I was at a networking event where you meet other business people, talk about the services you offer and exchange business cards. I met a professional woman who looked to be in her late forties. She asked me what I did for a living and I told her that I provided financial education to teens and adults.
“Hey, I have a question,” the woman asked. “My bank keeps sending me this ‘debit card’. What am I supposed to do with that?” She went on to explain that she has a credit card – she uses it every month and pays it off every month, not paying any interest. She also uses checks to pay all her bills, “So what’s the point of having or using a debit card?”
“Well,” I explained, “in your situation a debit card would be optional.” I went on to explain that a debit card can be used in place of a check if she was paying her bills on-line. Or if she didn’t want to put something on a credit card and she wanted the money to come directly out of her bank account, she could use a debit card.
After the explanation, she told me she understood and thanked me for the information. “So, what do you do for a living,” I asked her, wondering what business she was in. “I’m a Financial Advisor,” she said. “If you have any questions about investments or retirement planning, just let me know.”
Why do we assume people who understand complex financial products, understand the basics of day to day personal money management? When and where would they learn it?
Sunday, July 5, 2009
Sunday, June 21, 2009
I Can't Go a Month Between Paychecks!
Joe got a job working for XYZ Corporation. He was placed there through a local temp agency, which meant that he officially worked for the temp agency until XYZ Corp decided to bring him on as a permanent employee.
He liked the job and after three months was called into a VP’s office. He was told that they decided to keep him on in a permanent position. They were also going to raise his salary by $2 additional per hour. He just needed to meet with the HR Department to work out the details regarding payroll and his benefits.
“We’re in the middle of a pay cycle,” the Vice President explained, “so they’ll talk to you about when your next paycheck will arrive.” Joe looked surprised, “Well, I usually get paid every Friday, so that won’t change, will it?” “Yeah, it will,” the Vice President went on, “The company pays its employees monthly, so you’ll probably get a partial check at the end of this month, and then another on the 30th of every month after that.”
Joe couldn’t believe what he was hearing. The end of the month was three weeks away, and he was going to have to wait a month between paychecks! He knew the way he spent money and could foresee a lot of problems having to wait so long for the next check.
“Can’t some exception be made?” he asked, “I can’t go a month without a paycheck. I’d prefer to get paid weekly.” The VP explained that their company doesn’t offer that option. “It’s not a big deal,” he said, “you’ll just learn to budget the check out.”
Joe went home and thought about it. When he told me the story I couldn’t believe he was hesitating! A higher paying permanent job with benefits? “Just divide the check by four, and only spend a quarter of it each week!” I told him, trying to suggest a plan that wouldn’t overwhelm him.
Eventually he turned the job down. “This temp agency has been really good to me,” he told me later, “I’m sure they can place me with another company.”
People make money decisions every day that have nothing to do with making more money. Daily managing and budgeting is a task most of us have never been taught.
He liked the job and after three months was called into a VP’s office. He was told that they decided to keep him on in a permanent position. They were also going to raise his salary by $2 additional per hour. He just needed to meet with the HR Department to work out the details regarding payroll and his benefits.
“We’re in the middle of a pay cycle,” the Vice President explained, “so they’ll talk to you about when your next paycheck will arrive.” Joe looked surprised, “Well, I usually get paid every Friday, so that won’t change, will it?” “Yeah, it will,” the Vice President went on, “The company pays its employees monthly, so you’ll probably get a partial check at the end of this month, and then another on the 30th of every month after that.”
Joe couldn’t believe what he was hearing. The end of the month was three weeks away, and he was going to have to wait a month between paychecks! He knew the way he spent money and could foresee a lot of problems having to wait so long for the next check.
“Can’t some exception be made?” he asked, “I can’t go a month without a paycheck. I’d prefer to get paid weekly.” The VP explained that their company doesn’t offer that option. “It’s not a big deal,” he said, “you’ll just learn to budget the check out.”
Joe went home and thought about it. When he told me the story I couldn’t believe he was hesitating! A higher paying permanent job with benefits? “Just divide the check by four, and only spend a quarter of it each week!” I told him, trying to suggest a plan that wouldn’t overwhelm him.
Eventually he turned the job down. “This temp agency has been really good to me,” he told me later, “I’m sure they can place me with another company.”
People make money decisions every day that have nothing to do with making more money. Daily managing and budgeting is a task most of us have never been taught.
