Abundance Bound,

I’m single and have no real possessions.  Do I need a will?

Although you may not need a will, you should be thinking about your estate plan. Here are some areas you’ll want to consider.

• Investments and cash accounts. Add a TOD (sometimes called POD….”transfer/payable on death”) to your checking, money market and investment accounts. This gives someone your money when you pass away without it being hung up in court. IRA plans and 401k’s allow you to name specific beneficiaries on the account. Check these during open enrollment times to ensure you’ve picked the right people.
• Health care patient advocate. Let’s pretend you have an accident and can’t talk to the doctors. Who will you allow to speak with medical professionals on your behalf? In most states, this person is called your “patient advocate.” Although it’s possible for a court to assign someone later, it’s a better idea to have this prepared in advance by an attorney.
• Workplace life insurance. Even if you don’t have insurance outside of work, most companies give employees free insurance. Pick beneficiaries so this “free money” doesn’t go to waste.

While I’d say a will might be overkill, an estate plan covers all of these areas.

According to Fair Isaac, the company that builds the FICO score, the single biggest contributor to a good credit score is your payment history.

Missing a payment or paying late are two of the biggest detractors from a good score. Here are some tricks to make sure payments are made on time each month:

• Sign up for automatic payments. If you allow the company to withdraw the minimum amount due from your account each month, you’ll still have the option of paying more to reduce the loan size.
• Schedule set times to pay bills each week. By keeping a “budget meeting” each week, you’re less likely to get distracted by other tasks. If for some reason you must miss your budget work, make sure and reschedule the time in your calendar.
• Drop unnecessary credit cards. I’ve witnessed people getting in trouble with a card they use infrequently, then forget to pay later. Use a single credit card for all of your purchases or pay cash.

Nightmare!

Did you overspend during the holiday season? If not, many people you know made up for you. According to this Bloomberg Businessweek article, consumer debt rose more in November of last year than it had in 10 years.

Although analysts call this a “good sign” for the economy, doesn’t this statistic frighten you? Weren’t we just talking recently about many people losing their homes because of too much debt? People in the arts, especially, shouldn’t take on debt they can’t afford. In many cases, our income streams bounce around enough that we shouldn’t be spending next month’s paycheck that may never arrive.

But, if you overspent over the holiday season, there’s nothing to do now but clean up the mess. It won’t be easy, but with a good plan and the right tools, you’ll be back on your financial feet in no time. Here are my four steps to curing your credit card hangover:

1. Write out all the debt. On a spreadsheet or piece of paper, write the total amount, monthly payment, interest rate and due date of each bill. People avoid this step, because it’s painful to have all of your debt written in one place in front of you. This step is supposed to be painful! If it doesn’t hurt to look at your debt, you may not be motivated to pay it off quickly.
2. Create a small cash reserve before you start. If you have to make minimum payments while you accumulate cash, that’s okay. You won’t regret having a reserve when your dishwasher breaks down and you don’t have to use a credit card to have it repaired.
3. Attack the lowest interest rate or small balance cards first. If you can tackle a small balance credit card to gain more monthly cash flow, do that first. If not, focus on the card with the highest interest rate so you pay less money over the long run. Maximize your effectiveness when paying down this card by only making minimum payments to the rest.
4. Take the credit cards out of your wallet and pay cash for as many transactions as possible. Half of avoiding a credit card problem is to live a cash-based lifestyle. You’ll always have the money you need and won’t have to worry about your next booking to make the next payment. By working from a budget, you should be able to effectively pay down your debt and stay within your means. This step sounds easy, but if you’ve been using a credit card for a long time, you’ll notice immediately what a reflex action it is to reach for the plastic when the cashier asks for money. You can’t use it if it isn’t there!

One other point: If you are in a relationship, come clean about your debt and your plans to eliminate it, with your partner. Sure, this may put pressure on you, but in this case the pressure is constructive. Plus, having a friend to help cheer you on while you pay down debt is more likely to work than going it alone.

