Budgeting / Saving

21 Financial Moves Every Pharmacy Graduate Should Make

Posted on June 26, 2018June 16, 2023 by yfpadmin

The following post contains affiliate links through which YFP receives compensation.

It took me about a year and a half after graduating from pharmacy school to finally start making good decisions to improve my financial situation. I had some bad spending habits, very little personal finance knowledge, and wasn’t taught good financial principles growing up. This resulted in some unfortunate financial mistakes early in my career.

Most pharmacy schools don’t have mandatory personal finance education, some offer elective courses, and some provide some basic information before you graduate. Therefore, it will largely be up to you to be proactive in making sure have a financial game plan.

Check out these 20 moves that every pharmacy graduate should make to get a good start.

Depending on your personal situation, you may not be able to work on all of these at once. The key is to get them on your radar so you can develop a good foundation.

1. Create Solid Financial Goals

When I graduated from pharmacy school, my main goal was to survive an intense residency program. I fully admit, I wasn’t thinking very much about my finances and I hadn’t set any goals. Looking back, this should have been a priority.

Consider having specific, measurable, and timely goals that have a strong purpose behind them and lay out the steps you are going to take to accomplish. I recommend that you actually write your goals down and tell your friends as research shows these additional steps can increase your rate of success. Here is the basic framework you can use:

By <date to achieve goal>, I want to <financial goal you want to achieve> so that <why you want to achieve the goal>. To accomplish this, I will <steps you will take to make the goal become a reality>.

Example

By December 31st, 2018, I will save $5,000 for an emergency fund so that I can avoid the stress and anxiety when an unexpected expense occurs.

Consider having goals around these areas: savings, net worth, debt payoff, and giving.

2. Develop a Budget

Many people associate a budget with living frugally, eating ramen, and shopping at thrift stores. The truth is that a budget is just a game plan on how you will spend your money and execute your goals. You plan for your expenses in advance and then direct your disposable income (or money left over after expenses) toward your financial goals.

Personally, having created and stuck to a unique budget every month for the past several years has helped prevent overspending, given me a sense of peace, and also kept me on track to achieve my goals. If you want an easy four-step process, check out our free budgeting template to get started. After getting your budget set up, consider using one of the budgeting software/apps to track your progress each month. Some of the popular ones out there include Mint, YNAB, Mvelopes, and Everydollar.

3. Set up an Emergency Fund

If you’ve never had an unexpected car, medical expense, or another emergency, it’s only a matter of time. Life happens and you better be prepared. Having a good chunk of cash on hand can mitigate emergencies that have the potential to derail your financial plan.

The textbook answer is to have 3-6 months of expenses saved in a liquid account like a simple savings account or money market account. Ally bank has a great rate of up to 1.00% APY (Annual Percentage Yield) for their savings account which is significantly higher than what most banks offer. The CIT Bank Savings Builder is another option for a high yield savings account that currently offers an APY of up to 0.75% and requires a minimum deposit of $100. There are no fees to open or maintain the account, however, to get the maximum APY you have to either maintain a balance of $25,000 or more or make monthly contributions of $100 or more.

Some argue that this is too much money to be earning interest rates that can’t even beat inflation. Find an amount you are comfortable with and one that allows you to reduce your dependency on a credit card to bail you out.

4. Eliminate Your Credit Card Debt

No one ever plans to go into credit card debt. It’s often the result of either overspending or unexpected medical events or emergencies. Having credit card debt is really a financial emergency in and of itself given the typical ridiculously high interest rates.

If you’re in this situation, you should make it a priority to get rid of it as soon as possible. You want to take advantage of compound interest and not have it work against you. Do you need an emergency fund in place? Would a budget help prevent you from overspending? Find a strategy that will help prevent it from recurring in the future.

5. Calculate and Track Your Net Worth

This is a quick way to analyze your financial health. Your net worth is your assets (things you own) minus your liabilities (debt you owe). As a new pharmacy graduate, this is likely going to be a large negative number thanks to student loans. However, don’t let that discourage you!

The goal is to make strides to increase your net worth by building your assets and paying off debt. The trajectory is more important than the actual current number. With apps like Mint or Personal Capital, you can quickly check your net worth if you have all of your accounts synced. Tim Baker CERTIFIED FINANCIAL PLANNER™ on the YFP team also has a great net worth tool that’s easy to use.

6. Get Long Term Disability Insurance

You put in a lot of time, energy, and effort to be able to become a pharmacist and make a good income. That’s why it’s so important to protect it. Disability insurance for pharmacists is really income insurance. It provides you with money in the event that you become disabled and are unable to work. Personally, I have known pharmacists that have been unfortunately out of work for months to years because of head trauma and autoimmune diseases. What would happen if you were suddenly unable to work because of an accident or illness? How would you support yourself or your family?

Compared to other types of insurance, long-term disability insurance for pharmacists can be more expensive depending on your health status and coverage options. But can you afford not to have it? You may have a policy through your employer but many times they are not as robust a private policy and may not offer own occupation coverage.

You can learn more by checking out our disability insurance page. When you are ready to shop around for a policy, check out Policygenius, an online broker we recommend where you can quickly shop multiple reputable companies to find coverage that’s right for you. They have a very user-friendly interface and offer incredible service.

7. Develop a Student Loan Payoff Strategy

86% of pharmacy graduates borrowed money to pay for school and the average student loan debt is now over $160,000. With debt loads continuing to rise and salaries being somewhat stagnant compared to inflation, you need a solid strategy to tackle your student loans.

If you’re lucky enough to work for a company or institution that offers a tuition reimbursement/repayment program, this should be your first strategy to consider. There are some well-known federal programs offered by the government and military and some state programs, too. Beyond these, your options are to pursue loan forgiveness through the Public Service Loan Forgiveness Program or forgiveness after 20-25 years or to pay them off in full.

If you’re not pursuing forgiveness and don’t need an income-driven repayment plan, a great option can be to refinance student loans. Reducing your overall interest rate by 1% could result in thousands in savings. You can even get a nice bonus up to $800 through one of our partner companies. If you need help finding the best strategy, you can take our free student loan quiz or download our Quick Start Guide.

8. Start investing in your company’s 401(k), 403(b), or TSP

When you’re flooded with student loans and other debt, it can be hard to balance other goals such as investing. While you may feel you can put off retirement savings for a few years, the reality is that you want to take advantage of compound interest, and the earlier you start contributing, the better.

Many companies offer a match program where they will put in a dollar amount equal to your contribution up to a certain percentage, such as 5%. This is essentially “free” money. For most people, taking the match is going to be the best play, even while paying off student loans. Beyond the match, how much you contribute to your retirement savings plan depends on your financial goals.

9. Get Liability Insurance

Even as a highly trained professional, mistakes can happen which could jeopardize your license and even your career. If you work for an employer, they likely offer some protection if you’re functioning within your scope of practice. However, their main concern is protecting the organization, not you.

Besides actual damages, liability or malpractice insurance can help cover litigation costs, costs for representation for the board of pharmacy hearings, and lost wages. Coverage is relatively inexpensive (~$12-$20/month). Proliability, Pharmacist Mutual, and HPSO offer policies for pharmacists up to $1 million in liability coverage per incident and a $3 million aggregate limit.

10. Get Term Life Insurance

Not everyone needs life insurance, but, if you have a family that depends on your income or someone would be responsible for your debt if you pass, you should have a policy in place. There are two major types of life insurance: term life insurance and permanent. Term is the way to go for most people because it’s less expensive and not flooded with fees.

The amount of coverage required will depend on your needs including existing debt, income support, and future expenses. Future expenses include things like funeral costs, childcare, and college tuition. Check out Episode 44 of the YFP podcast for more information on figuring out your life insurance needs. You can get a free quote in two minutes through Policygenius without putting in your personal information.

