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Personal Finance

15 warning signs you're headed for financial heartbreak

February 10, 2016

By Dan Rafter | Money Rates Columnist

You never want to hear your significant other is saddled with massive credit card debt. But it's better to hear this when you're still planning dates than coming back from your honeymoon.

Couples too rarely talk about money. This is where too many people falter, said Josh Nelson, CEO and founder of Keystone Financial Services in Loveland, Colorado.

"People often don't want to talk about money when they are in the honeymoon phase of their relationships," Nelson says. "They gloss over things that they should be identifying as serious issues. The reality is, these money issues are something you need to work out and come to an agreement on. You can't pretend the issues aren't there. That isn't healthy for your relationship."

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Here are signs your relationship could be headed for heartbreak if you don't deal with them:

1. Credit card is declined

Has your significant other had a credit card declined at a restaurant? That's usually a bad sign. Have you noticed that the person you're dating buys everything -- even inexpensive items such as morning coffees -- with a credit card? These hints could be signs your significant other racked up loads of credit card debt.

2. Your date avoids any talk about debt

When you ask them about credit card debt, your date avoids the question or never provides even a ballpark figure. That's a good sign that your date is embarrassed by the size of debt.

3. They lie about credit card debt

And you should ask the person you're dating about credit card debt as the relationship grows more serious, said Phil Ash, CEO and founder of Washington, D.C.-based Baton Investing.

"You don't want to start a relationship off on the wrong foot by lying about debt," Ash says. "I would hope that would get disclosed. You have to look to your partner to help you through your debt. Taking care of debt is a manageable situation."

4. They have a poor credit score

Ash recommends, too, that couples share their three-digit FICO credit scores with each other, too. There's a good reason for this: If you get married to someone with a weak credit score, you might struggle to qualify for a mortgage loan.

5. You'll get rejected for a loan

Both you and your significant other have three FICO scores, one each by the national credit bureaus of Experian, Equifax and TransUnion. When you and your significant other apply for a loan together, your lender will rely on your credit scores to determine how likely you are to pay back your loan. If your score is low, you'll either get rejected for your loan or be hit with sky-high interest rates.

6. You pay for high-interest loans

And here's the catch when you apply for a loan jointly: Your lender will only use the middle credit score of the applicant with the lowest scores. So, if your middle score is a high 740 and your significant other's is a far-lower 620, your lender will toss your score and rely solely on your significant other's low one. This could mean a lot of interest if you even get a loan at all.

7. They won't discuss their credit score

It's not easy to determine if your partner has a low credit score. If you see that your significant other gets rejected for, say, an auto loan, that's one way to know. But the best way? You'll have to ask. If your partner won't disclose this information, that's a bad sign.

8. You save, they spend

Do you believe in saving money? Then you might struggle in a serious relationship with a big spender. Unfortunately, too few couples talk about their savings goals, said Malcolm Owen, financial advisor and managing director of the Atlanta office of United Capital.

"You might say, 'If we don't have our savings at a certain amount, we'll forgo a vacation this year,'" Owen says. "That might be shocking for the person you are dating. When you aren't married, and you haven't combined your finances yet, this might not be something you've totally thought through yet. But you do need to talk about this."

9. Your financial priorities differ

It's OK for one person in a relationship to be more of a free spender. But a relationship can face challenges when couples have vastly different views on the importance of savings, which is why it's so important to discuss before a relationship gets too far along, Owen said.

10. They go beyond their means

There are plenty of signs to look for if you're worried that your partner isn't interested in savings: People uninterested in saving often spend too much for their salaries. And they might treat every night as an excuse for a splurge, whether it's an expensive dinner or an unexpected weekend trip to a lakeside cottage.

11. They're unprepared for financial emergencies

As a result of paying more than they have in savings, they might be totally unprepared for emergencies. They might panic when an unexpected expense -- such as car repairs -- pops up.

12. They have a low-paying job and sticks with it

When couples start dating, it's not unusual for both members to have low-paying jobs. But trouble can arise if you have dreams of moving up the career ladder to better-paying work and your partner is happy making just above minimum wage.

