preserve the unique tax benefits afforded to policy owners and beneficiaries.”

If that sounds intimidating, read on for some key advice from life insurance and certified financial planning experts.

In Most Cases, Taxes on Life Insurance are a Non-Issue

By and large, the proceeds from life insurance are not taxed. This is because life insurance payouts are not included in the recipient’s gross income and therefore do not need to be reported to the IRS.

In addition, life insurance premiums are typically paid with after-tax dollars, so proceeds from such policies are exempt from further taxation.

The exception to this general taxation rule arises with individuals who have extremely large estates, which will be explained later. But for the time being, it’s important to note that for spouses, no matter what the estate size, payouts are excluded from taxes.

There are, however, some basic pitfalls to be aware of, according to David Hryck, a New York City tax advisor, lawyer, and personal finance expert who is a partner at Reed Smith.

For instance, life insurance proceeds will be taxed if they’re paid in installments instead of a lump sum. The interest paid on installments would be taxed at ordinary income rates, according to Hryck.

When Life Insurance Is Taxable

In the world of life insurance planning, there’s a common and highly complex trap known as a tax triangle, according to Penn Mutual’s Victor.

This tax triangle occurs when there are three different parties to a life insurance contract – the insured, the policy owner, and the policy beneficiary. Under such circumstances, when the insured passes away, the policy owner may be treated as making a taxable transfer of the death proceeds to the policy beneficiary – subjecting the death benefit to potential gift tax or income tax, depending upon the situation, says Victor.

For example, in the case of an employer-owned life insurance policy (first party) that covers an employee of the company (second party) and pays out to that employee’s spouse (third party), the death benefit received by the beneficiary may be subject to income tax.

In some cases, the beneficiaries of wealthy individuals whose estates are in excess of a certain dollar value, may also find themselves paying taxes to the state and/or the federal government on life insurance proceeds, says Chris Kimball, an independent financial planner in Washington.

“For wealthy individuals, without proper planning, a large part of their life insurance death benefits might end up going to their favorite uncle – Uncle Sam,” says Kimball.

Here’s why: The federal government allows a wealthy individual to transfer up to $5.45 million to his or her heirs, without paying federal estate taxes. However, if someone has a life insurance policy with a death benefit of $3 million, for example, that too could be included as part of his or her estate.

“So for someone who is worth a couple million dollars, when they die, their beneficiaries probably won’t pay any federal estate taxes. But if he or she also has life insurance that puts the estate value over the top of that $5.45 million threshold, then there will be taxes to be paid,” explains Kimball. “In addition to the federal government, various states may also have their own, separate, estate taxes.”

Often high-net-worth individuals get around this inconvenience by establishing an Irrevocable Life Insurance Trust, or ILIT.

The ILIT is a trust that owns the policy, and therefore the value is generally not considered part of the individual’s estate. And upon death, the insurance proceeds go to the intended beneficiaries, not the government.

However, if an in-force policy is put into an ILIT less than three years before the individual’s death, it could be subject to the estate tax.

Additionally, taxes could be a factor if the owner puts more money into a permanent life insurance policy than was originally stated or allowed in the contract. This overage in funds turns the cash value of the life insurance policy into a Modified Endowment Contract, which is taxed as an investment vehicle.

“If a policy can hold $100,000 and you put in $150,000, then the cash value amount will be taxed as if it were an investment vehicle,” explains Anthony Bowers, a senior associate with Revolution Financial Management in Valencia, Calif.

One final instance where taxes come into play involves individuals who surrender a life insurance policy before passing away and take the cash. If a loan was taken from the life insurance policy at any point, there may now be taxes to pay on the money that was borrowed.

The Bottom Line

Nearly all experts agree that proper planning when it comes to life insurance is essential, no matter how young you are and no matter what your overall net worth may be.

A thoughtfully established policy can provide for loved ones in your absence — replacing lost income, and also helping to cover any remaining liabilities or expenses associated with the deceased individual.

“I tell everyone that they need to have a life insurance policy,” says Bowers. “Because at the end of the day, there are things you’re leaving behind that your family is going to have to deal with.”

Related Articles:

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Wednesday, December 28, 2016

Movin’ Out

It seems such a waste of time
If that’s what it’s all about
Mama if that’s movin’ up
Then I’m movin’ out

Almost every person out there between the ages of 18 and 70 is working for something.

They’re working to keep food on the table, sure, but that can be done with very little effort. An awful lot of people are driven to work harder and earn more than that.

Why? What are they working for?