11. Set up a Health Savings Account (HSA)

If your employer offers a high deductible health plan (HDHP), then you’re eligible to contribute to an HSA. This can be a good option, especially if you’re relatively healthy and rarely use health insurance because your premiums will generally be lower than traditional plans.

An HSA allows you to save money pre-tax into an account designated for health expenses. But, here is the best part, it doesn’t have to stay in a savings account. The money can be invested aggressively just like an IRA. Furthermore, these accounts grow tax-free and distributions can be taken tax-free if used for qualified medical expenses.

However, you don’t have to use the money for medical expenses that occurred in the same year. You can reimburse yourself for medical expenses that you paid out of pocket in previous years. For 2019, you can contribute up to $3,500 per year if single and $7,000 if married or have dependents.

12. Start Contributing to an IRA

Like a 401(k) or 403(b), an IRA or Individual Retirement Arrangement is another great way to save for retirement in a tax-efficient manner. This is something you set up on your own outside of your employer through a mutual fund company or brokerage firms such as Vanguard or iShare.

While your investment selection will vary based on your personal situation, consider using low-cost index funds or exchange-traded funds (ETFs). You can do this completely on your own or use a robo advisor where portfolio options are already established and your asset allocation is automatically rebalanced.

Meeting with a financial planner to help you choose investments and your overall portfolio is another great option. You can set up a free discovery call with YFP Director of Business Development, Justin Woods, PharmD, MBA to learn about how YFP Planning can support your investment strategy.

You have the option to contribute to a traditional IRA, Roth IRA, or a combination of both. Contributions to a traditional IRA can lower your taxable income, but you likely won’t be able to take advantage of that benefit if your adjusted gross income is $63,000 if single and $101,000 if married filing jointly.

Although you may not be able to contribute to a Roth IRA directly because of income limits, you can contribute to a traditional IRA and convert to a Roth (known as backdoor Roth IRA). Any gains prior to the conversion will be taxed. For 2020, the contribution limit is $6,000 per year.

13. Get a Will in Place

This is probably one of the last things on most people’s financial to-do lists but it’s something you don’t want to overlook. Having a will in place will ensure your property goes to whoever you decide, give you the ability to name an executor who will enforce your will, and to name a guardian for your children if this applies. If you die without a will in place, this will be decided by probate court according to your state’s laws and regulations.

Along with a will, you want to have a living will which is also called a health care declaration or an advanced directive. This outlines how you would receive medical care and who you want to make decisions in the event that you are incapacitated. Depending on how complex your estate is, you may want to hire an attorney to help. Otherwise, you can download state-specific estate documents for free or at a very low cost from many sites.

14. Get Clarity on How to Get Raises or Promotions

Your raises will typically be based on time worked, merit, or a combination of both. If you can increase your salary through achievements, do you know exactly what those are? Some organizations will give raises if you obtain board certifications or other medical credentials.

What about publications, presentations, or positions within state and national pharmacy organizations? If you are already doing things to promote and advance your career, knowledge, and experience, you should definitely take advantage of the financial benefits if available.

15. Set Your Withholdings to Break Even

When you first start working for an organization, you will fill out an IRS W-4 form. This tells your employer how much in federal taxes to withhold on your paycheck and is designated by a number.

The lower the number, the more money they withhold. To maximize your net pay every month without owing a tax bill, you will need to determine the optimal withholding based on your projected income and deductions. If your taxes are relatively easy, you can figure this out using the IRS Withholding Calculator. Otherwise, consider seeking the help of an accountant. You can adjust your withholdings multiple times throughout the year if needed.

16. Consider Hiring a Financial Planner

Having a good financial planner on your team can help you achieve your goals, manage your investments, and put together a comprehensive plan. Beyond the financial benefits, a planner can give you peace of mind knowing someone is looking out for you. The key is finding someone you can trust that has your best interest in mind.

While there are many types of financial planners and advisors out there, consider a Certified Financial Planner (CFP®). They have the most rigorous education requirements including thousands of hours of experience. Be sure they do comprehensive financial planning and not just investment management (unless that’s all you’re interested in). The team at YFP Planning works virtually with pharmacy professionals across the country for one-on-one fee-only, certified financial planning. You can set up a free discovery call to see if YFP Planning is a good fit for you.

17. Start Educating Yourself

Before graduating from pharmacy school, I received about two hours of financial information. Since I didn’t make it a priority to learn about money while in school and didn’t have any good examples to follow, I had a very weak foundation. That resulted in some big mistakes in my first year and a half as a practicing pharmacist.

You don’t need a master’s degree in finance to be successful with money, but you should have the basic knowledge that helps you make good decisions and develop good habits. Some of the YFP team’s favorites include Money: Master the Game and Unshakeable by Tony Robbins, and The Millionaire Next Door by Tom Stanley. If you want more education that is focused on pharmacists, check out our book Seven Figure Pharmacist: How to Maximize Your Income, Eliminate Debt, and Create Wealth and the YFP Podcast.

18. Consider a Side Hustle

Side hustles are ways to make extra cash beyond your full-time job. This could be moonlighting at another pharmacy or hospital or could be something completely outside of your training. Having an additional stream of income can help you achieve your goals faster and reduce the risk of relying solely on your main job.

If you want some ideas, check out this post 19 Ways to Make Extra Money as a Pharmacist in 2020. You can also check out the podcast as we frequently have pharmacists on the show who talk about side hustles they started.

19. Set up Systems to Avoid Lifestyle Creep

Lifestyle creep is one of the biggest threats to a pharmacy graduate. This is when your expenses meet or exceed your income no matter how much you earn. With incomes starting out high, there is a tendency to get comfortable and maintain a certain lifestyle.

Spending the majority of your money on things that bring you pleasure and happiness today and the need to compare yourself to those around you are the main contributors to lifestyle creep. So you have to protect yourself from yourself. Many pharmacists have recommended, “living like a student” for the first few years following graduation. This is a great way to avoid upgrading your lifestyle and making large purchases too quickly.

Another strategy is to automate your contributions toward savings and investments so you never “see” certain money. If you can divert a percentage of income before it hits your checking account, you won’t be able to spend it. Increasing your savings in step with your raises is another great way to prevent lifestyle creep.

20. Connect with the Your Financial Pharmacist Facebook Group

Surrounding yourself with people on the same journey is a great way to help you achieve your goals. We have some great discussions on the Facebook group and you can post your own questions at any time. Join over 7,000 pharmacists and students for some extra motivation and inspiration by clicking here.

21. Use a high-yield savings account or money market account for big purchases

When you consider inflation, money sitting in regular checking or savings accounts can lose a lot of purchasing power over time given most interest rates are essentially next to nothing.

Sure you avoid market risk or the risk of keeping cash in other investments but there are other options that are less risky and can yield at least some return. These include high yield savings accounts and money market accounts.

If you are sitting on a bunch of cash that’s for an emergency or you are saving for a big purchase such as a car or home within 5 years or less, these can be good options to earn a little extra money. Now if your savings amount is relatively low and you aren’t adding anything to it then it may not be anything substantial, but remember it’s better than 0.001%.

I did a review of my experience with CIT Bank which offers competitive interest rates from 0.85-1.40% for their high yield savings and money market accounts.

Financial Planning for Pharmacists

While these are some great tips to get you started on your journey, everyone has a unique situation. Whether you want to pay off your student loans, make the right investment decisions, or simply build a solid financial plan, YFP Planning can help you get your income working for you (rather than the other way around). YFP Planning offers fee-only financial planning for pharmacists. You can book a free discovery call to learn more!

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5 Steps to Creating Your Best Budget

Posted on January 11, 2018 by yfpadmin

The New Year is upon us and there is no better time to be thinking about setting and keeping your financial goals. And once those financial goals are set, no better way to achieve them than by having a monthly spending plan (aka budget) that includes those goals.

