bankruptcy blog
The Joys of Holiday Finances
With trick-or-treating behind us, it is time to turn our attention to the fast approaching Holiday season. During the Holiday it is easy to get carried away with spending, buying gifts for your family and friends, traveling, and purchasing food for Holiday feasts. It is such a season of giving that you may find that you leave yourself with very little to ring in the New Year. Recently, American spending and household credit card debt has been on the rise coinciding with a decrease in household savings.
When your spouse really wants that Apple Watch or your kids need a new smart TV for their room, it may be hard to turn them down. Instead of relying on a budget, you may put those purchases on an existing credit card or open up a new retail credit card to take advantage of the Holiday deals. In my experience, it may be the first time of the year that someone deeply reviews his or her finances and credit card debt accrued over the last 12 months. The realty may not be all that jolly and bright.
When approaching how to finance the Holiday, keep these tips in mind:
- Create a budget. Write it down and stick to it. Seeing how much you are planning to spend or have already spent will keep you focused. It is a lot harder to make that ultimate financial decision at the online check out without first having a plan and budget in place.
- Be okay with saying “no.” You might not be able to fulfill everyone’s wish list this year. Don’t feel as though you have an obligation to buy a gift for every friend and relative. In my family, we have decided that we will draw names for who will buy a gift for whom. That way everyone still receives a gift.
- Avoid retail credit cards. No matter how much GAP Cash or Kohls bucks are thrown your way, you need to avoid these high interest credit cards. You’ll be paying on that Xbox you buy your son with your Best Buy Credit card for way longer than had you just saved the money monthly and bought one without credit.
- Do not buy anything at a rent-to own store. That $500 TV may end up costing you up to five times that amount by the time you pay off the agreement. For a weekly payment of $50, you could have just saved for 10 weeks and purchased the same TV outright.
- Resist the urge to obtain credit through an online retailer. In recent years, I have seen an increase in clients owing places like Fingerhut for Christmas gifts they bought their children. You end up paying for those toys and tablets many times over if you ever pay off the debt in full. You may be catching a theme here.
- Start saving. It is never too early to start saving now for next year’s Holiday spending. Start setting aside an amount per paycheck or designate an amount from your tax refund that you will save for the next Holiday season.
- Get creative. There are other ways to express your gratitude for those you love. Create a special experience or take the time to personally make a gift. After all, it is the thought that counts. A gift does can cost as little as $0.
I promise I am not trying to be a Scrooge. The Holiday are stressful enough. If you have a firm grasp and control of your finances, you take one stressor off your plate so that you can be okay with eating an extra one or twelve of Grandma’s chocolate chip cookies.
Blindsided
You agree with your spouse to meet with an attorney regarding your financial issues. The first thing your spouse says is that you no longer own your home. You freeze. You’re still living there. Your spouse says that you lost your home because you failed to pay your property taxes and have been renting the home for several months from the new owner. The attorney hesitates before informing you that a bankruptcy won’t help you regain ownership of your home. He continues that had you filed a Chapter 13 before the tax deed transferred ownership, then you would have had an opportunity to pay the property taxes owed in a plan over 3-5 years.
This situation occurs frequently with varying degrees of severity. Your spouse could have told you that he or she paid a bill that you just received a garnishment notice for from your employer. Your car lender repossesses your car without warning because the car insurance has lapsed without your knowledge. In any partnership, it is common for there to be a division of labor with one spouse managing the household finances. However, it is important that the non-managing spouse to have a general understanding of the state of household finances. Here are some tools and tips for spouses to ensure that understanding:
- Review monthly bank statements, retirement statements, billing statements, and tax returns. When the statements come in the mail or in a paperless format, set aside time to review the documents with your spouse. This will increase your mutual understanding of your financial situation and protect you against any unexpected financial issues in the future.
- Monitor your Credit Report. Use a free service like creditkarma.com to know what is going on with your debt. Your credit report will show whether any of your accounts are in default or any of your creditors have filed lawsuits against you and received judgments.
- Create separate budgets and compare. Now that you are reviewing your financial information, create a budget separately from your spouse then compare. Hopefully, this will inspire a conversation about your financial goals and motivations. Try using a free online tool like mint.com to assist you with managing this aspect of your finances.
- Seek support from an accountant, financial adviser, or attorney. You may need assistance with understanding your finances with ease. Many professionals in the financial services industry offer free consultations to advise you of your options and to dispel common misconceptions regarding personal finances. If you unexpectedly find yourself in financial distress, it is helpful to have already built a meaningful relationship with a financial professional who can advise you knowing your goals and what matters most to you.
It is never too late to initiate these good habits. If you need some tools to have that courageous conversation about finances with your spouse, refer to my last blog. Your finances impact every aspect of your life. You don’t have to be in the dark about them. Start today and take control of your financial future.
Having the Courageous Conversation about Finances
We all have conversations that we need to have, but, for numerous reasons, haven’t. As we avoid the issues, they snowball, expanding to the size of the room until there is no air left to breath. It can be that suffocating. We talk to everyone who will listen (and some who pretend to) except for the person we actually need to have the conversation with.
Discussing finances with your spouse, partner, friend, or family member can be uncomfortable. Think about the time you’ve spent splitting a bill amongst friends at a restaurant. Remember the time you had to mention to your spouse that you used the credit card for that one trip to Lowes? Having the conversation about your budget doesn’t have to be paralyzing or a blame game. Before you have a courageous conversation about your finances, consider:
- Timing & Location. You may feel as though there is never an appropriate or best time to initiate the conversation. The longer you wait, the more time you have to conduct the conversation in your head. You should wait until your emotions are in check so that you bring a clear, conscientious mind to the conversation. Observe whether the other person would be in the right mindset to engage in the “money talk.” In line at the grocery store check-out is probably not the best time to be creating your budget.
