Ask Sam and Heidi

                                               

 

DEAR SMARTIES: My husband and I both came from very poor families. Our childhoods were miserable. We both worked hard all our lives and now are retired, fairly secure. We received a large inheritance. He wants to spend it, as he always does. I am scared to death, for fear we will need it someday.—Fearful in Frazier Park

SAM: As we say in our book TheSmartestWay™ to Save, do not ever spend windfalls. Invest them and you can spend the earnings (such as interest and dividends) for the rest of your life as well as have the satisfaction of being able to pass the windfall onto your heirs. Windfalls are big boosts on your way to financial independence. Email us for the Principles of Financial Independence from our book.

HEIDI:  Be patient with each other and do lots of calm, careful talking. Realize that a deprived childhood can cause overcompensation in different ways. For example, it could make you very frugal and overly fearful, or it can make you too eager to spend and throw caution to the winds. This windfall gives you an opportunity to learn more about yourselves and each other. You can work together to compromise with some spending and some saving that will make each of you feel satisfied and reassured.

DEAR SMARTIES: Kids these days do not know how to handle money. My son’s friends just use their debit card for everything. They do not even know when they are overdrawn. However, they’re never worried, because their parents keep funding the account.—Unimpressed in Ukiah

SAM: What we learn from our parents as children is our model for our choices as adults. Most schools do not teach personal financial management. Parents need to teach them. But parents are often unable to handle their own finances well, and therefore don’t give good financial advice to their children.

HEIDI: Students will be handling their own money and possibly large financial decisions very soon. They need to be prepared for the real world. Email us and we will send you the Principles of Financial Independence from our book for you to share with the young people in your life. One of the greatest gifts you can give children is wisdom in handling money.

DEAR SMARTIES: Is this a good time to buy a house?—Ready in Richmondy

HEIDI: Foreclosures are increasing, driving the price down in many areas of the country. Therefore, home ownership is becoming more affordable for more people. There is a geometric progression: affordability goes up as prices go down(?) For example, as the price declines, the number of people who can afford a house increases. That’s because there are more people in lower income levels than higher income levels, therefore, more available buyers. If the price of a home is cut in half, twice as many people can afford it as before. The trend started about six months ago, when the number of first-time homebuyers started to increase.

SAM: Are you really ready? Our advice to first-time home buyers is make sure first that you can afford the increased payment. Home ownership has many hidden expenses that you aren’t used to as renters. Therefore, have a good savings buffer before you decide you’re ready to become a homeowner. First-time home buyers should consult with their financial advisors re tax subsidies and incentives. Sellers are now more flexible and are carrying financing for buyer on advantageous terms. If you are ready, now is a good time. Those who wait for “the bottom” usually miss it.

Samuel K. Freshman and Heidi Clingen are authors of The Smartest Way™ to Save, Why You Can’t Hang on to Money and What to Do About It. They offer only their opinion, which does not constitute professional, financial, or legal advice. To receive a copy of The

DEAR SMARTIES Living TheSmartestWay™

                                                           

 

 DEAR SMARTIES: I’ve been feeling kind of guilty that I’ve been cutting back on my spending, as far as the economy is concerned. After 9/11, we thought it was our patriotic duty to go out and spend. We probably overdid it. But what about now, that the economy is sluggish? I read that economists are upset that consumers aren’t spending enough.—Guilty in Grand Rapids

 HEIDI: Economists cannot simply say that if people slow their spending, the economy slows, too. Consider, for example, the fact that, when the economy slows, prices go down and that stimulates sales. For people who can buy, they get the best deals. Also, if people are saving, and putting their money into a bank, instead of into stores, it helps the banks lend money, which helps create new businesses, which help stimulate the economy.

SAM: What Heidi says is true. But some people may still be waiting on the sidelines before they start spending, even with falling prices. Others cannot take advantage of falling prices if they have lost their jobs or are concerned about losing them. Also, her reasoning assumes that banks are lending money. If they are hoarding money too, just to prop up their balance sheet, they are not lending to businesses that need them to create jobs, etc. Banks lost major net worth with all the mortgage defaults. They have set up new and stricter requirements for credit, due to lessons learned in this recession. As far as the economy is concerned, (if that is your first priority): If you are not putting money in a bank, just hoarding it in your vault, it is not stimulating anything in the economy. As far as your own personal economy is concerned (and that should be your first priority, in our opinion): If you’ve got extra money, pay down all your debts and then make investments that will support your ncial independence rather than increase spending.