If we are being honest with ourselves, who gets a little nauseous when the topic of budgeting comes up?

I mean, besides a few financial nerds out there (myself included), not many are a fan of the whole budgeting thing.

“It takes too much time.”

“I already know how much I spend.”

“I don’t know how to make one and follow it.”

“I’m afraid of what I might find when I track my expenses.”

“I don’t like to be so restricted.”

“I make enough money, so I don’t need to budget.

These are some of the most common reasons I hear for all of the hate surrounding budgeting.

I admit that, I too, agreed with most of these statements until I experienced first hand (through my own journey paying off $200,000 of debt) how powerful the budget can be.

You Need a Budget

Data suggests that most, if not all of us, need to put a budget in place.

We are drowning in student loans with pharmacy graduates now coming out of school with on average more than $172,000 of debt (Ref: AACP Graduating Student Survey, 2019). That kind of debt load means a big monthly payment and a big monthly payment means less money available each paycheck to achieve other goals. These rising student debt loads, amongst other factors, justifies a need to have a monthly budget to scale back other expenses.

Our credit card debt is at an all time high, suggesting we are consistently spending more than we make each month. According to the Nerdwallet 2019 American Household Credit Card Debt Survey, Americans have more than $987 billion in credit card debt (say what?!) with the average household carrying a monthly balance of just under $7,000. Rising credit card indebtedness suggests we need some help with keeping expenses in check.

We aren’t able to cash flow emergencies that come up. According to a 2019 Bankrate Survey, approximately 60% of those surveyed didn’t have enough in savings to pay for a $1,000 car repair or emergency room visit. Do you have a fully funded emergency fund? If not, a budget may help you get there.

We aren’t saving enough for retirement. One-third of Americans report they have no retirement savings and 23 percent report having less than $10,000 saved (Ref: GOBankingRates 2016 Retirement Survey). A good budget will help you prioritize retirement along with other goals to ensure you are on track to meet your goals.

So, if you have paid off all your student loans, have no credit card debt, have a fully funded emergency fund, and are on track with achieving your financial goals (including securing the nest egg you will need to retire), you just may not need a budget.

If you are reading this and thinking to yourself “I hate budgeting but I can respect I need one…” or “I’m in a relationship with someone who hates budgeting and we need some help working together…” check out the blog post written by my wife, Jessica Ulbrich, ‘When Budgeting Isn’t Your Thing.’ While I’m a little biased, she provides an awesome perspective on budgeting, especially for those that hate everything about it.

Choosing the Best Budget that Works

While one budgeting method will never be right for everyone, the team at YFP believes that the zero-based budgeting technique is the one that can yield the greatest results.

With a zero-based budget, you account for every single dollar that is spent (before the month begins) and, more specifically, every single dollar has a purpose. The goal is to spend your paycheck down (on paper) to $0 and to figure out a way to make sure your goals (beyond meeting monthly expenses) can be funded, rather than hoping you have money left over at the end of the month. In just a minute, I’ll walk you through a 5-step process for putting this zero-budget in place, so hang with me.

With the zero-based budget, you are putting yourself in the best position to be completely in control of your spending. Since you are essentially micromanaging your money, you quickly pick up on spending behaviors and habits.

While this method of budgeting can yield the greatest results, it can also be more time consuming than other budgeting methods, and can be exhausting at times to track (subsequently leading to burnout). Therefore, this highlights the necessity of (1) having someone keep you accountable with your monthly budget, whether that be a financial planner, significant other, and/or friend; and (2) creating incentives and rewards along the way for achieving goals to keep you motivated.

5 Steps to the Zero-Based Budget

Hearing about a zero-based budget for the first time can feel overwhelming. Let’s break it down to 5 simple steps that will help you get this in place.

Before moving forward, be sure to grab the YFP budgeting template, which follows these 5 steps and is ready for you to fill out!

Step #1 – Determine Your Take-Home Pay

This is the amount you will be working with each month to cover your expenses and put to good work to achieve your financial goals. The take-home pay (or net pay) is the amount that shows up on your paycheck every pay period after taxes, health care premiums, retirement contributions, and any other deductions withdrawn from your base (gross) pay. For student pharmacists, take-home pay would include loan disbursement money, plus any earned income.

Step #2 – Account for Necessary Expenses

While the definition of ‘necessary’ could be debated, for the purpose of this activity, let’s include the following as ‘necessary’ expenses: housing, transportation, food, utilities, insurance premiums if applicable (i.e.., life, disability) and minimum payments on your debts (i.e.., credit cards). In this step, consider food as what you need from the grocery store to comfortably survive. Don’t include your trips out to restaurants here (this will go in Step 3). Depending on your philosophy towards giving, you may also include giving in this category.

Step #3 – Determine How Much to Spend on Discretionary Expenses

Think of discretionary expenses as the nice to have, but in a true financial emergency, they could be cut. These include eating out, trips for coffee, vacations, clothing expenses beyond the bare minimum, extra payments on debt, etc. It is very easy to justify any one of these as an ‘essential’ expense, so it’s important to really be honest with yourself when evaluating this category. If you have no idea how much you spend on these types of expenses in a month, a good place to start is to review your past month’s banking or credit card statement.

Step #4 – Calculate Your Disposable Income

Your ‘disposable income’ is calculated by taking your take-home pay and subtracting your essential and discretionary expenses. That number is the amount you have to put towards other financial goals (i.e., building an emergency fund, saving for kids’ college, down payment on a home, etc..). For example, as a pharmacist, if a you had a take-home pay of $7,000 with ‘necessary’ expenses of $3,000 and ‘discretionary’ expenses of $2,000, you would have $2,000 of ‘disposable income’ to put towards other goals.

Step #5 – Allocating Disposable Income to Goals

Finally, this is where the magic happens. Allocate your ‘disposable income’ to your financial goals. If the amount of ‘disposable income available isn’t enough to allow you to meet those goals in a time frame that is desirable to you (or results in a deficit), go back to the discretionary areas in Step 3 and make some cuts. Once you have completed Step 5, you should have “spent” your entire income, meaning that every dollar has been assigned, resulting in $0 balance.

If you find yourself frustrated that you cut expenses and still aren’t able to allocate the desired amount towards your goals, it’s time to start looking more at the income side of the equation by optimizing your paycheck and/or putting together a plan for earning additional income.

YFP Podcast Episode 28

In Episode 28 of the Your Financial Pharmacist Podcast, Certified Financial Planner, Tim Baker, and I go into much more detail about:

why having a budget is key to your long term financial success;
why so many people fail with keeping a budget;
two other common budgeting techniques besides the zero-based budget, the pros/cons to each, and why the zero-based budget wins out;
how to handle irregular expenses; and
electronic tools/apps that you may consider to implement your budget.

In addition to being available on the YFP web site, the podcast is also available on iTunes, Stitcher, Google Play and Spotify.

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Optimizing Your Paycheck While in Debt

Posted on October 31, 2017 by yfpadmin

With most people now receiving their paychecks via direct deposit, many often ignore their paystubs. I admit I used to be guilty of this until I started getting serious about budgeting and my finances in general.

Earlier this year I decided to take a detailed look and found out that I was paying for something that I didn’t need. Not only that I had been paying it for over 3 years!

Although it’s easy to focus on your gross and net pay and ignore all the other “stuff” on your paystub, it’s important to make sure that you have your deductions optimized and that you aren’t paying for anything that’s unnecessary.

If you’re working hard to get out of debt, you want to be sure you are bringing home as much money as possible to accelerate your progress.

Here are some easy changes to your paycheck you can make that could potentially increase your take home pay:

Set Your Federal Withholdings to Break Even

Federal income tax is taken out of your check according to your your filing status (single, married, head of household) and the number of withholdings. When you first started your job you would have designated this on your W-4 form. This will stay the same unless you make a change.

