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MoneyWise Matters is a weekly blog published each Wednesday by the Office of the Indiana Secretary of State. Here we discuss money related topics including; debt reduction, budgeting, saving strategies, scam alerts, investment fraud prevention and investor insights. You don’t want to miss out on this helpful information, hit subscribe for email updates (above) so you’ll be notified when we publish a new post.  


Financial Relationship Status: It's Complicated

Financial Relationship Status: It's Complicated

 

By Kelly Griese

Wednesday, January 15, 2020

Let’s face it, we are emotional spenders. Few of us are able to make purely logical financial decisions. Instead, we spend based on how we feel, and our feelings are impacted by a lot of internal and external forces. If our relationship with money was a Facebook status, it would be listed as “it’s complicated.” And to make matters more complicated, our financial behavior is set at an earlier age than most of us realize. 

According to a study from Cambridge University, not only are kids able to grasp basic money concepts as early as age 3, but money habits are set as young as age 7. By the time we reach the age of making major financial decisions, we’re already firmly set in our ways. And that’s why it’s okay if you’re struggling to change. Improving our financial behavior is hard, and it takes much more than some facts and figures on a spreadsheet to make changes. 


Pay Yourself First

So how do we begin? Well, I like to start with some of the best financial advice I’ve ever heard: PAY YOURSELF FIRST! When faced with a financial decision, repeat those three words in your head. Each time you buy something new and exciting, you are paying someone else. You are giving them money in exchange for the latest gadget you crave. 

Paying YOURSELF means setting aside money for YOUR future. This requires discipline. It also requires you to think beyond your need for immediate gratification. If you find yourself frequently tempted into making impulse buys, look for ways to remind yourself of the things you want months or even years from now. Do you want a new car? What about an awesome vacation? Retirement? 

Spending that money now can make us feel good in the short term (remember, we spend with our feelings), but in a few years, when we really want/need something big, the money won’t be there. If you’re still working when you’re in your 80s, you may regret not paying yourself first.


Values

Now let’s talk about some of those intangible things that influence our emotional spending. Things like values. Values are qualities or standards people consider to be worthwhile or desirable. These are the basic and fundamental beliefs that guide or motivate our attitudes and actions. Examples include: accomplishment, community, entertainment, generosity, and so on. You may possess some of these values or different ones. Take a moment to think about what you truly value and write it down. Better yet, prioritize your values. When I give financial fitness presentations, I provide folks with a worksheet, so feel free to print a copy for yourself


Goals

Now let’s talk about goals. Goals are the specific plans or purposes we have in life. Short-term goals can be accomplished in a few weeks, months, or even a year.  Examples include setting up a savings account and using it, building an emergency fund, or saving for a family vacation.  Long-term goals require more planning and saving, and they are often not realized for many years.  Popular long-term goals include homeownership, a college education, or a comfortable retirement.  

Unfortunately, goals are somewhat meaningless without a plan to achieve them. That’s why I encourage you to create SMART goals. SMART is an acronym. 

  • Specific – state exactly what you want to buy or accomplish with the money you save
  • Measurable – indicate the exact dollar amount you need in order to reach the goal
  • Attainable/Achievable – identify the necessary steps to achieve this goal
  • Relevant – the goal needs to be meaningful or you may lose motivation
  • Time-Bound – the goal should have a deadline for achievement 

Let’s transform a regular goal, such as “I want to buy a car” into a SMART goal. “I plan to save for a down payment on a new car. I need to save $5,000 for the down payment. I will reach my goal of saving $5,000 by setting aside $200 from my paycheck each month. I need a new car because my current car is getting old and repairs will become costly. By saving $200 a month, I will save $5,000 in 25 months (or two years and one month).”

Now that’s a SMART goal! To help you create your own SMART goals, print the worksheet I created.


Wants vs Needs

Now that we’ve established our values and goals, it’s time to buy stuff, right? Not yet. We need to talk about wants versus needs. 

As children, we are taught that needs are the stuff that’s necessary for survival: food, water, shelter. Wants are all the stuff we can live without but would enjoy having. Using these simple definitions, we can put things like rent, groceries, and transportation into the needs category, and most of our entertainment options are considered wants. But this whole post is about our complicated relationship with money, and wants and needs are not quite so simple. 

