Question: My 21-year-old daughter makes $80,000 a year working at a large firm. She has very low expenses, so I’d like to see her sock away a huge amount of money. I told her that if you get used to spending a lot each month on “fun” stuff, it will be much harder to save down the road. I’d also like to see her bypass the high-end investment firms in favor of less expensive alternatives. What do you suggest? –Tom F., Chatham, Illinois

Answer: I’m with you, Dad. I think it’s a great idea to encourage the habit of saving regularly early in one’s career (or life, for that matter) so that it becomes almost second nature.

But let’s not overdo it. As Cyndi Lauper once famously put it, girls just wanna have fun. (Boys too, I might add.) Nor does having a good time necessarily make you some sort of financial reprobate.

I’m not sure how much you have in mind when you say you want your daughter to sock away a “huge” amount of money, but you don’t want her setting a goal that’s so high that saving becomes a privation and unsustainable. She would be making the same mistake as people looking to control their weight who go on a crash diet.

Your aim here, therefore, should be to get your daughter to think of saving as a natural part of life, a regular expense you must budget for just like any other (which, in fact, it is, as I explained in a column about how to live within your means and lead a financially responsible life.

So, how can one inculcate the savings habit in a way that avoids dealing with firms that charge onerous commissions and fees?

Well, the first thing you can do is to encourage your daughter to sign up for her 401(k) plan, assuming her company offers one (as most large firms do). You might suggest that she contribute at least enough to get the full employer match. If doing that doesn’t bring the combined contribution from her and her company to 10% of her salary, then she should kick in whatever it takes to hit that goal, which is a decent starting point for someone her age.

I can’t guarantee that her 401(k) plan’s expenses will be lower than those she’ll encounter at outside investment firms. But unless your daughter finds that, after evaluating her 401(k) plan, it is truly horrendous, it’s highly unlikely that she would be better off forgoing the tax savings, convenience and other benefits of a 401(k) to save outside the plan.

In addition to her retirement savings, your daughter should also have about three months’ worth of living expenses in a bank money-market account or savings account that pays competitive yields.

The idea isn’t to earn big bucks on this money; that’s not going to happen in today’s environment. Rather the aim is to have a safe stash that she can draw on in the event of a financial setback or emergency so she doesn’t have to tap her 401(k) or other retirement savings and possibly incur taxes and penalties for early withdrawal. She should be able to build this emergency fund while contributing to her 401(k).

Once she’s built up an emergency fund, your daughter can either divert the regular savings that was going to that fund to her 401(k), thus boosting her contribution rate there. Or she could put the money into a Roth IRA that would complement her 401(k). By funding her Roth with low-cost mutual funds like those on our Money 70 roster of recommended funds, your daughter can avoid bloated fees that act as a drag on growth.

One final note: What may seem straightforward to someone who’s well versed in financial affairs may be daunting to a neophyte. The last thing you want to do is overwhelm your daughter with so much information and so many choices that you paralyze her into inaction.

So break this process down and, without being overbearing, help her put the pieces into place one at a time. Help her get signed up for the 401(k), then open the emergency account, then consider the Roth.

She can always fine-tune her choices later. The most important thing is to instill the habit of saving so that it becomes routine. If your daughter manages to do that, she’ll improve her chances of having fun not just at 21 but for the rest of her life as well.

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Learning good saving habits early in your career

You know the part of the classic wedding ceremony in which couples vow to stick together “for richer, for poorer”? Well, a lot of spouses lately are really putting the latter part of that promise to the test.

Blame the economy for shaking up once-solid unions. Marital roles are shifting as onetime breadwinners adjust to long bouts of unemployment. Husbands and wives are blaming each other for bad investments and onerous debt. Spouses who once smoothed over spats with a little shopping therapy can no longer afford to fill that prescription. “It’s the biggest stress on married couples in the past 60 years,” says Margaret Shapiro, a clinical social worker in Philadelphia.

How are you and your spouse coping with the challenges you’re facing? And what can you do to ensure you pull together to solve those problems instead of being torn apart by them? The following quiz provides insights into the specific ways the economy may be affecting your marriage, plus the steps you can take to strengthen your relationship — and your finances.

Question 1: Your company reduced salaries 10% this year, and you’re looking hard for ways to cut your family’s expenses. But your spouse insists that you’re exaggerating the financial difficulties and resists attempts to ratchet back your lifestyle. Every conversation about money is turning into a battle. What is most likely to result in a lasting solution to the tension?

