Money Talks Blog by Oxford Planning Group

Have you heard of the latte factor recently? The concept has been around for years and recently a book was released called The Latte Factor by David Bach, that has become pretty popular. If you google "finance latte" you'll get tons of different articles related to this idea. So, what's all this buzz about?

Why Coffee?

Latte’s have become the icon for saving money lately because it’s a common indulgence. Many of us are willing to the pay extra money to buy it in a coffee shop for either convenience or the simple pleasure of the routine. 

What's Your “Latte”?

As I said above, your daily cup of coffee isn’t under attack, a latte is simply an icon right now. The bigger message is to be mindful with your money during the week - and realize that small costs can add up to a lot of money if bought often.

Mindfulness

Are you into the minimalist or mindfulness movements? Every time I look at new books there are so many on these topics it’s overwhelming. However, mindfulness is what the base of the Latte Factor is all about!

• Take a good hard look at your spending. Do you like online shopping for clothes? Maybe you use Uber Eats multiple times a week? Identify what you are spending your hard-earned money on and determine if it's really worth the cost.

Enjoyment versus Price

If that cup of Starbucks every morning is what makes you look forward to work and keeps you sane, then go for it! But first, try some cheaper options like making it at home with some fun ingredients. If it's not for you after a couple tries, then maybe consider only buying coffee twice a week as a special treat. Whatever works best for you and keeps you and your wallet happy.

Change Your Mindset

By being mindful about what you’re spending, you can evaluate what’s most important to you. A common phrase I hear is that people want to contribute money into the retirement plans offered by their workplace; but retirement seems so far away and they don't have extra money to put in.

• By looking at your spending, maybe you can find an extra $50 a month that you would have spent on eating out to put into your 401(k) plan. It's great to get into the habit while you are young of putting money away every month for retirement even if it's a small amount at first.

So figure out what your latte is today and see what that money could add up to over a year, two years, or even more!

Let's talk about goals! Everyone has them, but how measurable are yours? In financial planning, a goal should have three parts: Purpose, Time, Amount (PTA). By having these three things, your goals will be measurable and realistic. For example, everyone I know wants to travel right now while we're young, but - it's hard to find the money.

Look at these two goals:

Goal 1: “I want to travel to other countries soon!”

Goal 2: “ I want to travel to England, Scotland, and Ireland in two years and I want to save $6,000 for it.”

 Which one of these goals seems better? Goal 2! It has the PTA all written out. By setting these ideas, you give yourself the purpose to work towards instead of a general idea, you give yourself a time frame to save during, and you have a total amount of money. It can be a little daunting to try to save a lot, so having a set goal that you can see yourself chipping away at is really rewarding.

Step 1: Making your goals!

Take an hour one day and sit down with no distractions. Grab some pen and paper and start writing out some goals that you have for your future. Start with some general ideas and work your way to more specific thought out goals.

 Here are some common goals for recent post-grads like me:

• Emergency fund (4-6 months living expenses)
• Travel Fund
• Down payment for a house

 Step 2: Set your Time and Amount

 Look at your salary and mandatory expenses to see how much you can save every month towards your goals.

• Save for your most important goals first! (Emergency fund should be at the top of your list)
• Short term vs. Long term goals: Consider which goals you have less time to save for and determine how much you want to put towards each goal

 Don’t Forget About Retirement

• While thinking about all your goals, don’t forget about setting aside money for your retirement accounts and FSA or HSA accounts for medical bills

 Staying on Track

• Set up automatic savings withdrawals
• Don't skimp on everything you want to do just to save more money but - do pause and take a moment to think about what things are worth the money and what you can pass on

Re-evaluating

• Every couple of months sit down to take a look at your goals.
  • Are all of them still valid things you want?
  • Have you been able to stay on track without depriving yourself?
• Salary increase? Take a look at what you can be saving more for!

It’s so easy to have fun and let that paycheck slip right out of your wallet without planning.  Get started today – you’ll be so glad you did!

Buying a car is a big decision. You want something reliable, spacious enough for your needs, and preferably in a style you will enjoy for years. A big part of this decision can be whether to buy a new car or a used car. As a young adult, there are so many things to be saving for. While a car is most likely a very necessary purchase, you don't want to spend extra money you didn't have to that could be saved for a home or travel fund. Let's look at some of the pros and cons for buying a new car or a used car.