A few years ago, I was helping some local Girl Scouts earn their Junior level Savvy Shopper badge. We made collage posters with magazine clippings, with wants on the right side of the poster and needs on the left side. One girl brought up an interesting question: where does deodorant go? It sparked an insightful conversation that helped me realize our wants and needs are more complicated and simply deciding what’s necessary for survival. The girls and I talked about how it might be hard to make friends or get a job if we smell bad. We Googled the history of deodorant (great article can be found here).  We even discussed cultural differences related to hygiene. In the end, we decided that wants and needs are complicated. They are also unique and personal. Everyone has different priorities, and so everyone has different wants and needs. Identify your own wants and needs, just as you did with your values and goals. Your spending and saving decisions should be reflective of these choices. To help you determine your own wants and needs, we have another worksheet you can complete. It’s a great activity to do with other members of your family. 


So how will all of this critical thinking improve your financial situation? Wants, needs, values, and goals are important parts of every budget. After you have identified the emotional drivers behind your spending and saving decisions, start a spending log. I recommend using it for at least a week, but a month is preferred. Keep track of every last cent! In addition to writing down the date, purchase, and cost of all your expenses, also write whether they satisfy wants or needs. You can use this spending log to help you make adjustments to your budget. Spending logs are great at revealing problematic spending. We have a spending log worksheet as well as a budget worksheet that you can print. 
 

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Financial Relationship Status: It's Complicated

Financial Relationship Status: It's Complicated

 

By Kelly Griese

Wednesday, January 15, 2020

Let’s face it, we are emotional spenders. Few of us are able to make purely logical financial decisions. Instead, we spend based on how we feel, and our feelings are impacted by a lot of internal and external forces. If our relationship with money was a Facebook status, it would be listed as “it’s complicated.” And to make matters more complicated, our financial behavior is set at an earlier age than most of us realize. 

According to a study from Cambridge University, not only are kids able to grasp basic money concepts as early as age 3, but money habits are set as young as age 7. By the time we reach the age of making major financial decisions, we’re already firmly set in our ways. And that’s why it’s okay if you’re struggling to change. Improving our financial behavior is hard, and it takes much more than some facts and figures on a spreadsheet to make changes. 


Pay Yourself First

So how do we begin? Well, I like to start with some of the best financial advice I’ve ever heard: PAY YOURSELF FIRST! When faced with a financial decision, repeat those three words in your head. Each time you buy something new and exciting, you are paying someone else. You are giving them money in exchange for the latest gadget you crave. 

Paying YOURSELF means setting aside money for YOUR future. This requires discipline. It also requires you to think beyond your need for immediate gratification. If you find yourself frequently tempted into making impulse buys, look for ways to remind yourself of the things you want months or even years from now. Do you want a new car? What about an awesome vacation? Retirement? 

Spending that money now can make us feel good in the short term (remember, we spend with our feelings), but in a few years, when we really want/need something big, the money won’t be there. If you’re still working when you’re in your 80s, you may regret not paying yourself first.


Values

Now let’s talk about some of those intangible things that influence our emotional spending. Things like values. Values are qualities or standards people consider to be worthwhile or desirable. These are the basic and fundamental beliefs that guide or motivate our attitudes and actions. Examples include: accomplishment, community, entertainment, generosity, and so on. You may possess some of these values or different ones. Take a moment to think about what you truly value and write it down. Better yet, prioritize your values. When I give financial fitness presentations, I provide folks with a worksheet, so feel free to print a copy for yourself


Goals

Now let’s talk about goals. Goals are the specific plans or purposes we have in life. Short-term goals can be accomplished in a few weeks, months, or even a year.  Examples include setting up a savings account and using it, building an emergency fund, or saving for a family vacation.  Long-term goals require more planning and saving, and they are often not realized for many years.  Popular long-term goals include homeownership, a college education, or a comfortable retirement.  

Unfortunately, goals are somewhat meaningless without a plan to achieve them. That’s why I encourage you to create SMART goals. SMART is an acronym. 

  • Specific – state exactly what you want to buy or accomplish with the money you save
  • Measurable – indicate the exact dollar amount you need in order to reach the goal
  • Attainable/Achievable – identify the necessary steps to achieve this goal
  • Relevant – the goal needs to be meaningful or you may lose motivation
  • Time-Bound – the goal should have a deadline for achievement 

Let’s transform a regular goal, such as “I want to buy a car” into a SMART goal. “I plan to save for a down payment on a new car. I need to save $5,000 for the down payment. I will reach my goal of saving $5,000 by setting aside $200 from my paycheck each month. I need a new car because my current car is getting old and repairs will become costly. By saving $200 a month, I will save $5,000 in 25 months (or two years and one month).”