Monday, June 15, 2009
Why Can't I Pay Bills Out of a Savings Account
Dr. X is a running a pretty successfully practice right outside of Boston. After he found out his bookkeeper had been stealing from him, he fired him and decided that paying bills was something he could handle on his own.
He had $60,000 in checks he hadn’t cashed from insurance companies and patients, and took them down to his local bank. He opened up a bank account and proceeded to start the process of paying the bills he had to run his practice. There was rent, for the space, phone service, answering service, several medical supply companies, the payroll company for his staff, malpractice insurance, health insurance, the list went on and on.
It was really frustrating because he didn’t have checks, so he paid many of the bills on-line or over the phone. And after the first month he noticed that the bank charged him a ridiculous amount in fees. “I have no time for this,” he told another doctor in his office. The other doctor had come in for several weeks to assist Dr. X with his work load, and after hearing about his problems she suggested that he call me.
After one visit where he explained the problems he was having, I asked him if I could see his bank statement explaining all the fees. “This is a savings account,” I declared, surprised. “Yes,” Dr. X responded casually. “I wanted to make sure I earned some interest.” “But you can’t pay bills out of a savings account,” I explained, and then went on about how savings accounts don’t provide checks and most banks charge fees if you withdraw money more than a few times a month. By the time I was explaining interest bearing checking accounts to him he was rolling his eyes, “Listen,” Dr. X said, “I have no time for this. I really need to get to surgery. Just tell me what I need to do so this won’t happen again.”
Don’t assume money and an education equals knowledge about the basics of personal finance. Most people aren’t taught this stuff, and our society assumes the knowledge comes automatically.
He had $60,000 in checks he hadn’t cashed from insurance companies and patients, and took them down to his local bank. He opened up a bank account and proceeded to start the process of paying the bills he had to run his practice. There was rent, for the space, phone service, answering service, several medical supply companies, the payroll company for his staff, malpractice insurance, health insurance, the list went on and on.
It was really frustrating because he didn’t have checks, so he paid many of the bills on-line or over the phone. And after the first month he noticed that the bank charged him a ridiculous amount in fees. “I have no time for this,” he told another doctor in his office. The other doctor had come in for several weeks to assist Dr. X with his work load, and after hearing about his problems she suggested that he call me.
After one visit where he explained the problems he was having, I asked him if I could see his bank statement explaining all the fees. “This is a savings account,” I declared, surprised. “Yes,” Dr. X responded casually. “I wanted to make sure I earned some interest.” “But you can’t pay bills out of a savings account,” I explained, and then went on about how savings accounts don’t provide checks and most banks charge fees if you withdraw money more than a few times a month. By the time I was explaining interest bearing checking accounts to him he was rolling his eyes, “Listen,” Dr. X said, “I have no time for this. I really need to get to surgery. Just tell me what I need to do so this won’t happen again.”
Don’t assume money and an education equals knowledge about the basics of personal finance. Most people aren’t taught this stuff, and our society assumes the knowledge comes automatically.
Sunday, June 7, 2009
I Thought Only Poor People Had Bad Credit
A new client calls me because he needs some bookkeeping services. He has a flourishing software design business, brings in almost $400,000 a year, but he hasn’t paid his taxes in two years. It’s not that he doesn’t want to, he just hadn’t kept on top of the bookkeeping, so he really doesn’t even know what to report.
He frequently travels for his business and he has 4 to 5 people that work for him that he pays to help him on his projects. They frequently have to pay for work-related expenses, like airline tickets, taxi cab rides, meal expenses. They send him receipts and he reimburses them for the costs. I suggested to him that he get business credit cards. Give the cards to the people that work for him. When they have things they need to pay for that should be charged to the business, they should put it on the credit card. The bill will come to him and that way he doesn’t have to worry about reimbursing.
“Oh, I agree,” he said, “But I can’t get a credit card right now.” “Oh, why not?” I asked. “My credit is shot,” he responded willingly. Not wanting him to feel judged or uncomfortable I said, “Oh, I understand. Money was probably tight when you started your business.” “Oh, no. I always had money.” Then he offered the whole story.