Some people seem to be working for little perks in life. I find that these are the people who answer such questions with an “I don’t know” response. They’re working to have cable television and fast internet at home. They’re working to drive a fairly nice car around town.

Others work for some form of the American dream: a beautiful house in the suburbs with a beautiful family that’s depicted on the holiday letter they send out each year talking about the things that their family is doing.

Others work for freedom. They want the ability to spend their time in whatever way they’d like without the need to earn money from that time.

Still others have simply found that thing that they love to do and somehow they make money from it.

Anthony works in the grocery store
Savin’ his pennies for someday
Mama Leone left a note on the door
She said, Sonny, move out to the country
Workin’ too hard can give you
A heart attack
You oughta know by now
Who needs a house out in Hackensack?
Is that what you get with your money?

The thing is, it’s really easy to get lost in the journey. We’re surrounded by temptations and distractions, ways to spend our money on little pleasures and conveniences that fade away and are forgotten very quickly.

Is that what you get with your money?

Or we might get lost in someone else’s journey, saving to buy a house to impress parents that we’ll never be able to please or to buy a shiny new car that everyone will ooh and aah over for about a minute before moving on to other things and completely forgetting about it.

Is that what you get for your money?

Or we might lose ourselves in an outsized sense of responsibility, believing that our children have to have some kind of perfect childhood with every single thing they could possibly ever want and need… except that those children sit at home wanting the one thing that they don’t have: their mom, or their dad.

Is that what you get for your money?

The thing is, when it comes to the end of your days, you won’t think back positively on all of the hours you spent working for other people. You won’t think of the stops at Starbucks or the little treats. You won’t think about a shiny new car or a big perfect house.

You’ll instead think about the experiences. You’ll think about the time spent with people. You’ll think about the relationships you had with people. You’ll think about the people that you’ve loved and the people that loved you.

Those are the things that define your life and, really, you don’t need a whole lot of extra money to have those things in spades. Those are the things that are worth working for.

Work for experiences you want to have. Work to give yourself time and freedom to build and savor those relationships. Work to live, don’t live to work.

What do I work for?

I work so I can have time with my children. I make a decent income, but I would be making a lot more if I hadn’t organized my life so that I could be sitting there waiting when the kids get off the bus to give them a snack, go through their backpacks, help them with their homework, and so on.

I work so that in a few years, I can retire with my wife and we can spend decades of healthy life together exploring the world, but I also don’t work so much that I sacrifice my relationship with her along the way.

I work, not so that I can have lots of little treats that I completely forget about, but so that I can have life-changing things that might take a little longer but that really have an impact.

I work, not so that I can have lots of stuff, but so that I can have lots of experiences.

Sergeant O’Leary is walkin’ the beat
At night he becomes a bartender
He works at Mister Cacciatore’s down
On Sullivan Street
Across from the medical center
He’s tradin’ in his Chevy for a Cadillac
You oughta know by now
And if he can’t drive
With a broken back
At least he can polish the fenders

Figure out what it is that you want out of your life, then work for that. Work for that thing with a single-minded focus.

Don’t waste your dollars on anything that doesn’t help you achieve that thing you truly want. Every time you use your dollars for something else, all you do is ensure that you don’t achieve that thing you most want; you’re trading it for something forgettable.

Don’t waste your spare time on things that don’t help you achieve your big dreams, either. Every time you spend your spare time on something that isn’t in line with your core goals, all you do is ensure that it becomes even harder to have those things.

Don’t work so hard that you lose those things that you rely on, though. Don’t sacrifice your relationships. Don’t sacrifice your body. Don’t sacrifice your mind. Without those, no goal is really worth having.

It’s a balancing act, but it’s a balance that’s much easier to achieve when you throw the junk off of the balance. Stop with the wasted spending. Stop with the wasted time.

You should never argue with a crazy mind
You oughta know by now
You can pay Uncle Sam with the overtime
Is that all you get for your money
If that’s what you have in mind
If that’s what you’re all about
Good luck movin’ up
‘Cause I’m moving out
I’m moving out

Whatever it is that you’re working for in life, make sure that you’re working for something you want. Don’t work for something to impress others. Don’t sacrifice your family. Don’t sacrifice your other relationships. Don’t sacrifice your health. Don’t sacrifice your sanity, either.

Different people will want different things, and that’s completely fine. Just make sure that the thing you’re working for is your thing and that you’re keeping track of the pieces of your life that you and your dreams rely on.

If you find yourself working for what someone else wants or that you’re losing yourself in the process, stop. It’s time to move out.