A. Let your spouse pick one splurge each month and enjoy it.

B. Together, take a look at the numbers in your investment and checking accounts.

C. Split up your finances so you don’t have to discuss every purchase.

Answer : B. While some couples might benefit from dividing their money or looking the other way when one makes an occasional indulgent purchase, one of the biggest breeding grounds for arguments is simply that most spouses appear to be operating under different sets of “facts” about the resources they have to work with.

According to a study by Jay Zagorsky at Ohio State University’s Center for Human Resource Research, the typical husband reports that the couple earn 5% more and have a net worth 10% higher than his wife thinks they do. And men believe household debt is lower than their wives do.

Moreover, the gap between what husbands and wives say their household earns, saves, and owes gets bigger the longer they are married. (The study didn’t reveal which spouse is usually closer to the mark.)

Rather than fight about whether you can afford to take a ski vacation this winter or whether it’s necessary to ditch your premium cable-TV channels, get the facts you need to make an informed decision. Block out time to sit down together and sort out the basics.

At a minimum you both need to know — and agree on the numbers for — your income (look at last year’s tax return and this year’s most recent pay stubs), your assets (check your account balances online and get a rough estimate of your home’s market value at zillow.com), and your liabilities (add up your most recent loan and credit card statements to see how much you owe overall and do a back-of-the-envelope total of your monthly expenses). That way you’ll know for sure whether you need to cut back and what extras you can swing.

If the exercise reveals you can’t afford the slopes in Vail, find a compromise. Ask your spouse why the trip matters so much: family tradition of a big trip? Relaxation? Love of snow? Then see if you can find a cheaper way to fulfill that goal.

Question 2: It’s been a tough year. The value of your home and your portfolio are way down (even after the recent surge in stock prices), and the payments on the big home-equity loan you took to buy that new motorboat are starting to feel out of reach. Which of the financial issues you face is putting the greatest strain on your marriage?

A. Your plummeting portfolio.

B. Your eroding home equity.

C. Those oversize loan payments.

D. Trick question. They’re all stressful — duh! There’s no way to rank this kind of financial pain.

Answer: C. Sure, a sharp decline in the value of your most important assets can easily put a damper on your relationship — it’s depressing, after all, to watch your savings shrink, and depression doesn’t exactly put you in the mood for love.

But studies by Utah State University professor Jeff Dew show that so-called bad debt, such as balances on credit cards or installment loans, has a much more direct effect on marital happiness than issues with assets, and the impact is largely negative: The more bad debt a couple have, the more likely they are to argue and the less likely they are to be satisfied with their marriage.

By contrast, “good debt” — such as student loans or mortgage payments — doesn’t seem to affect how they feel about each other. And while having more savings and investments can certainly help alleviate feelings of economic pressure, it doesn’t stop the fighting.

So if you’re looking to improve the state of your union, the course is clear: Pare down on the amount you owe.

Feel free to reward yourself along the way — say, a small dinner out to compensate yourself for all the ones you’ve skipped. Or be silly — put stars on the refrigerator, just like you got for your third-grade homework.

“It marks and commemorates that you did it together,” says Lili Vasileff, president of the Association of Divorce Financial Planners. That way you can enjoy a pat on the back while you whittle down your debt — for a double dose of marital contentment.

Question 3. Your spouse was laid off a few months ago. You’ve cut out the housekeeper and family vacations, but your emergency fund is still dwindling, and your partner has no job prospects in sight. In the scenarios below, who suffers the least?

A. Your spouse, the laid-off husband

B. Your spouse, the laid-off wife

C. You, the husband of the laid-off wife

D. You, the wife of the laid-off husband

Answer : C. Losing your job is tough for both men and women, especially if the man strongly identifies with the traditional role of provider. But the effect of your spouse losing his or her job is different for the sexes.

Various studies indicate that women are likely to feel depressed when their husbands are laid off — an increasingly common occurrence nowadays, with male unemployment rising faster than women’s. Yet husbands don’t seem to take it so hard when their wives lose their jobs.

Any negative feelings can easily aggravate the strain couples are already experiencing owing to loss of income, says Scott Stanley, co-author of the book “Fighting for Your Marriage.” The laid-off partner may feel too low to put all his or her energy into looking for work, especially given how discouraging the job market is — or even to prepare a meal or pick up the dry cleaning (chores that also serve as a reminder of the stay-at-home spouse role).

The employed partner, meanwhile, may become frustrated by the spouse’s lack of get-up-and-go on the job and the home fronts. Both partners may find themselves more critical of their spouse than before, which in turn makes them unhappier with their relationship.

