Financial Wellness – Part 1

May 31, 2019 | 13 minutes 21 seconds

Transcript

Megan:

Welcome to an HMC HealthWorks podcast focused on financial wellness. I am Megan Steckowski, and with me today is wellbeing coach’s financial coach, Amy Irvine. She has been a financial coach for 20 plus years, and is a certified financial planner. She’s knowledgeable in budgeting, debt restructuring, retirement planning, and many other topics. Thanks so much for joining us today.

Amy:

Thank you for having me.

Megan:

So Amy, why is financial wellness so important?

Amy:

Well, I think if you think about even your physical wellness, and you put it in terms of financial wellness, you’ll see the connection, right? Financial wellness affects so much of our mind, body, and spirit. If we’re not financially well, we’re not sleeping at night, it can create health problems. Financial stress is a real issue. It can cause both physical and mental health consequences, and chronic stress. It can also cause relationship problems that lead to divorce if there’s any kind of inconsistency in financial wellness. In the medical world, the doctors would look at your lab work to gauge your health and diagnostic illness, and we do the same thing in financial planning and look at your digits, I guess you want to say, and gauge our financial wellness, and if you’re not financially well, if your digits don’t look good, then we need to dig in to what is going on and put a plan in place to help you get better.

Megan:

Well, let’s dig into debt. What is the number one financial decision or step I can make to help with that?

Amy:

It’s kind of like the whole doctor and the lab work conversation that I just mentioned. If you want to figure it out, the first thing is you have to sit down and analyze how you accumulated it. Ask yourself questions about why did this credit card get this high, or what kind of debt do I have? That’s a big piece of it. It’s figuring out how you accumulated it. Once you figure out how you accumulated it, then you can figure out how to correct it. Again, I’m going to revert back to the whole doctor analysis that I had. If you’re not feeling well, let’s say you’re feeling dizzy, the doctor is going to ask you questions about why… What you were doing. What is it around the time that you’re feeling dizzy?

Amy:

Well, we’re going to ask you the same question, how did you get to this accumulation of debt? We’re going to dig in. That’s really one of the first and most important steps, is to figure out how you accumulated it. Now, we’re not judging any of that. We’re not saying we’re going to judge you on that. We’re just saying, how did it get there? Is it that your income isn’t sufficient? Is it that you were putting your wants before your needs? Is it that you wanted to keep up with the Joneses? There are a lot of reasons why that accumulated. Sometimes, it’s that you went back to college. Sometimes, it’s that a family member had a crisis. Sometimes, you had a crisis. There’s a lot of reasons, but we just need to dig in, and step number one would be to figure it out. I know a lot of people would roll their eyes at me, but once you figured it out, I think get mad about it.

Amy:

I know that sounds really silly, but in reality, when we get mad about something, that means we’re usually willing to do something about it. We’re willing to take a stand against it, I guess you want to say. When we’re willing to take action, then the next step is what action can we take? Once we get mad about it and say, I’m not going to live this way anymore, finding out the solution on how to fix it is the next step. We often recommend the snowball method, which means you take all of your debt, we usually use a spreadsheet, but you take all of your debt, and you put it from the smallest to the largest. You make a list of all of that debt, smallest to largest and what the minimum payments are, and you crush a little bit on that very first step.

Amy:

You want to get the smallest debt paid off first, and then take that payment that you’re making on that small step, and roll it into the next step for one step. First step to pay it off, you’ll roll it into the next step. By the time you get to that last set, you’re making a fairly good sized payment because you no longer have all the other debt. You’re down to that bottom one and you’re really thinking big payments.

Amy:

There are some people that like to use the avalanche method, which means that they would put their debt in line of highest interest rates. We find the snowball method is most effective because it shows progress very quickly. We all like to see progress extremely quickly. That’s that instant gratification. Then sometimes that means a little part-time job for just a year, or two years. Just a temporary solution to get rid of that debt and apply any of the side hustle that you earn… The money that you earn off the side hustle towards that debt. There’s a couple of different recommendations in there, but it all starts out with finding out how you accumulate it. There’s a whole psychology behind money that people don’t even really realize until we walk them through that, but there is a psychology to why people spend money. If we can figure out how we accumulated the debt, we can usually come up with a solution.

Megan:

Okay. Once I get a handle on my debt, how can I plan for retirement?