Infinite credit to Billy Joel for a beautiful, thoughtful, and inspirational song. It’s part of his wonderful 1977 album The Stranger.

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What Is ChexSystems?

Most of us have heard of Equifax, TransUnion, and Experian – the trifecta of credit bureaus that impact everything from credit card applications to car loans. But far fewer people are familiar with ChexSystems, yet another consumer credit reporting agency that also impacts one’s financial affairs.

If you’ve ever tried to open a bank account and been denied, it’s likely because of ChexSystems, which provides financial institutions with information about how consumers use deposit accounts.

ChexSystems tracks the details of your banking history — such as whether you tend to have a low daily balance, have bounced checks at retailers, or have ever abandoned an account leaving a negative balance. All of this information can be reviewed by a financial institution when you attempt to open a new account.

With that in mind, here’s what you need to know about ChexSystems.

How Is ChexSystems Used by Banks?

The vast majority of U.S. banks, nearly 80%, use ChexSystems to screen applicants for bank accounts. The services and information that ChexSystems provides financial institutions include verification of identity, reports on account history, and transaction monitoring.

The agency reports only the negative information to banks, and those reports can make opening a bank account challenging.

“Consumers should know that if you have a history of bouncing checks or you abandon accounts with a negative balance, your bank will report you to ChexSystems,” says Levar Haffoney, a New York-based wealth manager for Fayohne Advisors. He adds that once a consumer has been flagged, it’s very difficult to open an account with another financial institution.

Can You Repair Your Banking History?

If you’ve ever opened a bank account, then it’s likely you have a ChexSytems report, according to financial experts. But if you have a negative report, all is not lost.

Haffoney and others say smaller regional banks and credit unions do not necessarily use ChexSystems to screen applicants, and thus can provide an opportunity to rebuild a positive banking record.

“Local banks and credit unions are more receptive to people who are low income and they are more willing to look past credit history issues,” Haffoney explains.

Some banks also offer what’s known as a ‘second-chance checking account,’ says Haffoney. Such accounts involve the bank closely monitoring your activity for a year or two before allowing you to move on to a regular account.

Those who have a negative banking history should also work with the institution where the financial trouble occurred to try and correct the issue, perhaps repaying an overdraft charge for example, says Deric Poldberg, a personal banker for American National Bank in Omaha, Neb.

While American National uses ChexSystems to screen every single account applicant, the bank is willing to look past a negative report if the applicant provides documentation showing the situation has since been addressed responsibly.

“If you brought me proof of repayment on the bank’s letterhead, then we will open an account,” says Poldberg. “That’s how we operate.”

How Long Will a Negative Incident Remain on Your ChexSystems Report?

It’s important to note that even if a negative incident is resolved with the bank in question, ChexSystems is likely to still keep that incident on your report for up to five years after it occurred.

This is particularly the case if the financial institution’s original report to ChexSystems was an accurate report of account mishandling on your part. However, there are cases where a financial institution will request the incident be removed from your report, such as when there’s a consumer dispute filed.

You can find out what your ChexSystem report says by visiting the agency’s website. Consumers are eligible for one free copy of their ChexSystems report annually.

This is a particularly good idea if you’ve been denied an account and ChexSystems was used in the decision process. Obtaining your report can help you identify the problem – and get to work resolving it.

Related Articles

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Six Ways Seniors Can Save on Car Insurance

Young drivers typically see their car insurance costs drop as they gain experience behind the wheel, but when they become senior citizens, their rates may begin to rise again.

This happens because the risk of paying out claims increases for insured motorists as they age, says Carol Walker, executive director of the Rocky Mountain Insurance Information Association.

The frequency of crashes for drivers starts increasing at about age 70, according to the Insurance Institute for Highway Safety (IIHS). As eyesight, hearing, and reflexes decline, some insurance companies have found that policyholders as more likely to be involved in traffic accidents, or more prone to injury in a fender bender. Walker says each carrier has a different approach to insuring older drivers, however.

“There are different [age] thresholds for companies,” she adds. “Part of the issue is that older drivers are injured more frequently in crashes. They are more frail.”

You can’t help aging, but there are things you can do to keep your car insurance rates low. Here are six examples:

1. Ask about low-mileage discounts.

The less you drive, the less likely you are to be involved in a traffic accident, Walker says. If you retire from your job and no longer drive to work, the number of miles you log on the road each year should drop significantly — so ask about low-mileage discounts.