DEAR SMARTIES: A lot of the financial advice seems to apply to people who have money to invest in Roth IRAs, etc. I live very frugally on my Social Security benefits., barely covering my food and rent. What about those of us who are on benefits programs? We need financial advice, too.—Floundering in Flint

 HEIDI: We believe that everyone needs to save, regardless of the size of income. Even though you are covering your food and rent with little to spare, there are other ways to save you have not thought of yet. Go to the library and read books on saving, including our book. If you make tradeoffs, you can create a buffer fund to give you some security.

SAM: Also, figure out ways to make more money. Can you do babysitting, house sitting, plant sitting, dog walking, or be a part-time companion or personal assistant?

DEAR SMARTIES: I used to think that people who lost their jobs obviously were not trying hard enough. However, that is not true. I see how people treat my friend who just lost his job. Some are supportive, but others avoid him. –Faithful in Fort Lauderdale

 SAM: Job loss is hard and it takes courage, creativity, and initiative to find a replacement in a recession like the one we are experiencing. Be helpful and supportive, as you would hope your friend would be for you, if you were laid off.

HEIDI: Here is a phrase my mother taught me when I was young: “There, but for the grace of God, go I.” It is never a good idea to look down on someone, no matter how confident you are “that will never happen to me.” Sometimes life has some surprising twists and turns, as we are starting to see these days.

Samuel K. Freshman and Heidi Clingen are authors of The Smartest Way™ to Save, Why You Can’t Hang on to Money and What to Do About It. They offer only their opinion, which does not constitute professional, financial, or legal advice. To receive a copy of The Principles of Financial Independence or submit questions, email them at Heidi@TheSmartestWay.com.

DEAR SMARTIES Living TheSmartestWay™

 

 

 

                                            

 

 

DEAR SMARTIES: I’ve been feeling kind of guilty that I’ve been cutting back on my spending, as far as the economy is concerned. After 9/11, we thought it was our patriotic duty to go out and spend. We probably overdid it. But what about now, that the economy is sluggish? I read that economists are upset that consumers aren’t spending enough.—Guilty in Glendale

HEIDI: Economists cannot simply say that if people slow their spending, the economy slows, too. Consider, for example, the fact that, when the economy slows, prices go down and that stimulates sales. For people who can buy, they get the best deals. Also, if people are saving, and putting their money into a bank, instead of into stores, it helps the banks lend money, which helps create new businesses, which help stimulate the economy.

SAM: What Heidi says is true. But some people may still be waiting on the sidelines before they start spending, even with falling prices. Others cannot take advantage of falling prices if they have lost their jobs or are concerned about losing them. Also, her reasoning assumes that banks are lending money. If they are hoarding money too, just to prop up their balance sheet, they are not lending to businesses that need them to create jobs, etc.  Banks lost major net worth with all the mortgage defaults. They have set up new and stricter requirements for credit, due to lessons learned in this recession.

As far as the economy is concerned, (if that is your first priority): If you are not putting money in a bank, just hoarding it in your vault, it is not stimulating anything in the economy. As far as your own personal economy is concerned (and that should be your first priority, in our opinion): If you’ve got extra money, pay down all your debts and then make investments that will support your ncial independence rather than increase spending. 

DEAR SMARTIES: A lot of the financial advice seems to apply to people who have money to invest in Roth IRAs, etc. I live very frugally on my Social Security benefits., barely covering my food and rent. What about those of us who are on benefits programs? We need financial advice, too.—Frugal in Fontana

HEIDI: We believe that everyone needs to save, regardless of the size of income. Even though you are covering your food and rent with little to spare, there are other ways to save you have not thought of yet. Go to the library and read books on saving, including our book. If you make tradeoffs, you can create a buffer fund to give you some security.

SAM: Also, figure out ways to make more money. Can you do babysitting, house sitting, plant sitting, dog walking, or be a part-time companion or personal assistant?