This is really important because it determines whether you will owe money on your tax return, receive a refund, or break even. I’m a strong believer in breaking even so I don’t give the government an interest free loan aka a refund.

Although you may like getting a refund every year, keep in mind this is money that you could have in your pocket every month. Also, some people actually treat the money from a refund differently than they would if it was in their paycheck every month. Instead of using the money to pay down debt, you may see it as a Las Vegas vacation or a shopping opportunity.

Therefore, setting your withholdings so you don’t owe or receive money can really help maximize your monthly take home pay to reach your financial goals. To see if you are on track, you can check out the IRS withholding calculator. If your taxes are complicated or need a second look, check with an accountant.

Eliminate Unnecessary Deductions

Besides federal income tax you may also have state and local income tax. In addition, if you are a W-2 employee, your employer will be required to take out FICA taxes (Medicare and Social Security aka OASDI). While you can’t get rid of these deductions, there are some you can.

You likely have some benefits through your employer such as health, vision, and dental. You may also have life, disability, or other insurance. Many of these benefits are automatically initiated when you start working and therefore you have to opt out if you don’t want them.

This is exactly what happened to me. I was paying for life insurance through work even though I had adequate coverage privately. I was automatically enrolled in this and for awhile didn’t know what it was. It was listed as the abbreviation FEGLI (which I later realized stood for Federal Employees Group Life Insurance) and for years never questioned it.

Make sure you know what every deduction is, whether or not it’s required, and whether it’s something you need.

If you are married and your spouse works, check to see if you have any duplicate or unnecessary healthcare deductions. Also, if you have private life and disability insurance, make sure you are not paying for any extra coverage through work.

Reduce Retirement Contribution…Temporarily

Ok this one was tough to write as it pains me to even suggest anyone cut down their retirement contributions. As you probably know, Americans don’t do very well in this area. In fact only ⅓ of people are actually contributing to an employer sponsored plan. So if you are contributing something toward retirement then congratulations!

However, if you have still have credit card debt and students loans, it’s possible that you could be contributing too much to your retirement. When you’re saving for retirement in this situation, you’re basically saying that you can get a better return in the stock, bond, or other market than the interest rate on your debt. While that’s possible, there is certainly some risk and the return is not guaranteed.

Like insurance or other deduction, you may be automatically enrolled in a retirement plan at a default percentage. If you’re getting an employer match then consider contributing up to that point so you can take advantage of the “free money.” However, if you still have non-mortgage debt and are contributing beyond the match, then you may want to scale back temporarily so you can increase your take home pay. Remember, the faster you get rid of your debt, the faster you can maximize all retirement accounts.

What change can you make on your paycheck to increase your net pay?

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The Million Dollar Car

Posted on July 31, 2017 by yfpadmin

I recognize I’m not going to become popular by writing this post. We Americans love our cars and I have fallen into this trap before. We love them so much that we will even defend having them at the expense of achieving other financial goals such as paying off high interest rate debt, building an emergency fund or saving for retirement.

I’m all about safety but let’s work through the rest of this article assuming that the vast majority of vehicles we all drive each and every day are safe. More so than ever before. I’m not suggesting that you start driving a car with broken windows and the bumper falling off to save a few bucks, but let’s be honest that we have overplayed the safety card to justify the ‘need’ for a newer car. It is clearly a ‘want’ and often is one that gets in the way of the rest of our financial plan.

Now, if you have no high interest rate debt, are saving appropriately for retirement, have an emergency fund in place and are working towards achieving your other financial goals, have at it. This article is not for you. However, the vast majority of us are still in debt with high interest rate loans OR are not funding our retirement appropriately OR do not have an emergency fund in place. Maybe even all of the above. This is the group that should evaluate whether or not their car is getting in the way of the rest of their financial plan.

In a recent blog post, “My Top 10 Financial Mistakes,” #7 was buying a car I had no business buying. Now that I have made that confession, I feel I can challenge others to look at this area as well. In 2014, while Jess and I were still trying to get rid of our student loans, I bought a really nice used Lincoln MKX when I had a perfectly functioning (and paid off) Nissan Sentra with less than 50,000 miles on it. I ended up re-selling the Lincoln 6 months later and learned my lesson.

According to Edmunds.com, the average monthly payment on a new vehicle in the US is $479. If you are struggling with debt and/or getting control of your monthly expenses, this is an area I would recommend you take a look at to see if cutting back may be worth it. You won’t miss your car as much as you think you will.

If the average monthly payment for a new car is $479/month and you could get rid of (or lower) that payment, what would that mean for reaching your financial goals? It certainly would mean doing them faster. And here is the thing Jess and I found out. When you make one cut, you start looking for other areas to make further cuts. If you have high interest rate debt, this savings from lowering this monthly payment for a car could make a dent in how long you have that debt hanging around and how much interest you end up paying over the life of that loan. No debt? How about taking the savings and building up your emergency fund? No debt and already have an emergency fund in place? How about getting closer to saving 15-20% of your income each month for retirement?

If instead of having a monthly payment that is the current average for a new car ($479), what if instead you paid cash for a car every 6 years. Let’s assume that car would cost $10,000. Remember, we are going for safe and functional. That would cost you, on average, $139/month ($10,000 / 72 months). If you took the difference ($479 average payment on a new car -$139 average per month if buying a $10,000 car every 6 years = $340 savings per month) and invested that money in a mutual fund within a Roth IRA earning 6% growth per year, that would be worth:

$55,721 in 10 years
$157,097 in 20 years
$341,541 in 30 years
$677,118 in 40 years
$1,287,665 in 50 years

There it is. The potential to save more than a million dollars by strategically buying used, yet quality and safe cars over a long period of time. Is your current car worth a million dollars to you? The great thing about this example is that it would all be tax-free growth since it is within a Roth IRA.

A million dollars you didn’t have before all because you bought used cars that were not fancy, but perfectly functional and yes, safe. No matter which way you look at it (paying off debt, saving for an emergency fund or saving for retirement), that is a better financial decision than buying an expensive vehicle that is going down in value.

The sweet spot is buying a used car and paying cash for that car. This will certainly go against the norm as 86% of all new cars and 55% of used cars have financing (Experian 2015 4^th Quarter Report). One of my good friends role modeled this for me. Let me tell you how good it feels to pay cash for a car and walk off the lot without a monthly payment.

Now, people will argue that it is stupid to pay cash for a car when you can get a low interest rate loan. Two points to counter that argument. First, most used car loans are not as attractive as new car loans. On used cars, I have typically found interest rates in the 3-5% with good credit. The latest Experian Report shows an average new car loan rate of 4.63% and an average used car loan rate of 8.78%. Second, I can make a case that if you pay cash for a car, you will likely buy down significantly and ultimately save in the long term. It is easy to stomach buying a $25,000 car when the payments are divided over 60 or more months. It is a lot harder to throw down $25,000 at once. Therefore, you probably won’t and will save some money by buying a less expensive vehicle.

Why used? Here is an example to emphasize how much the value of a car goes down as soon as you drive it off the lot. Cars are a terrible asset only going down in value (with the exception of some collectible cars).

Let’s look at a new 2016 Nissan Altima 2.5 S. Very nice car. The MSRP is $22,900. We know no one ever pays MSRP so let’s say you walk out the door with the car for $22,000 after taxes. In contrast, on www.cars.com within 30 minutes of my house, I can find a 2015 Nissan Altima 2.5 S with less than 20,000 miles for $14,500. If you were paying cash, you could get it for even less than that. Almost $8,000 saved by being OK with not driving something new off the lot and letting someone else put a few miles on it before you do.

If you are worried about driving a high mileage car, there are lots of cars you can get that are quality, safe vehicles under 50,000 miles for less than $10,000. Take a look on www.cars.com. I think the sweet spot is finding a good car to pay cash for between $5,000-$10,000.