I read yesterday that many divorce attorneys call January “divorce month” I was amazed that I’d never heard this before. But apparently, after all the parties end and people are left with only memories and financial problems, couples decide it’s easier to part ways. That felt really sad.

2012 is a great year to promise yourself that you’ll clean up lingering debt problems and begin living a life of prosperity. Often, I meet people who tell me that their goal is to get out of debt. I believe that goals are best expressed as positive things: buying a home, becoming physically fit, or improving your craft in a specific way are all “goals.” Debt is a negative, strangling your ability to reach those plans. That’s why it’s so important to tackle debt now. You can’t reach your goals until your debt plan is operating effectively.

You have better things to do than to worry about holiday overspending. You’ll feel great when you take control of your debt and begin the road to recovery.

I’m thinking of buying my first home! One quick question: how do I decide between a 15 and 30 year loan?

Gary

Congratulations, Gary! That’s a big step, and I’m happy to help you with this huge question. For most people, taking on a mortgage is the largest debt they’ll ever owe. It’s important to do it right.

I’ve noticed some advisors like one type of mortgage better than another. I think each type exists for a specific reason. Unfortunately, this means I won’t be able to answer your question directly, but I can give you some tips to help along the way:

First, you didn’t ask about adjustable rate mortgages–where the initial interest rate is low but can adjust to a higher amount after a specified period of time–but for the vast majority of people, they aren’t a great idea right now. Interest rates are at near all-time lows, so locking into a fixed rate mortgage is best for most home buyers. The exception? If you are absolutely certain you’re going to move again soon, an adjustable rate will save you money.

15 year loans are best for people who want to pay off their mortgage quickly and need the forced discipline of a larger payment. The upside of a 15 year loan is that you’re guaranteed to be mortgage-free in 15 years (assuming you remain in the home). The downside? If you lose your source of income, the monthly payment on a 15 year mortgage will be much harder to meet than a 30 year payment.

30 year loans work best for people who want the flexibility of a lower mandatory house payment. It’s a mistake to think that people with 30 year loans will pay them off over a long period of time. On the contrary, I’ve met quite a few successful savers who chose a 30 year loan and then paid significantly more than the amount due each month. Why? If they ran into financial trouble, their monthly payment was pretty low, and the chances they could meet the payment was better than if they’d bitten off the higher 15 year payment.

Don’t take out the 30 year loan and “hope” to make extra payments. Set up an automatic payment plan for more than the requested amount so that you’re still forced to pay your home off early.

I hope this helps and I wish you happy house hunting! Send us a picture!

Ah, a New Year. Like a brand-new car, the New Year is full of the smell of promises and opportunities. Last year’s dirty slate is wiped clean and you’re free to dream about a whole list of things you’ll do better than last year.

…which lasts until about February 15^th.

By then the shine is off the New Year and the “real world” has caught back up and strangled any resolutions that managed to live that long.

Working out? I don’t have time.

A cleaner home? I need to make more money and hire a maid.

Resolutions, written excitedly with so much love in January, become dirt in the bottom of the trash bin before the first quarter is over.

But it doesn’t have to end this way.

There is a better method to resolutions. There are some actions you can take right now which will give you the lift necessary to make sure that whatever you dream for yourself and your craft stands a chance of becoming reality.

Here’s the truth:  It’s going to take work.

Let’s let go of “something for nothing” resolutions. It seems that often we think of January as a time to visit a fantasyland of dreams and alternate realities.  You know you’re in this “magical place” if your resolutions include any of these phrases:

Wouldn’t it be nice if I…..

I’d really like have a…..

Sometime I’d love to try to……

Nope. These aren’t going to do it. These are “hopes” and “wishes,” not goals. To make a real goal, we’re going to need to take out our goal success toolkit. I know that you’ve probably heard this in the past. But at the start of 2012 let’s reconnect to the time-tested method called SMART. SMART goals are SPECIFIC, MEASURABLE, ACHIEVABLE, REALISTIC, and TIMELY.