If this describes your household, it’s time to alter the pattern. The best way to avoid arguments about changing family responsibilities is to set a few ground rules about how much housework the unemployed spouse should be doing and how much time he or she should spend looking for a job. Then focus on upholding your end of the bargain, not micromanaging your partner’s.

“It doesn’t matter how you arrange things, but that you both agree to it,” says therapist Shapiro.

Question 4. You and your spouse were counting on retiring in 2011. But the 30% decline in your portfolio last year is forcing you to rethink. Now you’re constantly bickering about when you’ll be able to stop working and what kind of lifestyle you’ll have once you do. What’s the most important step you can take now to improve the odds you’ll eventually have a happy retirement?

A. Aggressively pump up the amount you’re saving in your 401(k) and IRA.

B. Start practicing the kind of lifestyle you’d like to have once you retire.

C. Bite the bullet and plan on working for five more years, possibly longer.

Answer: B. Money does have an effect on how happy you will be as a couple in your later years, according to a 2005 study in the International Journal of Aging and Human Development. But the size of your nest egg is not nearly as critical as the quality of the time you spend together.

Studying more than 100 upper-middle-class couples (average age: 69; average length of marriage: 42 years), the researchers found that disagreements about leisure activities were the biggest downer, cited by nearly 40% of couples in unhappy marriages.

Intimacy problems — both emotional and physical — were a distant second, and finances came in fifth, behind health and household issues like home repairs.

So by all means, be aggressive about saving and work a little longer if you can. But you and your spouse also need to lay the groundwork for hanging out together for longer periods and having fun together.

The next time you both have a few days off, make it a staycation. Visit a museum. Find a sport or activity that the two of you can learn together. Playing at retirement should help reduce the friction now and contribute to greater happiness later on.

Question 5. You can’t help it: You think the financial pickle your family is in now is your husband’s fault. After all, he insisted that you buy a too-expensive house, which drove up your expenses by a third. He, on the other hand, says it’s your fault for poorly managing your IRA s, which lost almost half their value last year. Which of you is to blame?

A. You. You should never have loaded your IRAs with risky stocks.

B. Your husband. Digging out from a financial hole is tougher than waiting for the market to bounce back.

C. Both of you are equally to blame.

D. Neither of you should feel that it’s your fault.

Answer : C or D. Ultimately it doesn’t matter who was responsible for your financial predicament; what’s important is that you don’t get hung up on finger-pointing.

Stressful situations often lead couples to lay blame, says Barbara Mitchell, a clinical social worker in New York City who specializes in money issues. “There’s a tendency to scapegoat one another, which starts a real downward spiral,” she says. Researchers have consistently found that the more “negative interactions” you and your partner have — and laying blame for the family’s financial woes certainly qualifies — the worse your relationship will be and the more likely you’ll start thinking about divorce.

Instead of criticizing each other, fault the true culprit, the economy, and form a united front against it.

Schedule regular weekly meetings in which you and your spouse discuss financial problems and possible solutions calmly. That sort of quarantine will prevent your financial gripes from infecting the rest of your day-to-day interactions. Defuse the emotion by focusing on the task. Instead of arguing about who wanted the McMansion more, look into refinancing to lower your costs or trading down to a smaller house.

Question 6. All you and your spouse seem to do these days is fight about money. Even though you hate to admit it, your marriage has reached the breaking point. Given how tough the economic crisis has been on relationships, you have plenty of company, right?

A. No, the evidence suggests that fewer people are getting divorced.

B. Yes, the divorce rate typically spikes during a recession, and this one is proving no different.

C. No, there’s been no change in the divorce rate, which historically has not been affected by the economy.

Answer: A. First things first: It’s a myth that money problems are the leading cause of divorce — infidelity is far and away the biggest predictor. In fact, although official stats aren’t in yet, there’s mounting evidence that the recession is keeping couples together, not breaking them apart.

In a survey by the American Academy of Matrimonial Lawyers, 37% of the divorce attorneys polled reported that they see a drop in cases during recessions, nearly twice as many who said their business grows.

However, the dropoff in divorce doesn’t indicate that marriages are any happier these days, but rather that many would-be exes believe they can’t afford to split up (think about the hit you’d take selling your house in this market or how costly it would be to maintain separate households). The number of these too-poor-to-divorce cases has increased in the past year, say 63% of the financial pros recently surveyed by the Institute for Divorce Financial Analysts.

If, after trying to work through your problems with your spouse, you’re both truly convinced you should call it quits, at least try to split up economically. Hiring lawyers to hash out a settlement can be expensive: Boston attorney David Hoffman, studying nearly 200 divorce cases at his firm over a four-year period, found that the median cost per couple was about $54,000.

