It has become popular for political candidates to ask, “Are you better off now than you were four years ago?”
And while Americans should certainly give it some thought as they head to the polls, financial counselor and best-selling author Eric Tyson says ensuring you are better off in 2016 depends upon the financial choices you make today.
Unless you’ve been living under a rock for the past few months, you know that the presidential election is just around the corner. The constant media coverage and ubiquitous political ads simply won’t let you forget (no matter how much you’d like to!). And amid the candidates’ posturing, daily interviews, debates, and gaffes, one important question keeps popping up: Are you better off now than you were four years ago?
Though the recession and the hardships that followed mean many Americans can’t answer that question with a simple “yes” or “no,” personal finance guru Eric Tyson suggests it might be more to your benefit to ask yourself a slightly different question: What can you do now to ensure you are better off in four years, no matter who gets elected?
“Does it matter who gets elected president?” asks Tyson, author of Personal Finance For Dummies®, 7th Edition (Wiley, 2012, ISBN: 978-1-1181178-5-9, $22.99). “Absolutely. But regardless of who is elected and no matter what your current economic situation may be, what’s most important for you and your family is knowing how to make sound financial decisions for now and the future.”
To improve your financial outlook during the next four years, read on for a few of Tyson’s tried and true personal finance tips:
Create a foolproof financial plan. What occurred over the previous four years that you wish you would have been better prepared for? It could be that you or your spouse lost a job (revealing the need for life insurance or a health plan that’s not tied to a job). Or it brought home the need to have an emergency fund. Or perhaps it woke you and your spouse up to the fact that you weren’t going to be able to retire when you previously planned.
“Step One is finding these holes in your financial plan,” says Tyson. “Step Two is making the necessary changes to bridge these gaps in your long-term financial outlook. You may need to make cuts in one aspect of your spending in order to put more money toward an emergency fund. You may want to look into different healthcare plans, such as a health savings account. Or it might be time to take a serious look at your retirement savings strategy: Could you be doing more to prepare?
“If you make the right changes, you may look back at the recession as a good thing because it pushed you to make better choices regarding your financial future,” he adds.
Get real about your long-term financial goals. Of course, creating a foolproof financial plan means setting realistic long-term goals. For instance, Tyson says it’s unrealistic for most parents to fully fund their children’s college educations. This is especially true considering the escalating cost of higher education. It’s best for the average family to focus on funding Mom and Dad’s retirement account and to realize that kids will have to rely on scholarships, financial aid, and loans.
“Explain this reality to your kids early on and let them know they need to set themselves up for success by doing all those things that colleges find appealing—getting good grades, participating in extracurricular activities, and so on,” he advises. “It’s actually a great opportunity to teach your kids what good financial management looks like. It’s not just saving money here and there. It’s about making good decisions in all aspects of your life.”
Invest wisely. Stock market fluctuations have a lot of people worried about investing. Is it safe? Tyson has said it over and over again for years: 401(k)s and IRAs based on respected mutual funds are best.
“Don’t chase trendy investments,” says Tyson. “In my years as a financial adviser and a columnist answering many readers’ questions, I’ve seen the same, avoidable mistakes being made over and over. Often these investing mistakes occurred for one simple reason: a lack of investment understanding. People didn’t know what their investing options were and why particular options were inferior or superior to others.
“Everyone can take advantage of an excellent investment vehicle: mutual funds—the best of which offer you diversification, which reduces your risk, and low-cost access to highly diversified portfolios and professional money managers, who can boost your returns with less risk,” he says.
Avoid extreme changes that won’t last. Be real about it: You’re probably not going to spend several hours a day couponing. Nor are you likely to live with no TV at all.
“What you might do is find a less expensive grocery store where you consistently shop, or trim your cable bill by cutting extraneous movie channels you rarely watch,” suggests Tyson. “The idea is to make changes that don’t disrupt your whole life or zap it of all happiness.”
Cut monthly expenses. No one wants to spend their valuable free time checking on lower auto insurance rates or better cell phone plans. But when you consider the potential payoff, you’ll be more willing to invest a couple of hours in doing Internet research and making phone calls.