It took Jess and I a while to get ahead of our car payments enough to be able to pay cash for the next one but we were able to do this for our last two car purchases. Even better yet would be to pay cash for a car and then start saving on a monthly basis for a future car. We aren’t there yet but are hoping to continue working on our budget to make this a reality in the next year. For example, if we think we may need a new car in 4 years (based on our current mileage and durability of the car) and we want to spend around $10,000 for that car, we could start saving $208/month. After those 4 years, we would be in a position to purchase that car and there would be no surprises!

Your Financial Homework: Is your car payment getting in the way of achieving your other financial goals? Do you have an opportunity to sell your current car and buy down so you can free up some money per month to pay extra on your loans, build up an emergency fund or increase your retirement savings?

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One pharmacist’s experience with cutting his house payment in half

Posted on June 19, 2017 by yfpadmin

This post was written by Justin Cole, PharmD, BCPS. He is a 2006 graduate of Ohio Northern University. Dr. Cole recently accepted an appointment as Vice Chair and Assistant Professor of Pharmacy Practice at the Cedarville University School of Pharmacy. Over the previous 10 years, he served in various roles at Nationwide Children’s Hospital in Columbus, Ohio, where he continues to practice. Professionally, he is passionate about pediatrics, pharmacy leadership development, and medical care of underserved populations. You can follow him on Twitter for content related to these passions. He and his wife, Michelle, have three children and enjoy music, hiking, biking, and just about anything done outdoors. If you have any questions about this article, feel free to contact Justin directly at [email protected].

For most of us, a home is the largest purchase we will make in a lifetime. As a result, our homes are a symbol of status and wealth. We are slaves to comparison, defining ourselves by the number of square feet we occupy or the status of our neighborhood.

Pharmacists may also feel pressure to buy a “bigger and better” home similar to or better than the ones owned by our parents. These factors can lead to taking on mortgages that hinder us from achieving other financial goals. We give ourselves little wiggle room for changes in our financial situation and fail to account for all the costs of home ownership. Mortgage delinquency rates, even though improved today, remind us of this. Five percent of homeowners in the US are at least 30 days behind on their mortgage payment, and more than two percent are at least 90 days late (Ref: Forbes, 2017).

I felt many of these home-buying pressures shortly after graduating from pharmacy school. After having our apartment broken into, my wife and I decided to leave renting behind to buy our first home in a nice, safe neighborhood. We desired to have children in the future, so we looked for homes that we felt would be ideal for a family. During our first showing, we walked into the home and quickly felt it was our “forever home.” We ended up purchasing the beautiful four-bedroom home in a developing area. We knew it was a stretch for us to afford at the time, but we could not imagine passing up the opportunity.

To make it work, we ended up putting 10% down at closing and chose to take a second smaller mortgage at a higher interest rate for the additional 10% of the down payment (which I would never recommend doing). We paid off this second mortgage within a year by trimming costs in other parts of our budget. Over the next few years, we were able to refinance our home and were on track to pay off our mortgage years early. We felt incredibly blessed with our house and our three children that made it a home. We had hosted family gatherings, hosted a small group for our church, developed great relationships with neighbors, and made many fond memories in our home. It seemed that despite some of our financial decisions, things were working out well.

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After 10 years in hospital practice as a clinical pharmacist and coordinator, I accepted an academic appointment at a school of pharmacy. With this career change, we decided to relocate and were suddenly in the housing market again. During our search for a new home, we initially went into the process thinking of making a lateral move into a similar-sized home. After all, we were comfortable in our previous home and enjoyed the space it provided. We put offers on two similar-sized homes, but neither worked out. Because homes were selling quickly at the time, we had to rethink our strategy. My wife and I decided to consider homes that were smaller than the one we previously lived in.

In the end, we moved to a wonderful home that was less than half the size and cost of our previous home.

I did not fully realize the impact that home ownership had on our overall financial picture until our move. Through the process, we have learned a lot about ourselves and experienced many unexpected freedoms through downsizing.

Freedom to pay down debt. We were already on a path toward financial freedom, but much of my income was going toward our mortgage payment each month. Moving to a smaller home allowed us to pay off all of our non-mortgage debt including my student loans and an auto loan for a used minivan. Without the move, it would have taken us many more years to achieve debt freedom despite our best planning!

Freedom to save, spend, and give. We desire to be good stewards of all that we are given. Moving to a smaller home allowed us to bolster our emergency fund and gave us the flexibility to save more for retirement. Shortly after moving and paying off our non-mortgage debt, we also decided to take a family vacation that previously seemed like a distant dream. Most importantly, we were in a position to be more generous. While we had always budgeted to give to our church, mission work, and a handful of non-profit organizations we supported, we found ourselves with the ability to meet other needs around us.

Freedom from anxiety. It still pains me to admit this, but I did not realize how much time and energy I spent worrying about our financial situation until after the move. While we weren’t living paycheck to paycheck and had an emergency fund, I still spent a lot of time dissecting our finances, much of which went toward our mortgage payment. After the move, it was as if a burden had been lifted off our shoulders. I found myself thinking a lot less about our financial situation, and my sleep even improved as a result. I had never thought of myself as an anxious person but realized that concerning finances I was. Sometimes it takes a change in circumstances to reveal faults in our own mindset.

Freedom from the desire for more. No one likes empty rooms. The bigger the house, the more you have to buy to fill it. In moving to a smaller home, we began to reevaluate what we really need. We have sold some items, donated others to second-hand stores, given items away, and even trashed things that we had been holding onto for too long. For purchases, we now consider space carefully and evaluate the real need for something shiny and new. In essence, we have learned to live with contentment. We are now more debt-averse than ever before. Our spending habits have changed; we now spend less on possessions and more on experiences that our family can turn into memories.

While living below your means makes complete sense, it took an unexpected change to help us truly realize its blessings. We can confidently assert that freedom comes from making financial independence a higher priority than status symbols. While this may not be the last home we buy, we are content with all of the unexpected blessings that we have through it, and are prepared to make solid financial decisions because of the lessons we have learned.

So what is the way forward for someone who desires to achieve financial freedom and purchase a home? How do you determine what home you need rather than the home you want? Can you have both? Look for more posts this summer related to how home buying fits into your overall financial plan!

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5 Lessons My Swagger Wagon Taught Me

Posted on October 15, 2016October 27, 2022 by yfpadmin

Approximately 5 years ago, just before my first son Samuel was born, Jess and I took the plunge into minivan land. Yes, we did it.

In those moments when the kids are screaming, crushed Cheerios are all over the floor, the dog is whining and we feel like we have lost every ounce of cool we once had, I like to imagine that I am the dad in the Toyota Swagger Wagon video. I know I’m not, but please, don’t burst my bubble.

“It’s the Swagger Wagon. I got the pride in my ride.”

Anyways, I have to admit that minivans are pretty awesome. Lots of cargo space, easy in and easy out and yes, very comfy indeed. In fact, Episode 356 of the Radical Personal Finance podcast dedicated a whole episode to why everyone should consider a minivan, regardless of having kids. You should check it out. His analysis is very detailed and entertaining.

If you have been following this blog, you know by now that the sliding door on my 2005 Honda Odyssey fell off this summer. I wrote about this in an article talking about whether or not you should save an emergency fund within a Roth IRA. My friend Jonny helped save the day, but nonetheless, it was time for Jess and I to look for a new Swagger Wagon.

After much searching, we landed on a 2009 Honda Odyssey EX-L. It is pretty sweet. The DVD player has surround sound that will make any kid hush for an hour or two if you keep them happy with some snacks along the way. The leather seating is smooth, the rear lift gate is clutch when you are trying to hold a kid and get groceries out of the back and the seats are extra comfy. It has some Swagger. For real.

As I reflect back on this purchase, there are 5 lessons about buying and owning a car that were reinforced for me throughout this buying process. Here they are.

