Erik Carter, Contributor
Oct. 25, 2021
Trick or treat? That’s a phrase you might be hearing a lot this Halloween. 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 when it comes to our financial lives, we too often fail to provide the “treat” 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 off:
Trick #13: Being 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 or a Coverdell Education Savings Account , both of which grow tax-free for education. If your child is approaching college age, check out these myths on college planning. If you or your child is already struggling with student loan payments, consider reducing the payments with an income-based or extended repayment plan .
Trick #12: Depleting assets for long term care costs
Treat: Consider purchasing long term care insurance while you’re still young and healthy enough to qualify for affordable rates. 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 you purchase through the program in case your insurance benefits are exhausted. That way you know exactly how much insurance to purchase: enough to cover your assets.
Trick #11: Lower investment returns due to investment fees and trading costs
Treat: You can minimize fees and trading costs by sticking to low-cost index funds. If you want help, look for workplace financial education and guidance programs, online tools like Financial Engines and GuidedChoice that may be offered by your retirement plan provider, and unbiased financial advisors .
Trick #10: 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 a balanced fund, which maintains a fixed allocation, or a target date fund , which gradually becomes more conservative as you get closer to your target date. For something more personalized, you can use one of the low-cost advice programs mentioned above.
Trick #9: 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 #8: 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 #7: 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, you may want to assume below average real investment returns and an above average life expectancy to be on the safe side.
Trick #6: Having your identity stolen
Treat: Check your credit reports for errors once a year (weekly until April 10, 2022) for free at annualcreditreport.com . You can sign up for free credit monitoring directly at Experian and web sites like Credit Karma for TransUnion TRU and Equifax EFX . Consider placing a credit freeze on your credit reports to prevent anyone from accessing your credit without your permission. Be careful of using debit cards .
Trick #5: Struggling with credit card debt
Treat: Consider ways to reduce the interest on your credit cards. Look at your expenses for ways to save money and 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. 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. Some credit counseling agencies can also help you decide if filing for bankruptcy protection makes sense.
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 #3: Suffering an accident or illness
Treat: Make sure you have adequate property and casualty, health , and disability insurance and an advance health care directive and a durable power of attorney .
Trick #2: 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 and updated beneficiary designations, and possibly a trust to avoid probate, provide more control over the disposition of your assets, and minimize estate taxes.
Trick #1: Procrastinating on any of the above
Treat: Make a list of all the things listed here that you need to do and then break them down into manageable steps. If necessary, consider working with an unbiased financial planner who can help guide you through the process and hold you accountable. You may even be able to get access to one for free if your employer offers a workplace financial wellness program.
There will be lots of witches, zombies, vampires, and other monsters running around this Halloween. 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.
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