“If you’re not driving to and from work, your car will be classified as pleasure use,” says Kevin M. Lynch, an assistant professor of insurance at the American College in Bryn Mawr, Pa. “That will lower your rates.”

2. Use anti-theft devices.

Lynch says you can often reduce your car insurance bill by using anti-theft devices that help track stolen vehicles, such as OnStar and LoJack. You also may save money if you have a vehicle alarm system.

Ask your insurance agent which security devices will earn you a discount.

3. Consult with your insurance agent before you buy a car.

The car of your dreams may not be the least expensive vehicle to insure, says Lynch. Carriers consider a variety of factors when setting rates, such as the cost of repairing and replacing your vehicle.

Typically, the more expensive a car is, the costlier it will be to insure. Also, if the model you choose is a popular target for thieves, that could affect your rates.

4. Use technology to reduce your bill.

Lynch notes that some insurance companies use technology to tie rates to your actual driving behavior. Telematics devices monitor such things as how far you drive, your driving speed, and how smoothly you apply your brakes.

“They know where you go,” says Lynch. “They know if you’re speeding. If you’re a safe driver, you get better rates.” Ask your agent if your insurance company offers discounts for using a monitoring device in your car.

5. Consider taking a defensive driving course.

Some insurance companies will reduce your insurance rates if you successfully complete a defensive driving course, says Jim Armitage, an insurance agent in Arroyo, Calif.

Such classes are available through a variety of organizations and private schools. Before you sign up for such a class, call your insurance company to make sure that the course you’re taking will result in lower car insurance rates, he adds.

6. Shop around for the best price.

Lynch says not all insurers consider older drivers a greater risk. Drivers age 70 and older are a growing segment of the car insurance market. In the U.S., this group rose 38% between 1997 and 2014, according to the IIHS.

If your insurance rates go up, you can shop around to see if another carrier can offer you a better deal, says Lynch. Car insurance is a very competitive industry, so there’s a good chance you’ll find a cheaper policy.

When older drivers are unhappy with their auto policy rates, “the best advice I can give is to shop companies,” Lynch says.

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Tuesday, December 27, 2016

Lean Financial Independence: Early Retirement on a Supertight Budget

Sarah and I are at an interesting crossroads in our financial journey, one we’ve alluded to a few times recently.

As we’ve said before, our goal is to retire early when we’re in our late forties, roughly around the time that our youngest one leaves the nest. There are a number of reasons for this: a big part of it is household and social stability as they grow up, along with living in a good school district.

Once our children are out of the nest, Sarah and I intend to sell our current home, drastically downsize our possessions, buy a small country home with a few acres on it, and basically retire at that point. We intend to travel a lot in the United States with long stops at all of our national parks, get deeply involved with a few local charities, and pursue a few major personal goals; one of mine is to write a series of fantasy novels the way I want to write them, rather than with an eye for making a living from them.

Recently, however, we came to the realization that we’re very close to “lean” financial independence already.

So, what do I mean by “lean” financial independence? I simply mean that if we were to adopt a lifestyle with very low expenses – substantially lower than what we have now, but definitely livable – we could both quit our jobs right now and live for the rest of our lives off of our income.

To be more specific, if we chose a 3% withdrawal rate on all of our savings and investments and also moved to a smaller house and banked the money we earned on that transaction, we would be able to live on the investments at a level just above the poverty line. However, it’s worth noting at that point that our home would be paid for and we would have zero professional expenses.

While it’s not a life we would actually want right now for a number of reasons, it is a scenario that, once we realized it a few months back, has entered into our discussions a little bit.

The Benefits of “Lean” Financial Independence

Naturally, as Sarah and I do when any major decision or life option appears on our radar, we started making a big list of pros and cons. Here are the major benefits of “lean” financial independence, as we see it.

Tons of free time when we’re young and healthy The earlier that we “retire,” the more years we have in which we’re healthy and energetic and have the desire to take on major life challenges. Doing so right now likely gives us three or four decades of good health. That’s a lot of time to chase many of our personal dreams.

The idea that I could go on three or four hikes a week and spend several hours each at a few different charities and take care of the many other things I’d love to be doing but I simply don’t have time for seems blissful.

Infinite career opportunity We both look at this kind of opportunity as a chance to switch careers and have much more independence in our career choices. We can afford to earn nothing for a while if we have “lean” financial independence, so we can easily make career choices that might make no sense otherwise and we can also stand up for ourselves and leave unhealthy workplaces.