Lesson #1 – Cash is king.

If you have ever paid cash for a car, you will know what I am talking about here. It is a rush. I don’t know what the rush of smoking cigarettes feels like, but I’m sure that those same dopamine reward pathways were activated for me when I bought that car. Walking away from a car dealership without a car payment is an amazing feeling. There are two main reasons I think cash is king when it comes to buying a used car. First, Jess and I have done this three times now and it certainly has given us a leg up in the negotiation process with the dealer. Second, while interest rates on new cars continue to be historically low, those low interest rates don’t carry over to a used car. According to current rates listed by Bankrate, used car interest rates can be upwards of 5% with good credit.

Lesson #2 – Patience pays off (literally).

Jess and I had been talking about buying a new minivan for over a year after we had a couple issues here and there with our old 2005 Odyssey. Despite some well-intended heckling from our family about the old minivan, the issues were not mechanical and were not urgent. Therefore, we kept piling away the cash so we could wait to find the best value instead of having to prematurely react in the moment when it would became urgent. The result was searching for months and finally finding the van with the best deal for the mileage and amenities.

When you are not in an urgent situation to buy, it is easy to say no when the dealer is not willing to negotiate down to the price you want. You are in the driver’s seat. By not rushing, I estimate we saved at least $1,000 – $2,000.

Lesson #3 – An educated offer makes the negotiation easy.

Negotiating with a used car dealer is about as painful as it gets. There is no doubt that it is a game you have to play if you want a good price on a used car.

When I bought our newest minivan, Jess and I had looked at every Honda Odyssey in our price range within a 100-mile radius of where we live. In addition, we had the Kelley Blue Book values ready and had purchased the Car Fax report. Based on this information, we had completed our own analysis of what we thought the car was worth and what we were willing to pay.

I started the negotiation with that in mind and after clearly communicating that price and how I arrived to that number, it took almost all of the back and forth negotiations out of the game. They tried to counter and I said ‘no thanks’ based on the price we had in mind. I let them know we weren’t in a rush to buy and if it worked out, great, if not, that was okay too.

I got a call back the next day accepting our original offer.

Lesson #4 – A used car is superior.

We all know that new cars are a bad investment that depreciate in value the second you drive them off the lot. It is wise to be putting money in assets that grow in value (investments, real estate, etc.) rather than those that lose value (e.g., cars). On the other hand, it is so hard to say no to a new car. There are few things like the smell and feel of a new car.

If you can have the discipline to say no to the new car, it will pay off.

Carfax estimates that a car loses approximately 10% of its value the minute you drive it off the lot. Within the first 5 years, that car will lose approximately 60% of its value. Why not let someone else do the driving that loses the value and you can pick up from there?

Here are some examples of price differences between new (base MSRP price) and good (reliable and safe) used cars at the time of writing this article:

Example 1 (Honda Odyssey)

New 2016 Honda Odyssey EX-L = $36,200

Used 2014 Honda Odyssey EX-L with 38,000 miles = $19,995

Price difference = $16,205 for 2 years and 38,000 miles (44% savings)

Example 2 (Nissan Altima)

New 2017 Nissan Altima 2.5 S = $22,900

Used 2014 Nissan Altima 2.5 S with 35,000 miles = $12,300

Price difference = $10,600 for 3 years and 35,000 miles (46% savings)

Example 3 (Ford Fusion)

New 2017 Ford Fusion SE = $23,365

Used 2014 Ford Fusion SE with 47,000 miles = $10,900

Price difference = $12,465 for 3 years and 47,000 miles (53% savings)

Lesson #5 – Do the math (leasing vs. owning).

Lease deals can seem very attractive if you are only looking at the monthly payment. With few exceptions, I would argue a good used car is a better deal in the long run. If you are willing to drive something used, give up a little bit of style and swag, hold onto it for the long run, deal with some repairs here and there and have an emergency fund in place to cover those repairs, the used car generally wins.

So, how do you know which is better? Purchasing a used car or leasing a new car?

Do the math on what you will pay for a leased car per month plus the initial down payment and compare that to your total purchase price for a used car. For the leased new car, it probably isn’t a bad idea to include a little bit extra for those fees you may have to pay when turning in the car for some dings or overage on miles. For the used car, it probably isn’t a bad idea to include some extra money for a few repairs you may have to take care of along the way.

Let’s look at a lease example for a Honda Odyssey based on their current offers. They are offering a 2016 Honda Odyssey LX for $259/month for 36 months with $3,199 due at signing. This rate is for those that qualify based on a good credit score. Others may have a higher rate without good credit. Total payments at the end of 36 months would equal $12,523 ($3,199 due at signing plus 36 months of payments at $259/month). This of course assumes no additional money due when turning the car in for dings and no overage on the 12,000 miles allowed per year.

Instead of this lease, a quick search on www.cars.com reveals that you could buy a 2011 Honda Odyssey EX (a model up from the LX) with 60,000 miles for approximately $12,000. So, yes, you are giving up the features and feeling of a new car but for the same total investment, you own the vehicle when it all said and done. After 36 months, it might appear to be a financial wash but it is far from it because you own the car and could turn around and sell it or hold onto it without making any monthly car payments. This is where the savings comes in! Every month that goes by after 36 months without a car payment is winning! Even after factoring in some cash for repairs here and there, it is a better deal.

Your Financial Homework

So, there it is. My lessons learned from purchasing my second Swagger Wagon. According to Experian, the average car payment on a new vehicle in the US is $493 per month for those that own and $412 per month for those that lease. If you are trying to make progress on saving for retirement, paying off debt, saving for an emergency fund or buying a house, a big car payment can be a significant barrier in the way of you making progress on one or more of those goals.

Is it time to make a switch to a good, reliable used car? If so, start a monthly savings plan within your current budget to save up enough to pay cash for that car. Once you go used with cash, you won’t go back.

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When Budgeting Isn’t Your Thing

Posted on May 7, 2016 by yfpadmin

In celebration of Mother’s Day, my wife, Jessica Ulbrich, was kind enough to share her thoughts about our financial journey. As many of you know, she is mother to our 3 boys (Samuel, Everett and Levi) and I am forever grateful that they get to learn from her each and every day. As you will read, she chose to focus on budgeting and I am glad she did. This is tough area and not fun by any stretch of the imagination. She has great insight to share and I hope you will enjoy this post as much as I did. If you have any questions for her about this article, you can contact her directly at [email protected]

Budgeting.

Ugh.

It might as well have been a four-letter word in our home.

It felt like someone had taken all of the fun out of living – now with each purchase having to be diligently accounted for, it honestly felt like I was trapped and reveled that we couldn’t keep living as blindly as we were living. At one point, we were outspending our monthly income! While we weren’t living extravagantly, we were living irresponsibly and we needed to do something about it.

And that’s where we started talking about budgeting. When Tim and I set out to become debt-free, the budget was the necessary and essential tool toward achieving that goal. I can still remember sitting down with Tim and pulling up our bank account information online, grabbing spiral notebook and pen and starting to outline our monthly expenses for the first time. Only one of us was excited about this new journey…and it wasn’t me.

Tim looked at the budget as freedom. By knowing and accounting for all of our monthly expenses, we could start to live more. I, on the other hand, looked at it as chains, each envelope seemed dismally short-funded and there was not much room for “fun.”

Can you relate? Maybe you’re feeling the same way. Or maybe you have a spouse that doesn’t like sitting down to talk numbers. Certainly a lot of people must feel that same way as only 52% of Americans earn more than they spend.

After following the budget for a couple years and realizing some of our financial goals, here is how I went from hating the budget to fully embracing all the freedom it could truly provide:

#1 – Appealing to my heart.

Tim and I have three boys. Being a mom is such a gift. I love my role and responsibility as mom and Tim knows this very well about me. So, to help bring me on board he tapped into my love for motherhood to help explain why he wanted to be debt-free and how the budget would help us do that.