Amy:

Well, once you’ve paid down, or you’ve got a handle on that debt, then think about all the extra money that you can set aside for retirement, which is great. An example, I just worked on a case the other day and they were making about $1,200 worth of monthly debt payments in total. We asked them if they could commit to an extra $50 a month to get them a debt-free day that was about five years earlier. If they would take that $1,200 that they are spending on debt right now, when they meet their debt free day and they put that money aside for the next five years, that’s a pretty significant amount of money that they would be contributing. If you look at a five-year window at $1,200 a month, that’s about $14,400 a year, times five years, that’s $72,000. That’s a pretty good chunk of change that somebody’s putting aside on a five-year window. Certainly, once getting control of your debt, and then taking that extra money and setting it aside, is certainly the first step.

Amy:

But we also tell people to practice being retired. Get in the right headspace, and what retirement would look like. Certainly, the lower amount of debt that you have, that means you’re not drawing down your retirement assets as much. It means that we’re saving you in taxes because it’s lower that you can withdraw from your retirement accounts, the lower tax bracket you will be in. Not everyone can enter retirement debt-free, but, certainly, getting that debt down as much as you can is going to help the picture. You think about retirement, we’re really all about managing cashflow. We’re not necessarily replacing income where we’re in the depreciation stage instead of the accumulation stage. It’s all about managing cashflow and the lower we can be in debt in retirement, the better, and likely more successful, your retirement is going to be.

Amy:

Plus, if you can use that money towards fun things like trips and not have to go into debt for them, then that just makes retirement more fun, so practicing what retirement cashflow looks like. Then in some cases, we tell people well what if… Consider going out and creating an encore career or working part-time in retirement, until that debt is paid off, or that allows you to do the trips that you want to do without accumulating different debt. If we can get that down to a minimum, then that can certainly help you prepare both in savings for retirement, and in depreciation for retirement.

Megan:

Okay. I can do a lot of good things to help me prepare for retirement, but what are some of the unexpected, that issues… That can derail retirement?

Amy:

You know what we’re seeing a lot of right now, there’s two major things really, but, believe it or not, for folks that are in retirement, we are seeing the student loan crisis hit them. Because, in many cases, people in their late 40s, and 50s, and even 60s, they pushed their student loan payments down the road, or maybe they went back to college themselves, and they’ve accumulated student loan debt for their children. It’s creating, sometimes, unexpected debt that they didn’t know about. For example, the other day I had a client who’s 62 years old, applied for Medicare, was applying for their pension, getting into retirement, and they received a nice little letter in the mail saying, if you don’t start making payments on this student loan, we are going to put a lien against your income for social security. The student loan debt is one of the few debts that actually can put a lien against social security.

Amy:

We’re seeing that crisis that exists out there because, remember, student loan debt is $1.5 trillion, and that’s being pushed out to what is the baby boomer generation, and the generation X. Because, again, they might’ve pushed their own loans down the road, or they might’ve taken on or co-signed loans for their children or grandchildren. When people co-sign for a loan, they’re taking on the ownership of that loan just as much as if they were taking out the money. This person was surprised because they didn’t know that their grandchild wasn’t making the loan payments. They hadn’t gotten any of the notices in the mail. We ended up pulling a credit report on them to see what else might be out there because they actually, and I did too, thought it was like a scam. We pull their credit report on them and found that, indeed, this loan was currently in default and they were going after the grandparents to try to collect at that stage it’s been in.

Amy:

The student loan crisis is honestly something that we’re seeing derail some folks in retirement. Then the second thing that we’re seeing is the health care costs. Unfortunately, healthcare continues to go up in value pretty significantly, as far as the premiums go. The medications is probably one of the bigger aspects of things. Making sure that when you’re planning for retirement, that there are sufficient decisions that are made around the prescription plan that you choose. I know in our area, every year in October, we look at the Part D plans that are out there and we run the analysis for our clients to make sure that they are on the right plan. Sometimes it’s better to pay a higher premium so that your drug costs are more controllable. We tell people, don’t set it and forget it when it comes to your prescription plan, make sure you review that on an annual basis because your prescriptions can change, and the formularies that go along with those Part D plans can change.

Amy:

Yet again, another story about a client that had this large credit card debt because they were paying $400 a month on prescription drugs. They came to me and they… Their credit card was basically maxing out and they were trying to figure out what are they going to do. We walked through a couple of different ideas, we reached out to the drug companies, and the pharmacy, and asked if there were programs that this person would qualify for, it would help with the cost, and there were, and we just had to go through the application process.

Megan:

Wow, well, that is a lot of great information. Thank you so much, Amy, for joining us and sharing your financial expertise. Thank you everyone for listening in, and stay tuned for more HMC HealthWorks podcasts.