- Intentions. Determine why you want to have the conversation. Be specific. Be mindful. Take time to write down and organize your thoughts ahead of time. Focus on the future and disclose what you’d like to see more of – a consistent budget, more collaboration in making financial decisions or more accountability.
- Trust. Being open, honest and calm will create an environment where everyone feels supported and empowered. Be vulnerable, staying mindful when you feel yourself becoming defensive. You will achieve the best outcome when the other participants in the conversation feel as though you are coming together to create a shared solution.
- Facts. Stick to the facts. Math does not lie. Download your bank statements, credit card bills, mortgage statements, retirement statements and any other information relevant to the conversation. With a clear picture of your financial situation, it will be easier to get on the same page and partner for a path forward. With clarity comes focus. With focus comes ease. With ease comes grace.
- Humility. Set aside your ego. This is not about being right. Actively engage with the other person to create a solution to a shared problem. Ask questions to better understand the other person’s perspective and concerns.
With these tools, you are now empowered to initiate that courageous conversation regarding your budget, debt, or need to file a bankruptcy. It will not make the conversation easy, but it will make it easier. Many situations can be resolved or mitigated if you simply start the conversation.
Financial Distress of a Growing Family
“It is getting dark outside,” my son announces rather proudly. In a burst of energy, he takes off, sprinting in loops around our house. Bedtime nears and he is trying to outrun it. Eventually, my wife or I usher him to bed, his small but mighty footsteps echoing as he pounces upstairs. Now it is time for me to put away the toys, stack up the books, do some dishes, and hopefully settle onto the couch before 10 PM.
Then the morning arrives, a 6:30 wake up. I no longer need an alarm thanks to my son. At some point probably around 11 PM the night before, my wife got me to sleepwalk upstairs to bed from the couch. The morning routine involves sips of coffee snuck in between diaper changes and checking the day’s weather forecast. Life with a child is a lesson in constant movement.
My wife and I will pause in the brief moments between all of the activity to appreciate how we have gotten where we are. In three years, I graduated law school, got married, took the bar exam, started working as an attorney, had a child, bought a car, bought our first house, and then merged with Koenig|Dunne. That is a lot of life to handle. Constant change has been a regular part of my life for the better part of the last decade.
Each major change has presented an opportunity to evaluate and reassess where we are and where we are going next. One of the main topics of conversation in this process has been our family finances. For us, having our first child necessitated a reassessment of how we spent our money. An expanding family drastically impacts financial decision-making.
The expanding family can manifest in a variety of forms. It may be that your boomerang child came back home or your aging parents now live with you. It may be that you’re unexpectedly taking care of your grandchildren. These are some of the realities that I witness in my bankruptcy practice. Life is dynamic. Life is expensive. Life is full of unexpected twists and turns.
When the perfect storm of these life events occur, you may find yourself in a situation where the incoming money is not enough to cover the outgoing expenses. I encourage making a budget when these life changes are about to occur or have occurred. Here is a free form you can use to help: Blank Budget Worksheet. It helps to reset the understanding of your finances so that you are empowered to make informed decisions. You may discover that you are spending more money on certain items than you had thought. You may determine that some expenses can be eliminated altogether.
I understand that life is busy and, at times, frenetic. We can all try to outrun evaluating or making tough financial decisions. Peace of mind and control starts with finding or creating brief moments of pause to really look at and understand your situation, reaching out to trusted advisors when assistance or support is needed.
How to Spend Your Tax Refund Wisely
How many people have you heard lately say “I am going to buy that when I get my tax refund?” For many, tax refund season means that they can catch up on bills, buy their kids new clothes, or finally fix that leaky roof. According to SmartAsset, the average household federal tax refund in 2014 for Nebraskans was $2,502.00. Tax refund season always seems to come just at the right time. Receiving W-2s can be more exciting than opening presents during the not-so-distant holidays. For me, I have to be conscientious with how I am going to spend my tax refunds because I always dream big.
Each year, my wife and I devise a plan for how to spend our tax refund money. One year, it was a new laptop. Another, it was for a down payment on a new car. This year, we are going to spend it on some home improvements and repairs. The refund can be spent quickly, leaving you with a feeling that you never received the money to begin with. I understand how expensive supporting a family can be. When receiving a large sum of money, it is tempting to spend it without much thought or consideration.
When determining how or what to spend your tax refund money on, it is helpful to write a list, splitting it into items you need and items you want. An item of need supports your or your family’s health, wellness, and safety. All else may be considered an item you want, but do not need. I try to focus my attention on items of need.
For each item, writing down the estimated or anticipated cost helps you determine the best way to spend your tax refund. A wise part of your plan should be to save a set amount or percentage of your tax refund for miscellaneous expenses that pop up throughout the year.
It takes discipline to hold yourself to these standards as you’re making decisions. You may want that smart TV, but your car really needs new brakes. Yes, a puppy is much cuter than a repaired plaster ceiling in the playroom.
During this time of year, you may be looking at your financial situation for the first time since receiving your last tax refund. For my family, I try to have the mindset throughout the year that the tax refund is not guaranteed. I avoid incurring debt thinking that I will pay off the charges with my tax refund because life is adept at throwing curveballs. Planning for how to spend my tax refund reminds me that mindful money management can be easier said than done. However, taking control of your finances through intentional planning allows you to adjust as life throws those curveballs. Taking the time to make tough financial decisions will empower you throughout the year.
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