Here’s how he communicated it to me:

By living on a budget, we could get out debt faster. Getting out of debt would allow not only for more discretionary income that we could use for our boys, but also allow us to set crazy dreams and goals for them.

Before setting the single goal of becoming debt free, we had multiple goals we were pursuing simultaneously, including funding a college account for each boy. When we started honing in on eliminating debt, we temporarily put a hold on contributions to their college accounts to put all extra income toward debt.

Staying singularly focused on getting out of debt so that we could start helping our boys with college again was one way that I was absolutely willing to stay on track until we were debt free. It was also the first time that I saw our budget the way Tim saw it: a tool toward freedom. Our debt chained us down and prevented us from one opportunity we wanted to gift our children with. The budget was the path to cutting the chains and putting our money where we really wished it could go instead.

Maybe for you isn’t not about college accounts, but what is it that your debt is preventing you from doing? You could probably put down a list of things quickly! What do you dream about doing? Do you want to travel more? Do you want to give more? Do you or your spouse to be able to stay at home with your children? Whatever your goal is, write it down and it will help you stay committed to your budget.

#2 – Budget for some fun, too.

I recently had a conversation with an individual who said that she would love to get out of debt, but didn’t want to sacrifice all the things that she enjoyed. I hear you, it’s really hard (see my initial feelings up above!)

Each month, Tim and I had our own personal envelopes that we could use any way we desired. We could use it to buy new clothes or books (we love Amazon!) get a coffee or dinner out with friends, etc. We also created separate envelopes for date nights, family nights and an envelope for clothing/items for our boys.

At first, there wasn’t much put into each envelope, but the fact that we had dollars earmarked for those specific “fun” items was critical. It meant that we could still do some of things we enjoyed, but this time it was all budgeting and accounted for and would not derail our ultimate goal of eliminating debt.

It also meant our communication on spending was streamlined. So, if I wanted to use my envelope money on another pair of shoes or Tim wanted to use his on yet ANOTHER financial book (love you so much, Tim!), those decisions were individual and we trusted the other to use their monthly allowance as they saw appropriate. No more arguing over personal purchases.

#3 – Give yourself grace and revisit your budget often.

It took Tim and I several months before we finally set realistic numbers for our grocery category. At first, it was frustrating to me that we ran in the “red” on that category for so many months. Since we had never tracked our spending in that area before, we arbitrarily set a number. After months of monitoring receipts and spending, we could finally set an accurate number that we can work within every month. But I can say that it was disappointing when it felt like the budget wasn’t “working.”

It’s important to revisit the budget monthly and to talk about it weekly. Sometimes we have more birthdays in a month so the “gift” category gets bumped up. Some months we are hosting more, so we put some extra in the “grocery” category. Doing this allows us to stay on the same page and plan for where our dollars are going. We have also found that meeting weekly to review expenses helps us catch areas where we are overspending and then we can do a mid-month adjustment to make sure we stay on track.

#4 – Get help and encouragement.

I’m grateful that Tim is passionate and gifted in this area for our household. His commitment and expression of this goal was essential to keeping us on track, as I would have derailed our plan many times over by now. There is no way I would have been disciplined enough to continue to work within our budget if I hadn’t had Tim’s leadership.

It is so important to work together with your partner on this goal. And if you’re single working on a budget, find someone that can help you stay committed to your goal and hold you accountable on your journey.

#5 – Love the budget because it isn’t going away.

I wish I could say that now that we are debt-free that we no longer have to work within a budget. But even on the other side of the journey, we still have new goals to work toward and the budget is once again the tool toward achieving them. Even thought I am not passionate about budgeting, I am very passionate about the freedom living within a budget has provided for us and that is why I will stay committed to it.

After we paid our final college loan payment, we did go back and rework our budget to put a little bit more money in some of the “fun” envelopes I mentioned earlier and generally there is a bit more breathing room. But I know even if we had millions of dollars, we would still be committed to the budget and our goals would just be fueled by bigger and greater dreams!

Financial Homework:

So which kind of person are you – someone who loves the numbers or someone who doesn’t?

What if you love working with numbers and creating the budget and your partner doesn’t? What ways can you appeal to their heart? Find ways to make the journey to your goal realistic and still “fun” along the way.

What if you’re the one resisting the budget, but your partner is on board? Take time to express why this is difficult and how your partner can help you stay motivated on your shared journey.

If you’re working on a household as an individual, who can you bring in around you to encourage you and help you stay on track as your reach your goals? Find someone that will help you stay committed to your plan and check in with you regularly.

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4 Easy Ways to Cut Monthly Expenses

Posted on March 17, 2016 by yfpadmin

Finding ways to cut monthly expenses is never a fun discussion. With that being said, cutting here and there certainly adds up.

When Jess and I were zeroed in on getting out of debt, we were looking for all kinds of areas where we could cut our expenses. Besides the obvious (and very important) step of setting a budget to control your day-to-day purchases, here are 5 easy ways to cut your monthly expenses. I recognize these aren’t for everyone. These are what worked for us. Please comment at the end to share some others that have worked for you.

Cutting the cord

Not a fun one to embrace but certainly something that can make a noticeable difference. This is easier than ever with high definition antennas, streaming services such as Netflix and Hulu, and now even live TV options that are independent of the cable and dish companies.

Prior to making the cut, our cable, Internet and Netflix bills added up to approximately $148/month. When we cut the cable, we decided to add a high definition antenna (one time purchase of $30 from Amazon) and Sling TV (monthly fee of $20). The high definition antenna gives us access to the major networks (e.g., NBC, CBS, etc.) and several PBS stations. Using the following link, you can check the reception you are likely to get with a HD antenna before you make the purchase. The Sling TV provides access to many popular TV channels (e.g., ESPN, HGTV, Food Network, CNN, etc.) via an Internet connection.

With the cuts, our current monthly expenses are approximately $75 for a savings of $73/month. Does the high definition antenna and Sling TV serve as a perfect replacement to cable? No, but it is certainly adequate. There are times when the signal will go in and out depending on the placement of the antenna or the weather outside. With the Sling TV, just like you may have streaming issues from time to time with services such as Netflix, the same applies here.

Auto insurance re-quote

Ok, full transparency here. I felt dumb on this one. A few years back I called our auto insurance broker and asked for an updated quote since I felt like our auto insurance was higher than it should be. We still had two cars and nothing changed except we were a few years older. That updated quote led to a new policy with the same coverage.

In 2009, we were paying $146/month. We are now paying $85/month. A savings of $61/month.

While I haven’t explored this yet with our auto insurance broker, I have heard others mention that paying a lump sum once or twice a year rather than monthly payments is a way to save some additional dollars on car insurance.

Refinancing the home loan

When we bought our house in 2009 at a 5% interest rate, we were told how good rates were at the time. As rates continued to dip for the next few years down to 3.75% (and even lower of 15-year fixed mortgages), we asked our bank about refinancing. So how do you know if refinancing is worth it? Let’s look at an example assuming you bought a house in 2010 for $200,000 at a 30-year fixed mortgage at 5%.

Today, you could finance a 30-year fixed mortgage near 3.7%. Not too bad. Seems like a pretty simple decision but two major factors to consider are (1) how much are the closing fees to refinance and (2) how long do you project to be in that home. If you can answer those two questions with confidence, you can figure out whether or not it is worth your time and savings. For our example, let’s assume you still owe $190,000 on the principal since a mortgage is front loaded with interest.

If we run this scenario through using a refinance calculator assuming closing fees of $6,000, this refinance would result in a payment that is $199 less per month. Since the closing fees were $6,000, if we save $199/month it will take 31 months until the amount we saved from lower monthly payments equals the amount we paid in refinance fees (aka breakeven). After 31 months, you would then be saving $199/month.