Alternatively, look into mediation ($16,000), in which a neutral expert helps a couple work out their own agreement. Or consider what’s known as a collaborative divorce ($39,000), in which each spouse has a lawyer but both sides pledge to negotiate respectfully and share information about assets.

Find pros who can help at collaborativepractice.com or mediate.com. No matter how bitter you are, work hard to avoid a contentious split (typical cost of a courtroom divorce battle in Hoffman’s study: $155,000). After all, while true love is priceless, divorce can get really expensive.

Source:
Is the economy ruining your marriage?

NEW YORK (CNNMoney.com) — Forget lazy days rocking on a creaky porch swing, these days working is the new retirement.

Last year’s severe market losses left many once-healthy retirement accounts depleted, forcing many seniors to put their retirement plans on hold and head back to work.

There were 450,000 people age 65 and over actively looking for work in July, a whopping 60% increase from a year ago, according to the Bureau of Labor Statistics.

Boyd Barger was one of them –until just recently when he found a job. After a long career in the Air Force, Barger climbed the corporate ladder to senior management at the Dept. of Labor’s Job Corps program. He retired three years ago.

Barger opened a small arts and antiques business out of his home to supplement his retirement plans.

“The first year was OK,” he said, “but then the economy turned.”

Like many small businesses, sales grew sluggish as the recession took hold. That’s when, in April, Barger, 65, decided he needed to go back to work.

But getting back in the game wasn’t easy. “I found that when I went back and read my old résumés they were not really focused on today’s employers’ needs,” he said.

So Barger got up to speed on the current job market by networking with old friends and Air Force buddies, researching tips on how to update his résumé, watching webinars and online videos related to his job search and learning today’s computer requirements.

Barger got a lead on an opening in his area when a former colleague told him about a position at Serco North America as an Army OneSource community support coordinator, providing support and access to services, such as day care and health care, for soldiers and their families.

Barger applied online and heard back within a week. After a series of interviews he was hired and started in June.

According to Barger’s supervisor, Johannes Graefe, age was never an issue.

“What stood out to me was what Boyd did in the Air Force, working with individuals and spouses and how well spoken he is,” he said.

Graefe said he interviewed several other candidates for the position, but “you have to have it in your heart and Boyd has that.”

Getting back in the game
Workers forced to delay retirement and reenter the workforce will find that today’s job market bears little resemblance to those found 40, 30, 20 and even 10 years ago, according to Bob Skladany, chief career coach at RetirementJobs.com.

“Mailed, hard copy résumés and walk-in applications have given way to Internet-based job listings and interactive, online applications. Yesterday’s job searching techniques and skills are generally not effective today and new skills are required, particularly for workers in their 60s, 70s and 80s,” Skladany said.

Skladany recommends that job seekers first update and rejuvenate their résumé, get up to speed on basic computer skills, such as word processing and e-mail, join social networks and be easily accessible by cell phone and e-mail.

For mature workers with previous military experience, like Barger, there are also many advantages that often go unnoted, according to John O’Connor, president and CEO of Career Pro Inc. in Raleigh, N.C., which specializes in helping military personnel transition into the workforce.

In addition to an extremely vast and valuable network, there are also often many technological, logistical and coordination skills obtained in the military that can translate to today’s job market, he said.

“There’s so much coordination that needs to be done, working with inside and outside vendors. That could be the same thing that a manufacturer or distributor does.”

“It may be called something different,” O’Connor said, but that’s just “the semantics of it.”

Excerpt from:
Hired! Coming out of retirement at 65

Laura Rowley

Banks are squeezing customers with historically high fees and penalties, from overdraft charges to account service fees to new surcharges on foreign debit transactions.

But the pressures that have prompted the fee war with consumers started well before the financial meltdown, according to Jo Preuninger, a former management consultant who spent more than a decade in the consumer banking arena.

I asked Preuninger for a little history, as well as some of the tricks of the trade that banks would prefer to keep secret.

Secret #1: For many banks, the most profitable customers aren’t the mass affluent — they’re “Joe Lunchbox.”

In 1999, the Gramm-Leach-Bliley Act allowed banks, insurers and securities firms to merge, breaking down barriers that had been in place since the 1930s. Following the new law, “if you took all the (deposit) checks written for $10,000 and above, most were written to institutions such as Charles Schwab, Fidelity or Merrill Lynch,” says Preuninger. “They took the best customers. The banks were becoming more like Laundromats, where you put money in for a short period because you still needed to pay with a check or (get cash).”