Ash said that couples need to talk about their career aspirations to avoid arguments later in the relationship. You might might not be happy logging 80-hour workweeks if your significant other prefers snoozing on the couch instead of building a more lucrative career.

13. They're not career-driven

Looking for signs that your partner isn't focused on a career? You'll have to ask about future plans. If your significant other has none when it comes to building a better income? The odds are good that this partner isn't as career-driven as you might be.

14. There's no talk about retirement

Retirement can seem a long way off when you're young. But couples who start planning for it early have a far better chance of enjoying a happy and financially secure one. If your significant other never wants to talk about saving for retirement -- maybe constantly telling you that you have plenty of time for that -- this could be a warning sign that you and your partner aren't financially compatible.

15. They spend money from joint accounts without telling you

It's far easier to save for retirement if you start socking away a little bit of money at an early age. If your significant other won't accept this and prefers to spend all the dollars in your joint accounts? It's time for a serious financial chat.

"Every couple struggles with talking about finances to some extent," Nelson says. "But financial issues get more complicated as time goes on. You can't put off these talks."

Comment: Have you been in a relationship where you weren't financially compatible? 

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Fed January update: Why did Fed delay further bank rate hike?

January 27, 2016

| MoneyRates.com Senior Financial Analyst, CFA

The Federal Reserve finds itself torn between responding to volatility in the stock market and acting on positive economic data in its decision whether or not to raise interest rates. It is something of a test of wills, and at its latest meeting in January, the Fed postponed the test.

The Fed decided to stand firm with the interest rate policy set in mid-December 2015. Thus, it is neither moving forward with what is expected to be a series of upward interest rate moves, nor capitulating to a temperamental stock market with a surprise rate cut.

The good vs. bad news in the Fed's January statement

In its Jan. 27 statement, the Fed described a good news/bad news scenario for the U.S. economy. On the good news side: There is continued improvement in the job market, increased fixed investment by businesses and growth in household spending. On the negative side: Inflation remains well below normal, exports have been sluggish and inventory investments have been light.

Given this mixed bag, the Fed decided to keep the federal funds rate within the range of 0.25 to 0.50 percent set in December. It also cautions that this rate is likely to remain below normal levels for a long time. This amounts to continuing a monetary policy that may stimulate the economy despite the fact that the economy is several years into a recovery. While not in robust health, the economy is hardly on its deathbed either.

There are some costs to this caution. Keeping bank rates low limits monetary policy options should the economy slip into another recession, and also robs income investors of anything approaching a normal return.

Fed exercises caution after stock market volatility

One explanation for the Fed's abundance of caution might be the tempestuous start to the year for the U.S. stock market. As the Fed convened, stocks were down some 7 percent since the end of 2015. Though the Fed has made it clear that it expects to make a series of rate hikes over time, another step in that series now might have thrown the stock market into new hysterics.

Stock investors have become addicted to low interest rates. There was even some speculation in recent days about a new round of quantitative easing (a monetary policy that results in increased money supply and low interest rates) being in the offing, despite the fact that the job and housing markets continue to recover nicely. While the Fed did not indulge the market with any such new economic stimulus, it may also have been unnerved enough by recent volatility to postpone its next rate hike.

What the delay in a further Fed hike means for bank rates

The Fed's language continues to prepare the way for future rate increases, but it is also signaling that these will occur very slowly. If you are wondering what that means for bank rates, don't expect a very rapid response. Savings accounts did not rise following the Fed's December rate hike. The Fed's cautionary language suggests it may be a while before it pushes the federal funds rate high enough to force savings account rates higher. In short, rates may be headed upward eventually. But, meanwhile it still may be worthwhile to look into certificates of deposits and make a longer-term commitment to capture higher CD rates.

Comment: Do you think the Fed made the right decision in January to not raise bank rates even higher?

More from MoneyRates.com: 

Fed December update: Rate change finally - was it worth all the suspense?

Fed October update: 'I told you so' or missed opportunity?

Fed June update: Fed implies rise in interest rates is inevitable

5 ways to build an emergency fund throughout the year

January 20, 2016

By Dan Rafter | Money Rates Columnist

An emergency savings account is not just a nice thing to have -- it's a necessity, according to financial expert Sean Stein Smith.