Now that’s a SMART goal! To help you create your own SMART goals, print the worksheet I created.


Wants vs Needs

Now that we’ve established our values and goals, it’s time to buy stuff, right? Not yet. We need to talk about wants versus needs. 

As children, we are taught that needs are the stuff that’s necessary for survival: food, water, shelter. Wants are all the stuff we can live without but would enjoy having. Using these simple definitions, we can put things like rent, groceries, and transportation into the needs category, and most of our entertainment options are considered wants. But this whole post is about our complicated relationship with money, and wants and needs are not quite so simple. 

A few years ago, I was helping some local Girl Scouts earn their Junior level Savvy Shopper badge. We made collage posters with magazine clippings, with wants on the right side of the poster and needs on the left side. One girl brought up an interesting question: where does deodorant go? It sparked an insightful conversation that helped me realize our wants and needs are more complicated and simply deciding what’s necessary for survival. The girls and I talked about how it might be hard to make friends or get a job if we smell bad. We Googled the history of deodorant (great article can be found here).  We even discussed cultural differences related to hygiene. In the end, we decided that wants and needs are complicated. They are also unique and personal. Everyone has different priorities, and so everyone has different wants and needs. Identify your own wants and needs, just as you did with your values and goals. Your spending and saving decisions should be reflective of these choices. To help you determine your own wants and needs, we have another worksheet you can complete. It’s a great activity to do with other members of your family. 


So how will all of this critical thinking improve your financial situation? Wants, needs, values, and goals are important parts of every budget. After you have identified the emotional drivers behind your spending and saving decisions, start a spending log. I recommend using it for at least a week, but a month is preferred. Keep track of every last cent! In addition to writing down the date, purchase, and cost of all your expenses, also write whether they satisfy wants or needs. You can use this spending log to help you make adjustments to your budget. Spending logs are great at revealing problematic spending. We have a spending log worksheet as well as a budget worksheet that you can print. 
 

New Year, New You, Anatomy of Your Paycheck Part 2

New Year, New You, Anatomy of Your Paycheck Part 2

 

By Kylee Hale

Wednesday, January 8, 2020

On average, an employee’s salary makes up seventy percent of their total compensation, while the remaining thirty percent is compiled of fringe benefits. These “extras” often include; insurance, tuition reimbursement, childcare, retirement plan contributions, and discounts. In my first post about understanding your paycheck, I discussed the common terms on most pay stubs such as Gross Income and Net Pay. In this post, I’m going to dive deeper into the deductions listed on most pay stubs to explain where every penny goes to determine your take-home check. 

Before we talk benefits, I want to point out, about thirty percent of your Gross Income is reduced by taxes. Tax withholdings are dependent upon your W-4 form filling, the example pay stub (right) for John Smith is claiming one exemption. Multiple income tax withholdings are calculated according to a person’s claimed exemptions.

Federal Income Tax: Federal tax is calculated by tax brackets determined by taxable income and your tax filing status: single, married filing jointly, married filing separately, etc. There are Paycheckseven tax brackets, the progressive tax system allows your taxable income to be taxed in chunks according to the portion of income that falls in each tax rate category. John Smith is a single filer with $32,692.30 in annual taxable income. That puts him in the 12% tax bracket in 2019, but he only pays 10% on the first $9,700 of income, then he pays 12% on the rest up to $39,475 of taxable income, because the next bracket of 22% begins with $39,476 taxable income.

FICA/Medicare: Federal Insurance Contribution Act (FICA) tax is a payroll tax that funds Social Security benefits and Medicare health insurance. This tax is split between employers and employees who both pay 7.65% (6.2% for Social Security, 1.45% for Medicare). You can calculate these individually but for many employers, these are lumped together. John Smith is paying $95.38 for FICA and $22.30 for Medicare each pay period, equaling $117.68 together.

State Income Tax: Some states do not collect income tax, some collect a flat rate and some impose a progressive tax meaning people with higher levels of income pay higher taxes. The state of Indiana has a flat tax rate of 3.23%. John Smith will pay $49.69 per pay period or $1,242.25 a year in state income tax.