A few summers ago, he had a credit card with a $20,000 limit. He took his girlfriend to the Bahamas, charging a good portion of the trip and all the fun on the card. When the bill came, he had the money to pay it, but he really wanted to spend the money on other things related to his business. He planned to pay the bill, eventually, just not right now, when he was in the middle of some big client deals. So he waited until January, six months later. He said the credit card company kept sending reminder bills, then they would call him, and eventually collection notices arrived, but he disregarded them. He always knew he was going to pay the bill eventually and figured that once they got their money, the matter would be closed. And when January came he paid the bill, plus fees and interest. Matter closed, so he thought.
A year later when his business really started to grow and he realized he needed to apply for a business card, he was so surprised to be declined. The credit card company explained, that he had bad credit – his score was in the mid 500’s. “I was really surprised,” he told me. “Apparently my income didn’t make that much of a difference. I thought they would look at how much money the business made and they wouldn’t pay that much attention to my credit score.” “Actually,” he admitted finally, “I thought only poor people had bad credit.”
“So I’m working at raising that score, which is why I have you in here cleaning up my finances. I’m realizing that making money isn’t enough. I really need to pay attention to all these other details.”
He frequently travels for his business and he has 4 to 5 people that work for him that he pays to help him on his projects. They frequently have to pay for work-related expenses, like airline tickets, taxi cab rides, meal expenses. They send him receipts and he reimburses them for the costs. I suggested to him that he get business credit cards. Give the cards to the people that work for him. When they have things they need to pay for that should be charged to the business, they should put it on the credit card. The bill will come to him and that way he doesn’t have to worry about reimbursing.
“Oh, I agree,” he said, “But I can’t get a credit card right now.” “Oh, why not?” I asked. “My credit is shot,” he responded willingly. Not wanting him to feel judged or uncomfortable I said, “Oh, I understand. Money was probably tight when you started your business.” “Oh, no. I always had money.” Then he offered the whole story.
A few summers ago, he had a credit card with a $20,000 limit. He took his girlfriend to the Bahamas, charging a good portion of the trip and all the fun on the card. When the bill came, he had the money to pay it, but he really wanted to spend the money on other things related to his business. He planned to pay the bill, eventually, just not right now, when he was in the middle of some big client deals. So he waited until January, six months later. He said the credit card company kept sending reminder bills, then they would call him, and eventually collection notices arrived, but he disregarded them. He always knew he was going to pay the bill eventually and figured that once they got their money, the matter would be closed. And when January came he paid the bill, plus fees and interest. Matter closed, so he thought.
A year later when his business really started to grow and he realized he needed to apply for a business card, he was so surprised to be declined. The credit card company explained, that he had bad credit – his score was in the mid 500’s. “I was really surprised,” he told me. “Apparently my income didn’t make that much of a difference. I thought they would look at how much money the business made and they wouldn’t pay that much attention to my credit score.” “Actually,” he admitted finally, “I thought only poor people had bad credit.”
“So I’m working at raising that score, which is why I have you in here cleaning up my finances. I’m realizing that making money isn’t enough. I really need to pay attention to all these other details.”
Thursday, May 28, 2009
You’re Buying a $5 Million Condo and I Can’t Wash My Hair!
Mr. X is a financial advisor. People give him money and he finds ways to invest it. He invests a lot of money for himself as well. Although he lived in the Midwest, he decided that he wanted to buy a condo in Manhattan as an investment. Mr. and Mrs. X flew to New York to close on the sale. They returned from their trip on a Saturday morning. While Mr. X went into his office to go through a stack of mail he’s been neglecting, Mrs. X went to take a shower. “Honey, why doesn’t the water work?” she asked a few minutes later. At the same time, Mr. X finds the shut-off notice on a three month old $66 water bill. “Oh, no,” he exclaims, “this got overlooked!” After a call to the Water Company, he was told he had to wait until Monday morning to pay the bill and get the water turned back on.
“Why don’t you pay someone to take care of these details?” asked Mrs. X? Mr. X actually discussed this option with his accountant. His accountant offered this service to some of his other clients who couldn’t seem to stay on top of these details. He had a staff of bookkeepers that would handle going through mail, reconciling checking accounts and making sure bills were paid on time. Mr. X would have to provide his bank account numbers, passwords, and arrange for mail to be sent directly to the accountant’s office. He charged $100 an hour for the service.
“That’s ridiculous!” he exclaimed. “I’m a rich, smart guy. I don’t need to pay someone to do something as simple as pay some bills.”
Start Money Smart asks, do you just need money and brains to pay bills?
Subscribe to:
Posts (Atom)