By adding these to your resolutions today, you’ll stand a better chance of changing your actions and your results in 2012.

The resolutions in the included photo are quite common but also quite vague. Exactly how much weight does this person want to lose? How much money will they save this year? Apply SPECIFIC words to your goal to make them tangible. For example, if you’re an actor, wanting “more roles” in 2012 isn’t going to do it. Instead, define the goal further. Maybe you will focus on “television drama series roles.”  These specific words hone your subconscious mind to focus on the goal. Studies have shown that even when you’re sleeping, if the goal is specific enough, you’ll dream of ways to make your goal a reality.

MEASURABLE goals take the “television drama series roles” to a new level. Be careful what you measure. Sure, it’d be easy to say that “I’ll win five roles on a television drama series,” but do you control that outcome? No. Only measure ACTIONS, not RESULTS. That way, you’ll be able to change your actions to tune the goal when it isn’t working the way you’d hoped. So, what’s a good measurable goal for this example? How about: “I’m going to submit my information to, and stay in regular touch with, the casting directors of these 15 drama series.” (Make a specific list of the shows and their casting directors. Focus on workshops that allow you to meet and show your work to the individuals on your list.)

Setting ACHIEVABLE and REALISTIC goals can be tricky. To quote Michelangelo, “The greater danger for most of us lies not in setting our aim too high and falling short; but in setting our aim too low and achieving our mark.” ACHIEVABLE goals should force you to stretch while still remaining REALISTIC. Look at your daily schedule. Can you find the time for 15 quality submissions every 4-6 weeks? If last year you were already close to this number, can you push yourself, taking it to 20 or even 25? But remember that setting this goal without resources or opportunities sets you up for failure. If you’ve never studied acting and have no experience auditioning, more REALISTIC goals might lie in the area of training, auditioning for a certain number of non-union and/or student project roles and strengthening your resume and submission materials.

A runner friend of mine says that nothing motivates him to put on his shoes and run more than signing up for a race. Without this time limit, there’s always tomorrow to achieve his dreams. By making your goal TIMELY and applying a deadline, now you have to race to achieve it. Is your goal big? Break it down into smaller chunks. If your goal is a particular amount of income for the year, determine the money that you’ll need to earn each month or even each week. Using my example above of 15 regular submissions, you will need to be mailing to 3 or 4 casting directors from your list every single week.

Using these five words: SPECIFIC, MEASURABLE, ACHIEVABLE, REALISTIC, and TIMELY to achieve your goals will not just help your resolutions stick. It’ll help you create a more reasoned approach to your craft, your finances and all areas of your life, by applying metrics to your success.

While it certainly can be difficult, I try not to dwell on my missteps as long as I learn from them. At this time of year, I also like to learn from events and the mistakes of others. There are five that I think are well worth reflecting on before we march into 2012:

1) Don’t Wait on Government…In Fact, Don’t Wait.

Politics seemed to enter our life more than ever this year, with Republicans and Democrats waiting to the last minute before passing legislation in several key areas, including funding to keep the government open!

I’ve met people who’ve said that they can’t do any long-range planning because they’re unsure what measures the government is about to pass, or they aren’t sure if the tax structure is going to change, or they want to wait and see who the next president is.

Most artisans work on a 1099 income basis, so some important areas such as health care and small business taxes can have a big impact on your bottom line.

….but does this mean you should wait?

Waiting on the government doesn’t make any sense to me. Is it better to have a plan in place that you may need to adjust or to have no plan at all? I’d always prefer to revisit my plan when the government finally decides their actions, than be held hostage to whatever political problems crop up.

The Bottom line: Plan now and adjust as events occur.