That is where the “how long do you project to be in that home” question comes into play. If you may be moving in a short period of time (or that is unknown) it may not be the best decision. The smaller the difference in the interest rate and/or the higher the closing fees, the longer it will take you to breakeven. For Jess and I, we were able to cut down our monthly payment by approximately $150/month through refinancing.

Budgeting gifts for family and friends

Whether it is for birthdays or holidays, this was one area we felt like we didn’t have a good handle on and was fluctuating significantly. Not too long ago, Jess and I wrote out every gift we could think of for the year, set a budget for each gift and then divided that number by 12. That became the amount we saved each month and when the gift expense came up, we were ready. Tip: If you celebrate Christmas and if that is typically a big expense for you, start this sometime in the early New Year so you can have the majority of the year for that to build up. It goes without saying that planning for these expenses (after all, they shouldn’t be a surprise!) will minimize stress and keep the spending within control. I estimate this has saved us a few hundred dollars a year or $25/month.

So there it is, an estimated savings of approximately $309 / month by making a change here and there. That adds up over the course of a year. More importantly, if you are trying to pay off debt, this has a significant psychological momentum that can expedite your ability to get out of debt or achieve whatever financial goal you are trying to achieve. You make a cut here or there and it is a small win that gives you some serious momentum towards achieving that goal. You will find yourself looking for more cuts.

Remember, this ~$300/month doesn’t include the savings that occurred from budgeting the discretionary expenses that happen every day (e.g., going out to eat, clothing, coffee, etc.) Those are the ones that add up the fastest.

Financial Homework: Are any of the above areas you might be able to take advantage of? If so, take a first step in exploring one and make it a reality by the end of this month. Share your progress by leaving a comment at the end of this post or by sending us an e-mail me at [email protected]

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Why Having an Emergency Fund Matters

Posted on January 25, 2016 by yfpadmin

At the time of writing this article, I was sitting in a Honda dealership getting some service done on my 2005 Honda Odyssey that has just over 150,000 miles on it. Jess (my wife) and I bought this used car back in 2011 right before my oldest son, Samuel, was born. It had just under 70,000 miles logged and we have beat it up pretty good with our many trips to Toledo and New York to see family. Lots of good memories in this car.

The license plate lights were out and the water guards underneath the van were falling off. I also asked them to take a look at the brakes as Jess noticed they seemed a bit shaky. I had come in that day hoping to leave with a bill for $100 or less.

Come to find out, the rear brakes were shot and needed replaced and the front ones weren’t too far off. The total charges were going to be over $700. It was time to dip into the emergency fund.

Why does having an emergency fund matter? Peace of mind. Peace of mind in knowing that the emergency isn’t going to blow up and derail our monthly budget and peace of mind knowing we can keep moving forward with our plan to achieve our short and long-term financial goals.

Am I annoyed that I have to fork over more than $700 to repair the minivan? Of course I am! Who wouldn’t be? Is it going to ruin my day? No, with the exception that I can’t help think what that $700 would be worth in 25 years if I were able to invest it rather than hand it over to the Honda dealer. I’ll get over that (eventually). Is it going to derail Jess and I from achieving our long-term goals? Absolutely not. Is it going to cause a big fight between Jess and I? Nope. We prepared for moments like this so we can write the check, work to build back up the emergency fund and move on.

I am confident that achieving long-term financial goals requires having some barriers between you and life’s emergencies to allow you to continue to pursue those goals when life creeps up on you.

Let’s face it. An unexpected expense is likely to happen so why not plan for it? According a recent Bankrate survey conducted, 4 of 10 respondents or their immediate family member experienced one or more major unexpected expense in the last year. Who knows what it could be? An unexpected root canal, emergency surgery for your pet, transmission gone bad, or a health care bill from a high deductible plan. The list could go on and on. The point is we can’t predict the unexpected event but we can plan to be ready financially when it does happen.

What should an emergency fund look like? A good rule of thumb is saving up 3-6 months of expenses (not income) in a place that is readily accessible (and separate from your other account where expenses are made) such as a simple savings account or money market savings account. If your monthly income and expenses are the same, it is time to get serious about that budget!

Don’t get too excited about the annual percentage yield (aka how much interest you will earn per year) on a simple savings or money market account. A quick search online at the time of this post showed savings accounts having rates hovering around 1% and money market savings accounts around 0.75-1%. If you are looking for an account, you can go to Bankrate to search for the best rates. You should also check with the bank you are already using to see if their rates are competitive. Save any excitement for returns to your retirement savings. The goal here is just security and protecting your financial plan.

Three tips to consider when building your emergency fund

Determine if you want to have 3 months of expenses, 6 months of expenses or somewhere in-between. Two main factors that impact this decision include your money personality and your ability to get extra cash if needed. First, and most importantly, what is your personality when it comes to money? Can you sleep better at night knowing you have an extra cushion in the event of an emergency? Where applicable, make sure to take your spouse’s personality into account when making this decision. I always suggest that if one partner wants to be more conservative (6 months of savings) and the other more aggressive (only 3 months), it is best to err on the side of 6 months. The second major factor has to do with your ability to get extra cash quickly in the event of an emergency. For example, in the event of a major health crisis or a job loss, can you or your spouse pick up some extra money through working extra shifts to avoid having to borrow to cover the expense? If yes, maybe you err towards the 3-month end of savings. Thankfully, pharmacists are currently in a good spot to pick up some extra work or a new job.
If you are not yet at your desired amount for an emergency fund, make this a budget item to pay yourself first rather than trying to scrape up what is left afterwards. Obviously you want to build this up as fast as you possibly can but if you are several thousand dollars off, determine what that difference is and divide it by 12 to make a plan to save that much per month over the next year to catch-up. For example, if you have $8,000 saved and determine that you need closer to $12,000, take the difference and divide it by 12. The result would be saving $333 per month for 1 year to have a fully funded emergency fund. If you find yourself struggling with how to make that amount a part of your monthly budget, you can extend that past 12 months or better yet, look for other areas to cut so it can fit.
Re-evaluate the amount needed in your emergency fund every year for significant changes that may alter how much you want to have saved. For example, if you purchase a home, have a baby or move from residency into your first job, your 3 or 6-month amount needs to be adjusted.

Here’s the fun part. As you tighten up your budget and your expenses go down, the amount needed in your emergency fund is less and you can get on to focusing on other financial goals (retirement, giving, travel, etc.) faster. That is good motivation to get your monthly expenses down.

Financial Homework (your first one!): Determine if you have a fully funded emergency fund and if not, outline a plan to get there.

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1. Create Solid Financial Goals

2. Develop a Budget

3. Set up an Emergency Fund

4. Eliminate Your Credit Card Debt

5. Calculate and Track Your Net Worth

6. Get Long Term Disability Insurance

7. Develop a Student Loan Payoff Strategy

8. Start investing in your company’s 401(k), 403(b), or TSP

9. Get Liability Insurance

10. Get Term Life Insurance

11. Set up a Health Savings Account (HSA)

12. Start Contributing to an IRA

13. Get a Will in Place

14. Get Clarity on How to Get Raises or Promotions

15. Set Your Withholdings to Break Even

16. Consider Hiring a Financial Planner

17. Start Educating Yourself

18. Consider a Side Hustle

19. Set up Systems to Avoid Lifestyle Creep

20. Connect with the Your Financial Pharmacist Facebook Group

21. Use a high-yield savings account or money market account for big purchases

Financial Planning for Pharmacists

You Need a Budget

Choosing the Best Budget that Works

5 Steps to the Zero-Based Budget

YFP Podcast Episode 28

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#1 – Appealing to my heart.

#2 – Budget for some fun, too.

#3 – Give yourself grace and revisit your budget often.

#4 – Get help and encouragement.

#5 – Love the budget because it isn’t going away.

Financial Homework:

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