"An emergency fund for an individual or family is a key cornerstone of any financial plan," says Smith, a financial analyst at Hackensack University Medical Center in Hackensack, New Jersey. "Without an emergency fund, you are putting your family's financial health at risk."

An emergency fund, as its name suggests, is a pool of money, usually deposited in a basic savings account, that you can draw from to handle life's unexpected events, everything from a burst water heater to a furnace that goes on the fritz. It can also help you survive financially if a job loss slashes your regular monthly income.

Why start an emergency fund

Smith, who also works as a Certified Public Accountant, recommends that you have at least three months of daily living expenses saved up at all times. But Smith and others say that more -- such as six months of daily expenses -- is even better in your emergency fund.

An emergency fund is a necessity no matter how much, or how little, money you make, says Kim Dula, a CPA and partner at the Marlton, New Jersey, office of Friedman LLP.

"If you don't have an emergency fund, you run the risk of running up significant amounts of debt if an emergency does come up," Dula says. "Even if you don't think you make much money, you can find ways to create an emergency fund. You just have to start slowly and build it up over time."

That last point is important. Dula says that too many people think that they don't make enough money for an emergency fund. But that is a fallacy.

Others think that emergencies won't happen to them, that they'll never need to draw from an emergency fund.

"They don't think certain things can happen to them," says Kary Bartmasser, CPA with Bartmasser & Company in Beverly Hills, California. "Of course, this isn't true at all. People need to realize that life is very complex, and that it can be very hard. By having an emergency fund, though, you can take care of yourself and your family."

5 ways to build an emergency fund throughout the year

It's not enough to just get started with your emergency savings. Growing it is the big challenge, but it doesn't have to be hard.

Here are five ways to increase your emergency fund:

1. Pay yourself every month

Emergency savings

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Bartmasser says the easiest way to build an emergency fund is to commit to paying yourself something at the end of every month. He recommends clients write a check made out to a savings account that is only designed to hold an emergency fund. Once people get in the habit of doing this each month, it becomes second nature.

The amount isn't as important as the act of actually paying yourself, Bartmasser says. What if you don't make a high salary? Strive to write a check for $100 each month. If that's too high, go for $50. Even if you invest a small amount, and you do it regularly, you'll steadily build up a fund of emergency savings.

"The physical act of paying yourself first is so important," Bartmasser says. "It works on the psyche. I am paying myself first. I'm important."

2. Cut your spending (even just a bit)

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You might think you don't have enough extra money to create an emergency fund. Smith, though, disagrees. He says that you can always generate extra dollars at the end of the month by cutting back on your weekly spending on non-essentials.

This means skipping a few visits to the coffee shop or the fast-food restaurant each week, he says.

"Try to brownbag your lunch as much as possible," Smith says. "You'd be surprised at how much you can save."

This doesn't mean that you can't ever spend money on a restaurant meal or hit the movies, Smith says.

"Budgeting and planning takes work," he says. "It takes discipline. But it's important to keep in mind that it's OK to go out and treat yourself every so often. That helps to keep you motivated."

3. Make a savings plan

Savings plan

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Dula says so many people fail to create an emergency fund because they don't track how they spend their money. They then don't realize that they are spending $100 a month on trips to the noodle shop down the street.

Once people realize how much they are spending, they can then make changes. Instead of spending $100 each month on morning coffee runs, for instance, they can aim to spend just half of that. Then, deposit the $50 a month saved for an emergency fund.

The first step to tracking your regular spending? Create a spending book. In this book, such as a simple notebook, jot down everything you spend your money on for a month. Then, when you get to the end of the month, study where your pennies went. It's a great way to determine just how much extra money you could have, with a bit of discipline, for an emergency fund.

4. Negotiate or cut your bills

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Cable can be expensive. So can your monthly smartphone bill. Consider calling your service providers to ask for lower rates.

These providers want to keep you as a customer. If you ask for a lower monthly fee, they might be willing to compromise, at least a bit. But arm yourself before making these calls. If you find a competitor offering a lower price, mention this information. You'll put yourself in an even stronger negotiating position if you are willing to walk away from your cable or phone-service provider if you don't get that lower monthly bill.