2) Nobody Cares About Your Money More Than You

We should have learned this from Bernie Madoff a few years ago and all of the mutual fund problems back in the early decade. But if you’re still hoping someone else will take your money and make you rich while you do something else….all you had to do was read the newspaper to find more evidence that financial education is the key to keeping your money safe.

A money management firm called MF Global reportedly has “lost” over $1.2 billion dollars of client money. Discovered in October, this firm’s oversight process is now in question, and there’s sure to be lots of finger pointing over the next few weeks.

I know that you may be much more interested in your craft than in money management. I also know that if you’d held money at MF Global, there would have been no way to know that funds were slipping out the back door.

However, through goal setting, proper diversification and reviewing your investments, you can minimize the damage that so-called “pros” like MF Global can have on your portfolio.

The Bottom Line: Whether you want to or not, learning good money management skills can avoid financial disasters.

3) Education Doesn’t Buy You a Job

Whether you agree with the Occupy Movement or not, these protesters illuminated an important fact: having a college degree doesn’t ensure that you’ll gain high-paying employment. The government scrambled to try and pass predatory lending reform measures this year after many protesters complained about student loans.

As I mentioned earlier, you shouldn’t wait for the government. If you’re going to use debt to pay for school, have a plan beyond “I’m going to get paid enough to justify this later.” Whenever you take out debt, have a concrete plan to pay the debt back.

The Bottom Line: Evaluate ANY debt carefully before signing on the dotted line.

4) Bigger Doesn’t Always Equal Better With Banks

Until bloggers and consumer advocacy groups raised concerns, Bank of America was prepared to introduce a new annual debit card fee this year. Had they succeeded in charging the fee, other big banks would have surely followed suit, much like airlines raise rates as soon as one carrier takes the initiative.

In 2011 we learned that you should re-evaluate your bank to make sure the fee structure and benefits still make sense for your situation. Why stop at your bank? Any professional relationship you have to help you pay taxes, buy insurance, manage investments, or write contracts should be reviewed on a consistent basis.

The Bottom Line: Your craft is your calling. Don’t let bad professional relationships hold you back from success.

5) The World is Becoming Smaller

We can’t finish any discussion about 2011 without remembering that for some people, it was a disastrous year. In places like Fukushima, Japan; Tuscaloosa, Alabama and Joplin, Missouri, we learned that events beyond our control can affect not just our day or our art, but can change the course of our life. I can’t believe how quickly the world saw graphic pictures of these disasters. Even though I don’t live anywhere near any of these places, these pictures and videos helped me realize how small our world is becoming.

We hear about these incidents, and while we often send our prayers and our money, we think that they can’t (or won’t) happen to us. However, I know that in 2012 there will continue to be natural disasters. There will be events beyond our control. Even if they are far away, we’ll be increasingly affected by these events.

The Bottom Line: Think about contingency plans. If some emergency strikes, what is your back up plan?

I hope you are having a warm, happy holiday season! We’ll write again with goal-setting tips in early 2012. Until then, I wish you a truly happy New Year!

Hi Miata,

Lately, a bunch my friends have been talking about buying gold. With the problems in Greece and Italy, should I be buying precious metals, too? Thanks!

Chris

Not necessarily Chris. All you have to do is watch late night television to know how sky-high metal prices are right now. When commercials tell you they’ll buy your gold, recommend that you buy real estate, or announce that the Snuggie is the next wonder of the world, buyer beware. (Although they may be right about the Snuggie…) Rule #1 of high school economics is to “buy low and sell high.” I’m always nervous when the price of any investment is through the roof.

