13 Financial Tricks And Treats

Trick or treat? That’s a phrase you might be hearing a lot tomorrow night. The original tradition is that the “trick” was an implied threat if you didn’t provide a treat. It’s all meant to be harmless fun and games, but we too often fail to provide the “treat” when it comes to our finances and end up suffering from many of the “tricks” that we really should be afraid of. Here is a countdown of 13 money related “tricks” and the treats that can help ward them away:

Trick #1: Having your identity stolen

Treat: Check your credit reports for errors once a year for free at annualcreditreport.com. Sign up for free credit monitoring with sites like Credit Karma (uses data from Equifax
EFX
and TransUnion so you may also want to sign up for monitoring directly with Experian). Place a security freeze on your credit reports to prevent anyone from accessing your credit without your permission. Be careful of where you use debit and credit cards.

Trick #2: Suffering an accident or illness

Treat: Make sure you have adequate property and casualty, health, and disability insurance an advance health care directive, and durable power of attorney.

Trick #3: Dying without proper estate planning

Treat: While nothing can stop death, you can lessen the impact on your heirs by having enough life insurance to provide for your dependents, a will, up-to-date beneficiary designations, and possibly a trust to avoid probate, provide more control over the disposition of your assets, and minimize estate taxes.

Trick #4: Losing a job

Treat: Try to build up enough cash reserves to cover at least 3-6 months’ worth of necessary expenses.

Trick #5: Struggling with debt

Treat: Consider ways to reduce the interest on your credit cards and reduce your expenses. Then put those savings towards the debt with the highest interest rate. As one debt is paid off, put those payments towards the remaining debt with the highest interest rate until they’re all paid off. (Once you get to debts with interest rates below 4-6%, you may not want to pay them off early since you can earn more in the long run by investing the savings instead.) You can use this Debt Blaster calculator to see how quickly you can pay your debt off and how much interest you would save.

If you’re having trouble with the minimum payments, you may want to negotiate an affordable payment plan with your creditors or work with a nonprofit credit counseling agency to do it for you. As a last resort, filing for bankruptcy protection can give you a clean slate to rebuild your credit. Student loans are virtually impossible to get rid of through bankruptcy, so if you’re struggling with those payments, consider a new federal loan repayment plan or talk with the loan service provider about options for deferment or forbearance.

Trick #6: Not saving enough for retirement

Treat: Put at least enough in your employer’s retirement plan to get any matching funds and run a retirement calculator to see how much more you need to save to reach your goals. When running the calculator, be sure to assume below average real investment returns and an above average life expectancy to be on the safe side.

Trick #7: Paying too much in taxes

Treat: Make as much use as you can of tax-advantaged accounts like employer-sponsored retirement plans, IRAs, and HSAs. Use taxable accounts for tax-efficient investments like equity index funds, individual stocks, and investment real estate and harvest losses in your portfolio each year.

Trick #8: Losing to inflation

Treat: For long-term money, have at least a portion of your portfolio in stocks to allow for enough growth to keep pace with inflation. You may also want to include real assets like real estate and commodities in your portfolio as a hedge against periods of rising inflation.

Trick #9: Poor market timing

Treat: Stick to a diversified asset allocation strategy based on your time frame and risk tolerance and rebalance at least once a year. One simple way to do this is with an asset allocation fund since they are designed to be a fully-diversified one-stop shop. If you prefer to make your own portfolio, you can use a free online tool like Portfolio Visualizer to see the performance history of various asset allocation models, including ones you can design. You can also use a robo-advisor or an old-fashioned human financial advisor.

Trick #10: Lower investment returns due to investment fees and trading costs

Treat: Low fund fees have been found to be the “most proven predictor of future fund returns.” You can minimize fees and trading costs by sticking to index funds (including low cost target date funds made up of index funds or ETFs). If you want help choosing your investment allocation, look for free workplace financial education and guidance programs from your employer, online tools that may be offered by your retirement plan provider for free, or representatives at a discount brokerage firm.

Trick #11: Having your child burdened by student loan debt

Treat: If your child is still young and you can afford to save for their education, start putting money away in a 529 plan and/or a Coverdell Education Savings Account, both of which can grow tax-free for education expenses. If your child is approaching college age, check out these tips on maximizing financial aid eligibility and seek out ways to cut costs like choosing a less expensive school or starting at a community college for the first couple of years.

Trick #12: Depleting assets for long term care costs

Treat: If you’re in your 50s to early 60s, consider purchasing long term care insurance while you’re still relatively young and healthy enough to qualify. In particular, see if your state offers a long term care partnership program, which allows you to qualify for Medicaid benefits while still keeping an amount of assets equal to the insurance coverage you purchase through the program if your insurance benefits are exhausted. That way you know exactly how much insurance to purchase: enough to cover your assets.

Trick #13: Procrastinating on any of the above

Treat: Make a list of all the things mentioned in this article that you need to do and then break them down into manageable steps. If necessary, consider working with a financial planner who can help guide you through the process and hold you accountable. Your employer may even offer access to financial planners for free through a workplace financial wellness program.

There will be lots of witches, zombies, vampires, and other monsters running around tomorrow night. Fortunately, they’re fairly harmless. But the real threats aren’t so visible, and it will take a little more than a few pieces of candy to keep them at bay.