5. Never skip a month of saving

Emergency savings each month

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It can be tempting to skip that monthly deposit in your emergency fund after a rough month. Don't do it. Even if you can only afford to invest $25 into your emergency fund, make that deposit. Smith notes it's more about the routine of these deposits than it is the amount of them.

And even small deposits can add up over time. Look at it like this: If you deposit just $20 a week into your emergency fund, you'll have a fund of over $1,000 by the end of a year. That's $1,000 more to keep your head above water amidst costs that may come way. 

Comment: How much do you plan to have in your emergency fund? Are you meeting your emergency savings goals?

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Emergency fund broken? Here's how to fix it

5 simple ways to build a rainy day fund

6 essential types of savings: When to begin each

3 financial resolutions you shouldn't make (and 9 to make instead)

January 15, 2016

| Money Rates Columnist

It's that time of year when resolutions are all the rage, and cleaning up finances is an annual top priority for many people.

Now that weeks have passed, you may be second-guessing whether you can stick to your financial resolutions. However, the problem may be you picked the wrong resolution.

"A bad resolution is one you cannot stick to or achieve," says Rod Griffin, director of public education for credit bureau Experian. "Make sure your goals are realistic."

Here are three "bad" financial resolutions and some better options that can help you achieve the same goal:

Bad financial resolution #1: I will save more money

Savings growth

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Saving more money is a popular resolution, but how you approach this goal could determine your rate of success.

"I don't think it's a bad thing to want to save more," says Danielle Prunier, a Merrill Lynch financial advisor at Century City South in Los Angeles. "But you have to think of it like losing weight."

In other words, you need to have a plan for how you're going to get there, and then break down the process into bite-size pieces. A vague goal like "save more" is less likely to be successful than one that says, "Save $100 a month."

3 better saving resolutions:

  • Include a specific amount for savings in my budget
  • Set up automatic deposits to my savings account
  • Find higher savings account interest rates

To start, you need to budget for savings and figure out a way to automate those savings so you're not tempted to spend money earmarked for the future. For that, a 401(k) plan can be ideal.

"The number one way people can get ahead is to defer income to an employer-sponsored savings account [like a 401(k)]," Prunier says.

The money comes directly out of your paycheck so you'll likely never miss it. Employers may also match retirement savings contributions, which could double your savings immediately, depending on the match. As the cherry on top, contributions to a traditional 401(k) are tax deductible.

If you are already saving regularly but want to maximize that cash, make it your resolution to look for higher interest options for your money. Online banks typically offer the best savings rates for both regular accounts and certificates of deposit (CDs).

Bad financial resolution #2: I will get out of debt

Millennial credit card debt

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When credit reporting company Experian surveyed people about their financial resolutions for 2016, credit cards were on the mind for many people with the greatest percentage of respondents pursing the following goals:

  • Pay off a credit card: 28 percent
  • Pay off the full credit card balance each month: 25 percent
  • Pay credit card bills on time: 21 percent
  • Not open more credit card accounts: 18 percent

"Reducing your credit balances and paying on time should always be financial goals," Griffin says.

However, like saving money, you need to have a specific plan to get there.

3 better debt repayment resolutions:

  • Make progress with a debt snowball
  • Consolidate debt at a lower interest rate
  • Monitor my credit report regularly

A debt snowball is a popular planning method and typically lines up debts in order from either the smallest balance or highest interest rate. Once the plan is created, people make minimum payments on everything except the debt at the top of the list. That debt payment gets boosted with any extra money available each month. After it's paid off, the amount used to pay that debt is rolled into the payment for the next item on the list.

You can speed up your snowball by looking at ways to consolidate debts to a lower interest rate.

"Is there a way to roll a credit card with 10 percent interest into a 0 percent card for 12-18 months and accelerate payments?" Prunier asks.

Finally, make it a resolution to check your credit report each year. Mistakes can affect your credit score and increase the interest you pay. Every person is entitled to one free report every 12 months from each of the major credit bureaus. Reports may be requested at annualcreditreport.com

Bad financial resolution #3: I will spend less money

Woman with shopping bags

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Spending less is a good way to free up extra cash for savings and debt payments, but it's a lousy resolution on its own. Like other bad resolutions, this one is simply too vague to be effective.

