Michelle Brownstein, Vice President of Personal Capital’s Private Client Group, responds to some scary stories about money with financial advice in honor of Halloween.
We hear a lot of stories about money – some triumphant, some funny, and some downright scary. In honor of the spooky season, we thought we’d share some of the scariest money stories we’ve heard recently…and how to avoid these horror stories in the future!
I’m an amateur personal finance geek.
Your tools have helped me become a smarter investor.
Personal Capital Dashboard User, February 2021
MB: To avoid this type of situation in the future, it’s important to set a concrete budget and stick to it. By having a solid, well-thought-out monthly budget, it’ll become much easier to spot places that you might be overspending, or things that you might not need and can cut out. Once you’ve set a budget and taken a closer look at your spending, you can make some changes, which will in turn make it much easier to avoid having to pay for things using credit
To build a budget, I’d recommend first listing all non-discretionary spending for a month (like mortgage, food, gas, utilities, school payments). Then, separately list all discretionary items (like eating out, entertainment, traveling, etc). You’ll then want to see how your spending compares to your monthly income.
If you find that your expenses are higher than your income, you’ll probably need to consider making some lifestyle changes. That could be cutting back on the discretionary items, lowering the non-discretionary costs (for example, through refinancing your mortgage to a lower rate, or downsizing to a smaller home or apartment). If it’s not possible to cut down on discretionary spending or lower non-discretionary spending, you can also look ways to bolster your income, like negotiating for a raise or looking for a side hustle.
In addition to budgeting and cutting back on expenses, I’d recommend that you also prioritize setting up an emergency fund. A good rule of thumb is to try to save 3-6 month’s worth of your non-discretionary expenses. Having a solid emergency fund will also help you avoid relying on credit in an emergency situation.
MB: The first thing I’d recommend in this situation is to hire a good CPA. You’ll need to gather all tax documents for the past 3 years (income statements, receipts, etc.) and take them with you to your first appointment with the CPA you select. They may recommend you hire a tax attorney, but the CPA should be your first stop.
Next, be prepared to pay both taxes and penalties for filing late — if you haven’t done so already, start cutting back on discretionary spending to build up a cash cushion for these costs.
The sooner you get back on track with tax filing, the better. In the future, set up a monthly meeting with your partner to discuss finances and to make sure you’re staying on top of important payments like bills and taxes. Simply creating an open forum to talk about these types of things and checking in every month should help avoid situations like this in the future.
MB: Unfortunately, FICO scores are very strict when it comes to missed bill payments. However, some lenders are more lenient if you have a good explanation of the reason for a late payment.
To avoid late payments in the future, set all bills to be paid at the same time of the month and dedicate a few hours each month (I’d recommend proactively blocking out time on your calendar) to ensure everything is paid. Even for those who use auto-bill pay, it’s important to review bills each month to ensure they are being paid on time.
What is your scariest money story? Let us know in the comments section below.
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