Step away from your credit card. True of everything from consumer goods to vacations to cars: If you can’t pay cash, you can’t afford it.
“Resist the lure of 0-percent-down financing and credit cards that make too-good-to-be-true offers to get you to sign up,” advises Tyson. “Credit cards offer temptation for overspending and carrying debt from month to month. If you absolutely must use credit, replace your credit card with a charge card. A charge card, like the American Express Card, requires you to pay your balance in full each billing period.”
Get informed about changes in healthcare costs. Healthcare costs continue to increase to astronomical levels, and it’s only going to get worse. Even if you get your health insurance through your company, there’s a good chance you are (or soon will be) paying a higher percentage of the monthly premium than ever before. (And of course, those premiums are rising.) If possible, says Tyson, ask your employer and/or shop around for better/less expensive options such as HSAs, FSAs, and so forth.
HSAs, for instance, are very helpful when tax time comes around. These accounts allow you to save on a tax-free basis toward current or future unreimbursed medical expenses. If you get sick and haven’t met your deductible, the funds in your HSA can be used to pay it off. Once your deductible is paid, your insurance plan will kick in and cover any subsequent medical costs under your policy, but your HSA can still be used to pay for your co-pays and any non-covered healthcare expenses. Single people can contribute $3,100 to an HSA, and families can contribute $6,250. That means depending on your status you can reduce your taxable income by $3,100 or $6,250 in a given year.
“And controlling healthcare costs is not all about health insurance,” says Tyson. “There’s a lot to be said for doing everything possible to stay healthy: eating right, exercising, and kicking bad habits like smoking. Of course, we can’t control everything, but we can treat our health like it’s the most important asset we have—because it is.”
Hang up on high tech costs. Between watching TV, Facebooking, endless texting, and so forth, we’ve gotten brainwashed into thinking a) we have to be constantly entertained, and b) we need the latest and greatest electronic gadgets. Unfortunately, these twenty-first century revelations aren’t good for your bank account or family togetherness.
“Err on the side of keeping your life simple,” he advises. “Trade in your family’s smartphones, and the costly plans that come with them, for regular phones. And then put in place a no-phones-at-the-dinner-table rule. Go for basic cable instead of one of the more expensive plans and start having a weekly family game night away from the TV. Making these and similar changes costs less, reduces stress, and allows more time for the things that really do matter in life.”
Don’t allow food spending to eat up too much of your budget. Eating at restaurants all the time adds up fast. Plus, those meals tend to be bad for you (especially fat-laden fast food meals). Plan a little better and you won’t find yourself going through the drive-through out of desperation. On the other hand, if you are cooking most of your meals, don’t use that fact to justify overspending on groceries. “Eating in” is not carte blanche to go crazy at the supermarket.
“Try to keep a healthy inventory of groceries at home,” suggests Tyson. “This will minimize trips to the store and the need to impulsively dine out because your cupboard is bare. Try to do most of your shopping through discount warehouse-type stores, which offer low prices for buying in bulk, or grocery stores that offer bulk purchases. And if you’re trying to eat fresher, healthier, and organic foods more often, buy more of what is currently less expensive, stock up on sale items that aren’t perishable, and buy more at stores like Trader Joe’s that have competitive pricing.”
Avoid brand names. Be suspicious of companies that spend gobs on image-oriented advertising. Branding is often used to charge premium prices. Meanwhile, blind taste tests have demonstrated that consumers can’t readily discern quality differences between high- and low-cost brands with many products.
“Question the importance of the name and image of the products,” says Tyson. “Companies spend a lot of money creating and cultivating an image, which has no impact on how their products taste or perform. This is especially important to keep in mind when you’re grocery shopping. Most of the time the ingredients are the same in store-brand products as in the brand-name products (and may even be made by the same company). You don’t need to shell out money to pay for the name.”