Buying a New Car

Positives

• No history: you don't have to worry about looking for accident histories or wear and tear
• Latest technology: each year’s cars are coming out with new technology to make you safer and make your drive more enjoyable
• Newer cars can be more fuel efficient
• Can pick and choose what features or color you want 

Negatives

• Depreciation: a car’s value depreciates the most in the first 3 years
• Higher auto insurance cost for higher cost vehicle
• Tech makes repairs more expensive
• Must be bought through a dealer: if few dealers around, ability to negotiate price goes down
• Sales tax: taxed on entire price you pay: meaning a more expensive car will cost more in taxes

Buying a Used Car

Positives

• Less expensive: the upfront cost, auto insurance, taxes, and interest can all be less
• No big depreciation hit: new cars lose value the moment you drive it off the lot
• Easy to explore a car’s history with the use of companies that give out history reports
  • Title history, record of maintenance, number of owners, collision and repair info
• Reliability record: used car rankings and reviews can help determine which cars will requite less maintenance, hold value best, and save you money overall
  • https://cars.usnews.com/cars-trucks/rankings/used

Negatives

• History reports are thorough, but they are not perfect
• Used cars sold as is: can't return if it has unexpected problems
• Limited or no warranty coverage
• Can't be as picky: may have to compromise on a few things such as color or mileage

Check out this video from Bank of America that breaks down the cost comparison even further:

https://bettermoneyhabits.bankofamerica.com/en/auto/buy-new-used-car

Certified Pre-Owned Vehicles

• Blend some of the advantages of new and used cars
• Gently used, usually only a few years old, low mileage, and no major accidents
• Closely inspected
• Typically, leased returns or vehicles driven by employees of the dealership
• Can get special low interest financing deals on CPO cars

Reminder: Keep your credit score high!

• Your credit score can affect
  • Your ability to get a car loan
  • The interest rate given to you

Regardless of whether you get a used or new car:

• Make sure your credit score is high
• Have a down payment ready to decrease the loan amount you need
• Do your research to figure out what you really need in a car and what you can go without

Safe travels - whichever you choose!

With the Equifax hack settlement promises coming out and the recent Capital One hack, many people are wondering how safe their credit is. Even if your credit hasn't already been leaked, it may be a good idea to freeze your credit as a preventative measure. Fortunately, after the Equifax incident, a federal law was passed to make freezing your credit free.

Why Should You Freeze Your Credit?

It seems like credit breaches are becoming more and more common and each time millions of people can be affected. Freezing your credit protects you by making sure no one can open credit in your name. It does not hurt your credit score, it simply blocks new applications.

When Should You Not Freeze Your Credit?

If you are trying to open a new credit card or thinking about applying for a loan soon.

• Fortunately, federal law states that if a request for a temporary or permanent unfreezing of your credit is made online or by phone it must be unfrozen within one hour. So, if you freeze it and then want to apply for credit later, it should be quick to undo.

 Things to Keep in Mind

• To freeze your credit, you need to contact each of the three credit bureaus (follow the link below to the FTC website).
• Parents can freeze credit for kids under 16.
• Freezing your credit only stops someone from opening a new account in your name, current account information is still susceptible to fraud so keep an eye on currently open credit accounts.

More experts are recommending freezing your credit to give yourself a better chance at protection from fraud.  Weigh the options of convenience versus security and decide for yourself.

Resources:

https://www.consumer.ftc.gov/articles/0497-credit-freeze-faqs

What does financial planning mean to you?

When you hear the term "financial planning", what do you think of? I don't think most people often associate the term with young people. That's a big problem though because early financial planning can have lifelong benefits. Financial planning goals can vary depending on your age. Look below to see a list of some common goals for young adults.      

• Paying off Debt
  • Student Loans
  • Credit Cards
  • Car Loan
• Emergency Protection
  • Emergency Savings
  • Disability Insurance
• Future Savings
  • Retirement
  • Big Purchases (Home)

Paying off Debt

• Take a look at any debt you have and determine how much you can afford to pay off each month and give yourself a target date to have it paid off by.
• Keep credit card debt as low as possible, ideally pay off your entire balance on time every month.

Emergency Protection

• Start building up some emergency funds for when your car breaks down or you drop your phone in the toilet (it happens!).
• Disability insurance - not a lot of young people consider this a need; however, what would happen if you injured yourself tomorrow and could no longer work?
  • Whether or not you work in a high-risk job, disability insurance is worth the cost.
  • Generally, costs about 1-3% of your salary

Future Savings

• Large future purchases- start saving now to meet your goal quicker
  • If you know you want to buy a house at some point, start saving for a down payment of at least 20% of the home price to avoid having to pay private mortgage insurance and save yourself money.
• Start investing for your retirement! You are never too young to start putting money into a retirement account. We can’t impress enough how compounding interest can do wonders to help grow your retirement account balance and the earlier you start, the more time you give your money to grow.

Set aside a couple of hours on the weekend and start your own financial planning as soon as you can. By understanding your personal finances and giving yourself goals, you are giving yourself the greatest shot at success in the future.