That doesn’t mean that I think the price of gold is going to come down. It only means that I’d be cautious. Here are some things to think about:

1. If you’re a beginner, make sure you have a cash reserve in place before purchasing any investment that will fluctuate. If you run into an emergency, you need a safety net. According to CNN’s Walter Updegrave, gold prices are three times more volatile than stocks, so don’t listen to people who talk about gold as a “safe haven” unless they ride roller coasters to cure insomnia.
2. Only purchase a small amount. Many financial experts recommend only having 10 percent of your entire investment portfolio in precious metals. Start with mutual funds or exchange traded funds that buy stocks and bonds. Then move into more aggressive investments like gold.
3. Don’t try to time the market. I know prices are high, but could they go higher? Sure. They could also plummet tomorrow. If you’re buying gold as a long term investment using the parameters I’ve outlined above, great. If you think gold prices are headed “to the moon”, you’re just gambling.

I have to admit, I’m a perfectionist about planning my business. While making dinner, my mind races through lists of ways to perfect my craft. When folding laundry, I’m usually strategizing about my next potential project. My mind seems to always be at work on the next “better” idea, even when daily mundane tasks rule the moment.

I was reading management guru Tom Peters recently, who stated that balance is baloney. Top people in any field don’t have balance. They obsess. They strategize non-stop. They’re always looking for the better idea, the perfect “new thing.”

As a bit of an obsessor myself, I mostly agreed with his statement, except in one area. You shouldn’t obsess about your money.

It’s actually easier to obsess about business if you’ve done a good job of setting up a sound financial structure. By taking care of some small details today, you’ll be able to focus all of your energy on your craft.

There’s no better time than the end of the year for this kind of activity. Think of it as cleaning the slate so you can come barreling out in 2012. Wouldn’t it be fantastic to begin the year completely focused on nothing but your work, knowing that all the “little things” are in place to achieve success?

Here is a list of five “little things” you should “obsess” about before 2012 begins:

1. Set up your business entity professionally. If you’re being paid by clients, do you have a separate business entity? Why not set one up late this year to begin January 1? Meet with an accountant or attorney to talk about the differences between an LLC, service corporation and DBA. Need a good place to start? Check out the U.S. Small Business Administration descriptions of different business entities.
2. Create a separate business checking account. Don’t muddle personal dollars with your business expenses. It’ll be difficult during an audit to convince the IRS that your business expenses weren’t being used for home purchases unless you keep a thick wall between your business and personal acccounts. Find a checking account with a debit card for your business to more easily track transactions.
3. On the subject of tracking transactions, look into good software to manage business expenses. Quickbooks is a good place to start, especially if you have many client transactions. You might need training to use the software. I performed a YouTube search for videos on “Quickbooks training” and was impressed by the result. Don’t like using the computer to track expenses? At the very least, keep a separate ledger.
4. Buy a 2012 business calendar. Write in times that you’ll work on the “business” of business. For me, this is Monday morning. I take care of all of my bank statements, bills and invoices so that the rest of the week I’m focused. By setting aside a time each week, I know there’s no excuse to not get business tasks completed. This is an area I don’t like to go cheap. Purchase a robust calendaring system that you’ll keep all of your weekly activity in. This way, you’ll have a central hub that organizes your life.
5. Create files for taxes and receipts. Paperwork will be arriving for your tax return shortly after the new year. Won’t it be a pleasure to already have a system in place to handle the paperwork? Don’t be the person who’s trying to dig through papers April 14th to file on time. On this note, I like an “in basket” for IRS and business bills so that these are immediately separated from the rest of my mail.

If you obsess about these five areas today, I promise you’ll start off next year on the right foot. This is for two reasons. First, you’re telling your subconscious mind that this is a business. You are serious about the business of your craft, and about treating it professionally. Finally, you will be free to focus on training, honing and practicing your art. With your mind free to obsess about the important things, you’ll find you’re that much closer to your true artistic goals.

Contribute to your 401k even if you don’t plan on staying with the company long enough to claim the matching dollars.