Look for ways to save around the house. Look for ways to save on energy costs. Adding insulation and weather-stripping, installing water-saving devices, and reducing use of electrical appliances can pay for themselves in short order. Many utility companies will even do a free energy review or audit of your home and suggest money-saving ideas. If it’s time to replace an appliance, investigate energy efficiency before you buy appliances or even a new home.
“Get the whole family in on the effort to make your home more energy efficient,” suggests Tyson. “Have a contest to see who can remember to turn off the lights or other electronics most often or who can reduce how much water they use daily.”
Keep an eye on car costs. By doing basic maintenance such as oil changes, you can add years to the life of your car and get better gas mileage. What’s more, if you’re accustomed to buying a new car every few years, it’s time to change that mindset.
Don’t go on vacations you can’t afford. Going to the beach for a week or to Disney World is not an entitlement. These kinds of vacations are very expensive. If you can’t afford them, you can’t afford them. The truth is, says Tyson, there are plenty of activities you can do near home that are just as fun as going away somewhere—at a fraction of the cost.
You can take a week off and explore your own city: There may be zoos, museums, gemstone mines, historic sites, and so forth that you haven’t visited in years (or ever). You can go hiking or camping in a local wilderness spot. Or visit relatives you rarely see who have an unfamiliar lifestyle—if you’re a “city mouse” family, spend a few days on the farm with Great Aunt Bertha.
Get creative about family activities. When you focus on spending lots of quality time with friends and family, you won’t feel the need to fill the void in your life with costly distractions.
“Instead of thinking about life in terms of what things cost, start thinking about it in terms of time,” says Tyson. “Often, all those unnecessary things we buy for ourselves and our kids are simply distractions from the people we love. They send the message that it’s necessary to spend a lot of money in order to have a good time. It’s not, of course. The best things in life—friends, family, quiet evenings at home just being together—really are free. Sometimes it’s good to be reminded of that.”
Raise frugal kids. Make no mistake, kids are expensive. The U.S. Department of Agriculture estimates it will cost nearly a quarter of a million dollars to raise a child born in 2010 (and that’s not counting college). But whatever you do, don’t add to that price tag by spoiling kids, says Tyson.
“They don’t need the latest technology, expensive summer camps, pricey clothing, lavish parties, and so forth,” he insists. “When you keep these things to a minimum, not only will you save money but you’ll raise non-materialistic kids with good values and well-developed financial management skills of their own.”
“When it comes to your finances, steady wins the race, no matter who is president,” says Tyson. “Ultimately, you determine your financial situation based on the decisions you make for yourself. Always keep that in mind as you plan your weekly, monthly, and yearly budgets.”
Eric Tyson is an internationally acclaimed and best-selling personal finance book author, syndicated columnist, and speaker. He has worked with and taught people from all financial situations, so he knows the financial concerns and questions of real folks just like you. Despite being handicapped by an MBA from the Stanford Graduate School of Business and a BS in economics and biology from Yale University, Eric remains a master of “keeping it simple.”
After toiling away for a number of years as a management consultant to Fortune 500 financial-service firms, Eric took his inside knowledge of the banking, investment, and insurance industries and committed himself to making personal financial management accessible to all.
Today, Eric is an accomplished personal finance writer. His “Investor’s Guide” syndicated column, distributed by King Features, is read by millions nationally. He is the author of five national best-selling books, including Personal Finance For Dummies, Investing For Dummies, and Home Buying For Dummies (coauthor), among others, which are all published by John Wiley & Sons, Inc. Personal Finance For Dummies was awarded the Benjamin Franklin Award for best business book of the year.
Eric’s work has been featured and quoted in hundreds of publications, including Newsweek, theWall Street Journal, the Los Angeles Times, the Chicago Tribune, Forbes magazine,Kiplinger’s Personal Finance magazine, Parenting magazine, Money magazine, Family Moneymagazine, and Bottom Line/Personal magazine; on NBC’s Today show, ABC, CNBC, PBS’sNightly Business Report, CNN, and FOX-TV; and on CBS national radio, NPR’s Sound Money, Bloomberg Business Radio, and Business Radio Network.
Eric’s website is www.erictyson.com.