3 better spending resolutions:

  • Prioritize my spending
  • Limit purchases to only the amount I've budgeted
  • Use an app or software to stay on track

If you want to spend less, you need to first separate your wants from your needs. Life insurance may seem like an expendable expense, but it's essential if you are the family breadwinner. A car might seem like a need if you have to drive to work, but yours could be a want if a less flashy - and less expensive - model could get the job done.

"Having some type of financial advisor in your life is a good idea," Prunier says.

She likens it to hiring a personal trainer or dietician if you're trying to lose weight. An advisor can also help create a workable budget and act as an accountability partner when you're tempted to overspend a certain category.

Not everyone has the money or time to hire an advisor, and in that case, technology can pinch hit. Programs like Mint, PowerWallet and YNAB (formerly You Need a Budget) can make it easy to create budgets, track spending and measure progress toward goals.

Those who are serious about improving their finances in 2016 should consider selecting goals from all the categories above.

"To be physically healthy, you have to modify meal plans and add cardio," Prunier says, continuing the weight loss analogy.

Along the same lines, get your finances healthy by spending less and saving more in the year to come.

Comment: What are your financial resolutions for 2016? 

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Fed December update: Rate change finally - was it worth all the suspense?

December 17, 2015

| MoneyRates.com Senior Financial Analyst, CFA

It finally happened. The Federal Reserve announced Dec. 16 that it was raising short-term interest rates. This comes after the Fed had maintained rates near zero for seven years, and hadn't raised its rate policy range since mid-2006. Still, for all the waiting and suspense, is it possible this announcement will prove to be something of an anti-climax?

Winning the expectations game

The truth is, the Fed would be delighted if this rate increase did turn out to be an anti-climax. The Fed wants to gently guide the economy. The last thing it wants to do is shock the economy or the financial markets. The Fed talked about this rate increase for well over a year now. Financial commentators were almost unanimously predicting the Fed would raise rates at this meeting. Indeed, it was not so much a prediction as an assumption.

The reason the Fed likes to signal its intentions in advance of acting is that it allows the economic and market reactions to changes in rate policy to be spread out over a period of months. Greater transparency became a Fed priority under then-chairman Ben Bernanke, in sharp contrast to the "man-behind-the-curtain" image that his predecessor, Alan Greenspan, liked to project. As the current head of the Fed, Janet Yellen has followed Bernanke's transparency approach, and if the economy and markets take this rate increase in stride, she will have won this round of the expectations game.

Simply doing what everyone expected may be anti-climactic, but again, that is preferable to shocking the markets and the economy.

Long-standing policy of incrementalism

Another reason why this rate change may prove to be somewhat anti-climactic is that over the past two decades, the Fed has usually taken an incremental approach to rate changes. The announcement of a 0.25 percentage point increase in the Fed funds rate fits this little-at-a-time approach.

That policy of incrementalism goes back to Greenspan's Fed. The Fed has not changed rates by more than half a percent at once since 2008, and has not raised them by that amount since late 1994. If all goes well, the Fed can follow on with subsequent incremental rate increases, but this approach allows it to wait and see before committing to dramatically higher rates.

This approach is in contrast with the Fed's actions in the late 1970s and early 1980s, when it was battling rampant inflation. The year 1980 alone saw three monthly rate increases of greater than 3 percent.

What could key faster increases?

That inflationary period of the late 1970s and early 1980s is a reminder the Fed does not always have the luxury of an incremental approach. Inflation has continued to run below the Fed's 2 percent target, but should it jump sharply higher - perhaps because of a rebound in oil prices - the Fed would have to take more dramatic action.

So if you are worried about sharply higher rates, keep an eye on inflation. You can bet Janet Yellen and her colleagues will be.

Comment: How do you feel about the timing of the Fed hike? How do you think your finances will be affected in 2016?

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Fed October update: 'I told you so' or missed opportunity?

Fed June update: Fed implies rise in interest rates is inevitable

Fed April update: Fed sets the stage for rate hike