A 401k plan allows an investor to place money into investments on a pre-tax basis. Let me explain what that means: when you collect cash from an employer, they’ve already taken out federal tax, state tax, FICA tax, and in some cases, city taxes. Yuck. When you invest in a 401k, your money avoids ALL of these taxes until you take it out. That means you’ll have more money invested than if you tried to save these funds in the bank. Even when you take money out, it’s distributed as ordinary income, circumventing FICA taxes. The 401k is a powerful tool you should be using right now! When you leave your company, you can often leave it alone or roll it to an IRA until retirement.

If I were forced to choose one time of year that was about making smart choices, it’d be hard to choose against this one. What should you wear to the next holiday party? Who should you invite to a gathering you’re holding? How much should you spend on gifts? Probably the biggest one of all is this: what should you eat?

I was out with a friend recently for lunch and as she perused the menu, I heard her mumble, “Oh, that looks good, but I want that cake!” I felt a bit envious because if I eat frosting at noon, I’m struggling to stay awake by 2:00 PM. But I was surprised when the waiter arrived and she ordered a healthy salad and water.

She never ordered cake.

I asked when the bill arrived, “You aren’t getting the cake?”

Her answer was surprising. This healthy, fit woman told me that she was on Weight Watchers. She enjoyed this particular program because it was less about diet and more about making wise choices. She hadn’t been talking about the cake from that restaurant’s menu. Instead, she was already thinking about the awesome cheesecake a woman was serving at a holiday party we’d both be attending later in the week.

In short, she was making choices today that would affect what she was going to eat in the future.

If you extend this type of thinking to your whole life, powerful results are right around the corner.

Here are a few areas to consider when making wise choices:

1. Gifts. If you can’t afford an expensive gift, find alternatives. Many people appreciate creative, thoughtful and unique gifts more than expensive ones. Shop craft fairs, local shops, thrift stores and websites like Etsy for lower-cost, customized alternatives to big, expensive and generic gifts.
2. Clothing. Are you going to a formal event and don’t have anything to wear? Rather than spend lavishly on a dress or suit you’ll wear once or twice, ask friends who are a similar size if they have something you might borrow. If that won’t work, rent clothing! A fairly new website (that I’ve fallen in love with) called Rent the Runway offers top designer threads. You’ll look fantastic one night and return the item later instead of blowing your cash reserves on something expensive you’ll rarely wear.
3. Parties. If you’ve been nominated to hold the work/neighborhood holiday event this year, find ways to lower costs. In his networking classic Never Eat Alone, author Keith Ferrazzi explains that a well-cooked pot of chili or soup gives a “communal” and “family” flair to a dinner that more expensive dishes don’t provide. Not enough money for entertainment? Invite artistic friends to give an “impromptu” performance. Another boring work party becomes a special event when some musical friends shock your guests with a surprise (but well planned!) number or two.
4. Travel. If family and friends are miles away, do in-depth cost comparisons before booking an expensive flight. I discovered discount hotel sites inadvertently. At a conference in Indianapolis, I was shocked to discover that the people next door to me paid half for the same type of room. Now I don’t travel anywhere without checking Hotwire first. Surprisingly, condos and unsold homes are now being offered to travelers at low rates. Call realtors in the area you’re visiting.

What if there is no frugal alternative? Sometimes it’s important to “go big.” The goal of thinking through your financial decisions isn’t always to find a cheaper way. It’s to save money for those important items (like cheesecake) when you either want to live lavishly or tour expensively. Find other, less important items to cut so you won’t regret your big ticket expenses the next morning.

Although I can understand if some of these suggestions won’t work for you, I hope they’ll help you to brainstorm other ways you might be able to save. Often, people accept the fact that they’re going to spend tons of money around the holidays only because they didn’t widen their overall approach and examine each expense carefully.

What can saving money now do for your financial picture?

I’ve heard the comment that people are going to “start a diet” or “begin a budget” after the holidays. Sure. This is an excuse to overeat and overspend. By starting now, you’re telling your subconscious mind who’s in charge of your habits. Not only will you walk into 2012 with a better financial picture, but you’ll begin forming important habits that’ll brighten the New Year and beyond.