DEAR SMARTIES: I used to think that people who lost their jobs obviously were not trying hard enough. However, that is not true. I see how people treat my friend who just lost his job. Some are supportive, but others avoid him.           –Fathful in Fallbrook

SAM: Job loss is hard and it takes courage, creativity, and initiative to find a replacement in a recession like the one we are experiencing. Be helpful and supportive, as you would hope your friend would be for you, if you were laid off.

HEIDI: Here is a phrase my mother taught me when I was young: “There, but for the grace of God, go I.” It is never a good idea to look down on someone, no matter how confident you are “that will never happen to me.” Sometimes life has some surprising twists and turns, as we are starting to see these days.

Samuel K. Freshman and Heidi Clingen are authors of The Smartest Way™ to Save, Why You Can’t Hang on to Money and What to Do About It. They offer only their opinion, which does not constitute professional, financial, or legal advice. To receive a copy of The Principles of Financial Independence or submit questions, email them at Heidi@TheSmartestWay.com. 

 

DEAR SMARTIES Living TheSmartestWay™

                                          

 

DEAR SMARTIES: My wife’s birthday is coming up. I recently lost my job, so I only have a few dollars to spend on her birthday. She has been so supportive of me in this difficult time and I want to give her something special.–Frustrated in Fresno

HEIDI: As a wife, I know what I would cherish most: a handwritten letter that explains how deeply you feel about her, on special paper, in a dated envelope inside a decorative box. In addition, a promise to write a new letter for the box for her birthday every year.

SAM: You could gather copies of your favorite photos together in a frame. Or offer to do that project around the house that you’ve been putting off–cheerfully.  Or how about setting aside a day to do something special together, like a drive in the country. Time together is the greatest gift you can give.

 

DEAR SMARTIES: I recently graduated and am glad to say that I landed a pretty good job. I can finally enjoy life a little after years as a “starving student.” My parents say I should start paying off my student loan, but I’d rather get a bigger apartment.—Proud Grad in Piedmont

SAM: Perhaps you could delay repayment with deferment or forbearance or get your repayment extended. If you were still looking for a job, you should consider these options. Nevertheless, since you are working, you can start you loan repayment as soon as possible. Can you arrange for a roommate before getting that bigger apartment? Better yet, if you have extra cash, you should be starting a savings plan so that you can become financially independent and not have to work at all. Email us and we’ll send you The Principles of Financial Independence from our book.

HEIDI: If you are like most grads, your loans are sky-high. Unemployment is rising, job layoffs are increasing, and first hires are often the first to go. So don’t start “living large” yet. Adjust your “starving student” budget just a little–and save the rest.

DEAR SMARTIES: I want to save my money and not spend it on endless interest payments. What is a simple process for getting my arms around my credit cards?—Overwhelmed in Ojai

HEIDI: Gather all your bills, loans, etc. Take a big sheet of paper. Write down a list of all your debts, starting with the debt with the highest interest rate, the next highest interest rate, and so on. Write down the balance you owe on each debt. Then estimate how many months of paying the minimum amount it would take to pay off the card, if you never purchased on that card again.

The next step will motivate you: do a rough calculation about how much interest you will be paying on the card between now and when you pay it off. To save the most money in interest payments, pay off the debt with the highest interest first.

Set up a budget that pays all you can each month toward reducing your debt. Pay off the highest-interest-rate credit card first. Then apply the same amount to the other cards until you pay each card off, one by one. Then don’t use the cards except for true, dire emergencies.

SAM: If your debt exceeds what you can handle, call your credit card company to ask if they would please reduce your interest rate and even waive a portion of the principle you owe. Explain that you have been a good customer, and you are setting up a plan to pay them back and you want their advice and support. The worst that can happen is to get a “no.” People who do this are surprised at how many companies these days are willing to adjust the terms of their debts.

Samuel K. Freshman and Heidi Clingen are authors of The Smartest Way™ to Save, Why You Can’t Hang on to Money and What to Do About It. They offer only their opinion, which does not constitute professional, financial, or legal advice. To receive a copy of The Principles of Financial Independence or submit questions, email them at Heidi@TheSmartestWay.com