At the same time, loans provided little profit as interest rates remained relatively low, prompting banks to seek consistent, non-interest income. “The focus was on how banks could not only identify fees they could charge, it was how to do a better job of collecting their fees,” says Preuninger.

Middle-income customers presented the greatest potential to harvest fees. “There’s certainly a customer segment that could be called ‘Joe Lunchbox,’ who expect to be nickeled and dimed,” says Preuninger. “They are managing money from paycheck to paycheck. It’s someone who would prefer to pay an overdraft fee to get their mortgage covered rather than get hit by a mortgage provider with a late fee and a ding on their credit score.”

Last year, overdraft and insufficient-funds charges totaled nearly $35 billion and comprised about 90 percent of banks’ consumer-fee income, according to a study by the consulting firm Bretton Woods Inc. Three-quarters of banks automatically enroll consumers in their “overdraft protection” programs without formal permission, and more than half of banks manipulate the order in which checks are cleared to trigger multiple overdraft fees, according to a Federal Deposit Insurance Corporation study.

“They are going to try to turn the best profit they can, which is why they post in the most attractive way they can while avoiding and minimizing legal exposure,” says Preuninger.

Someone who overdraws a checking account a few times a year should choose a bank with a program that makes it easy (and free) to shift funds from savings to checking to protect against overdrafts.

Secret #2: Banks hope frequent overdraft customers don’t understand the alternatives.

The banks deemed overdraft protection to be a customer service convenience that provides an alternative to payday lenders, says Preuninger. And yet some of those customers might almost fare better with loan sharks. The Bretton Woods study found 80 percent of overdraft fees are incurred by 20 million households, who paid an average of $1,374 in overdraft fees.

These customers should consider ditching traditional checking account in favor of a prepaid debit card, which typically cost $70 to $80 a year ($10 upfront with a $5 monthly fee). Users direct-deposit their paychecks onto the cards (the money is FDIC-insured) and can do point-of-sale transactions and pay bills online. There are no overdraft fees; the purchase is declined if the card is empty.

Secret #3: Those helpful new customer set-up kits, designed to make it easy to switch banks, also try to make the account “sticky.”

“I did a lot of work in customer attraction and retention,” says Preuninger. “The biggest barrier to new accounts was switching. There’s a higher tolerance; a bank may have a lot of long-term customers — that doesn’t mean they love (the service).”

Most banks have a kit to assist customers in switching services. But do it yourself instead. Enter your regular bills in the bank’s online billpay site, rather than signing up with each biller’s website. If your new banking relationship goes sour, the account is more transportable. You won’t have to log into a dozen different biller sites and change the account and routing numbers.

Secret #4: Long-term relationships matter.

“Know what you want in the way of a bank and stay as long as you can because tenure does matter,” Preuninger says. “If you’ve been with a bank three to five years, they treat you differently than if you are there six months. If you direct-deposit your paycheck and have a (savings) relationship, they think of you differently than if you have free checking with $100 in it. Tenure and relationship does matter.”

So if you incur the rare fee now and then, always call customer service and ask (politely) for it to be removed. Emphasize your long-term relationship with the bank and ask for a supervisor if the initial effort fails.

Most customers aren’t profitable until they’ve been with a bank a few years because of the high cost of customer acquisition — sales compensation to branch managers, IT infrastructure, documentation and account setup. “It’s a long time before they break even, especially if they goose it with $100 to you to open the account,” Preuninger says.

Secret #5: Banks want you to enjoy the “advantages” of paying with credit, debit, check and cash — because it will make you more likely to lose track of your money.

“One of most dangerous things going on with consumers is they are not paying attention to the variety of ways they are paying. They are balancing money back and forth because it’s too hard to account for,” Preuninger says. “If you pay seven different ways, you’ve just added complexity to your life. Consumers shouldn’t say to the bank ‘you’re responsible to tell me what I’m doing with my money.’”

But more banks are moving in that direction. PNC Bank, for instance, launched an account called Virtual Wallet that presents account information in calendar form, focused between today and the account holder’s next payday. A “danger day” appears on the calendar in red if the account is at risk of an overdraft. The user can either move bills later in the month, or shift money immediately from the savings portion of the account at no charge (the account does it automatically if the consumer doesn’t). Statements are only available online and the bank charges 50 cents per check for writing more than three a month.

Best bet? Simplify. Get a free checking account with no fees and a low minimum balance requirement, pay major household bills online, and then stick to cash. You’ll think twice about purchases, and avoid getting caught in the widening web of bank fees.

Read more from the original source:
Five Secrets Your Bank Doesn’t Want You to Know