This doesn’t necessarily mean a dissatisfaction with our current career. It just means that when you have enough money come in to ensure your basic life expenses without working, it becomes much easier to make hard career choices and to be selective with your opportunities. It becomes possible to take huge risks and try things you might never otherwise try.

A more minimalist life Part of the appeal of “lean” financial independence is that it requires a more minimalist life than we have right now. This isn’t so much in terms of possessions – though that’s true to a certain extent – but in terms of the daily hectic nature of our lives. We sometimes feel constantly busy, as though we’re on an endless cycle of commitments and tasks that never ends. Getting off of that treadmill seems quite appealing, but it’s something that’s fairly difficult to do with our current life commitments. Eliminating a bunch of commitments would be pleasant. Although this idea is tied to more free time, it’s more of a realization of the lower stress that comes from eliminating commitments and downsizing one’s possessions.

If you’re intrigued by the idea of reducing stress by downsizing possessions, something I am a strong believer in, I recommend Marie Kondo’s books The Life-Changing Magic of Tidying Up: The Japanese Art of Decluttering and Organizing and Spark Joy: An Illustrated Master Class on the Art of Organizing and Tidying Up.

A huge “emergency fund” if it’s needed If things went very awry, one or both of us coud return to the workforce in some capacity to bolster our income. Over the short term, however, we could certainly withdraw a larger portion of our savings in order to make ends meet, though that would almost definitely lead to some need to return to the workplace at some point.

The Drawbacks of “Lean” Financial Independence

Of course, there are some significant drawbacks to jumping onto this path.

A very “lean” lifestyle Although we don’t live a particularly expensive lifestyle as it is, we would still lose many little perks that we currently enjoy as we simply wouldn’t be able to afford them. My monthly hobby budget would almost entirely disappear, for one. We’d likely eliminate almost all of our entertainment-related subscriptions. Our summer travel would be much leaner.

While Sarah and I are very frugal, we do enjoy some hobbies and some entertainment options. We could give them up, of course, but losing those options would definitely be noticed. We’ve already filtered things such that we’re only using the entertainment and hobby expenses that really matter to us, so cutting those things would really be felt. We’ve already cut out the easy things, so further cuts would involve the hard things.

Serious health insurance questions If we both retired, we would be on our own when it comes to health care options. Going forward, it’s really hard to tell what the health insurance landscape of America will look like. Will there be a health insurance exchange? What will Medicaid and Medicare rules look like? It’s hard to tell going forward.

While Sarah and I could handle our family’s current medical expenses out of pocket, that’s definitely not a given in the future. We do not want to be caught in a situation where a medical problem with a member of our family soaks up all of our savings.

Stale resumes If we spend several years in this state of early retirement, our resumes will eventually atrophy, leaving us in a position where it is difficult to return to a lucrative career. We can, of course, combat this by staying somewhat current in our careers and keeping up some of our professional contacts, but if you’re doing that, are you really retiring early?

This is definitely something I’ve noticed with my previous career. When I made the choice to try full-time writing with a flex schedule to spend a lot more time with my children, I made efforts to keep my resume in my old career path fresh, but enough years have passed that the resume – and my contacts in the field – are extremely stale.

Making the Decision

After weighing these pros and cons, Sarah and I have made the choice, for the time being, to not head for a “lean” early retirement in the near future and instead head toward a more robust early retirement in ten years or so. Here are some of the key deciding factors that swayed us toward staying in our current path.

We both enjoy our careers. Neither Sarah nor I hate our current jobs, other than the fact that they eat up a lot of time that we might enjoy using for other projects. The reality is that every single hour you spend has an opportunity cost, meaning that you can no longer use that hour for anything else, but we both have the opportunity to spend professional hours on tasks that we enjoy that have a positive impact on others and without intense professional stress. That’s about all you can really ask for in a career, to be honest. The relative quality of our respective careers leans us toward staying with them for the time being.

This would, of course, push us toward early retirement if we disliked our jobs. Career satisfaction is generally a factor that resists a move to early retirement and career unhappiness is a factor that pushes people toward early retirement. Thankfully, we’re on the happier end of that spectrum.

We are apprehensive about the future. The next few years look uncertain to us in a number of ways. The opportunity for individuals to obtain health insurance for their families outside of the umbrella of an employer seems certain to change, which would definitely make a lean early retirement much more challenging, and something like a nationalized health care system – which would be a huge boon for early retirement – seems incredibly distant right now. Many investment markets seem high right now, and while I think market timing is useless, it is a truth that growth can’t continue forever.

The future holds changes with regards to early retirement, and when you’re considering a plan that requires you to walk a tightrope anyway, it seems even more risky to start on that plan in the face of those potential changes.

We place a ton of personal value on stability. A big part of this comes from our role as parents and our desire to have a very stable and secure home for our children as they grow and branch out into the world. Until they’re ready to fly on their own, we want them to have a nest to return to, one that they feel very safe and secure in. We’re not helicopter parents – far from it – but we want them to have a foundation in their life that they don’t doubt so that they feel confident taking flight in whatever journey life takes us.

Like it or not, there is more stability to be found in continuing to earn a healthy income from our careers and treating our early retirement savings as an emergency backup of sorts.

Reaching “Lean” Financial Independence Yourself

The options we have on the table before us would have seemed like an absolute dream several years ago. The idea that it was even possible for both Sarah and I to not be working for an extended period without us losing all of our possessions and basically being homeless seemed like an utter flight of fancy.

How did we get from there to here? I’ve written about these strategies often in the past, but for many people this will be their first exposure to The Simple Dollar, so here’s a quick summary.

We spend a lot less than we earn and bank the rest. This has been a constant for roughly a decade or so. We simply don’t spend a large portion of the money that we earn. This means living beneath our means. We live with the knowledge that we could definitely buy a lot more things, travel a lot more, have shiny new cars, and so on. We don’t do those things because they’re not as important to us as other things.

We automate our savings. Money is automatically taken out of our checking account and put into investments each week. This forces us to budget and make spending choices based on what’s left over. We never allow ourselves to have a bunch of cash in our checking account that we’re tempted to spend.

We avoid debt like the plague. We simply don’t get into debt. We keep a healthy cash emergency fund at our bank and replenish it if we ever need to tap it. If we don’t have the resources to buy something that isn’t essential, we don’t buy it and wait until our next pay period. If we know we have a big expense coming up, like a car replacement, we intentionally start saving for it so we can pay for the car replacement in cash.

We cultivate low cost hobbies and interests. Most of our hobbies are really inexpensive. We simply don’t throw money into expensive hobbies. My primary hobbies involve hiking in local state parks and other nature preserves (which is basically free), reading books I’ve checked out from the library (again, free unless I mess up due dates), and playing board games at community game nights and with my family (low cost, but it’s the one hobby I have to really watch).

We don’t worry about what other people think. Having clothes or cars or gadgets that were chosen to impress are meaningless to us. Most people don’t notice them at all. I don’t really notice what cars other people drive or what clothes they wear.

We pride ourselves on achievement rather than possessions. I’m more proud of the books I’ve read than the ones I’ve owned, for example. When I think of my hobbies, I think of the things I’ve made or accomplished rather than the stuff that I have.

We cultivate a social circle of friends with a similar philosophy. Most of our closest friends have an outlook that’s very similar to our own. They spend less than they earn. They intentionally save and invest the difference. They have low cost hobbies. They don’t buy things to impress others. They focus more on achievements rather than possessions. Our conversations and social events constantly reflect those values and thus naturally reinforce them.

Forging Your Own Path

Whether you choose to save your money to retire “lean” as early as possible or you save to retire early with a higher level of income or you choose to save for a completely different big goal, the exact path you follow is up to you and no one else. It is your own path.

What’s the right choice? What’s the wrong choice? The thing is, when you’ve saved up and invested enough money to start seriously thinking about financial independence, what’s “right” and “wrong” has a lot more to do with what you value than with following the rules of others.

You get to decide when you’ll have enough income coming in to retire early.

You get to decide what you’ll do with that time.

You get to decide whether you want to jump into a different career or just spend all your time enjoying a hobby or engaging in a passion that doesn’t make money.

There is no right. There is no wrong. There is only you.

At this point in my life, I find that a particular quote from Ralph Waldo Emerson provides a ton of guidance and solace.

“Do not go where the path may lead, go instead where there is no path and leave a trail.”

I am the first person in my family and the first among my friends to really be facing these questions. I don’t know all of the answers. The best I can do is learn from books, listen to my heart, and forge a path.

Maybe that path is a great path that I’ll be happy with. Maybe it won’t be. Regardless, I share this path and this journey with you, with my friends, and with my family. If nothing else, they can draw their own conclusions and ideas from it.

Trust yourself. Learn as much as you can from what others have done. If lean early retirement feels right for you, make that leap. If it doesn’t, stay on a different path.

Forge your own destiny. You’ll always be glad you did.

The post Lean Financial Independence: Early Retirement on a Supertight Budget appeared first on The Simple Dollar.

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