Local Tax: This is also known as county tax, in Indiana, this is based on your County of residence as of January 1 per tax year. For John Smith's pay stub, he is a Marion county resident with a tax rate of 0.0202%. 

Insurance Premiums: Most pay stubs itemize the insurance premiums for the services you selected. For health, dental, vision, life and disability, your employer likely requires you to pay a portion of the premium. These costs are deducted from your gross pay. If your employer offers TaxSaver benefits, this prevents you from paying tax on the premiums. John Smith has medical, dental, vision and life insurance on a single plan, rather than a family plan. If applicable, this section of your pay stub is also where you will find disability insurance. For state of Indiana employees, I have found that the employee portion of the premium for disability insurance is about 0.0025% per paycheck. 

Other deductions: Depending on your employer, there may be additional deductions. For example, if you choose to donate part of your paycheck to a charity that partners with your employer — like the State Employees' Community Campaign (SECC), this should appear on your pay stub.

Deferred Compensation: These funds are also known as your retirement money. The tax is deferred on this income until payout which is likely in your retirement years. The strategy with this is that you benefit from a lesser tax burden at the pay out because you expect to be in a lower tax bracket after retiring, than when you initially earned the income.

The Direct Deposit amount is your take-home pay, also known as net pay. Most pay stubs include how much you've received year to date (YTD).

The last section of the state employee paycheck, Employer Provided Benefits, is my favorite. Most employers who offer benefits are required to pay a portion of the premiums for the employee’s coverage. For example, while John Smith pays $1.22 per pay period towards his premium for dental insurance, his employer pays $10.38 per pay period towards the premium. This is the same for medical, vision, life and disability insurance premiums. 

Let’s talk about retirement accounts, this will be different for non-state employees, but I hope this information will provide some insight and spur you to find out more about how your employer retirement accounts are structured. 

On John Smith’s pay stub, we see the deductions titled:

Def Comp.: This refers to a Target Retirement Fund account offered by Hoosier S.T.A.R.T., sometimes also referred to as a 457 plan, only for state and local government employees and some non-profits. This is similar to a 401(k) plan that might be offered by a private employer.

PERF St and PERF Spe: This could be referred to as your state employee pension and the state pays 100% of the cost. While employed, the state will continue to put money into these accounts, this is provided by INPRS. This appears as two separate contributions on the pay stub because a portion is invested via an annuity and the other via Target Date Funds

Def Comp St Pd: This is another Hoosier S.T.A.R.T. sponsored retirement plan, sometimes referred to as a 401(a) plan. The unique feature of this plan is, state employees receive a $15-per-paycheck matching contribution which equates to $30/month or $390/year of “free money”. Another way of thinking is to view the state’s match as BOGO, you put in $15 a payday and the state will match that giving you $15 in your account each payday. It’s wise to contribute at least up to the match so you’re getting the benefit of all the money your employer is offering and padding your retirement savings.

HSA Employer: The last thing to mention is a Health Savings Account (HSA). If enrolled in a High Deductible Health insurance Plan (HDHP), you qualify for an HSA, an account allowing you to save specifically for medical costs. As an employer, the state of Indiana contributes thirty-nine percent of your annual deductible into your HSA. Your contributions to an HSA are pre-tax or tax-deductible and you don’t pay tax on the account’s growth nor the withdrawals if used for eligible expenses. An HSA is similar to a Flexible Spending Account (FSA), although an FSA does not allow for the leftover funds to roll over to the next year, and an FSA is often better paired with a lower deductible health insurance plan.

It’s important to stay on top of tracking your deductions and contributions. Any errors are your responsibility to find and report, the last thing you want is for an error to be repeated through several pay periods.

I can write from experience, my first year as a state of Indiana employee, somewhere a mistake was made by HR. The information on my W-4 was incorrectly filed in the system. For about seven months my taxes were withheld in “married” filing status, although I would be filing as “single”. I noticed this on my paystub a little too late in the year, and when tax filing time came around, I owed more than I was excited to pay.

If you have questions about any of the information listed on your pay stub, be sure to contact your human resources representative.        

The Anatomy of Your Paycheck

The Anatomy of Your Paycheck

 

By Kylee Hale

Wednesday, December 18, 2019

Most people don’t get a pay stub delivered to them along with the paycheck anymore, because most employers issue a direct deposit check and theState Employee Paycheck funds just appear in your bank account. This doesn’t mean that pay stubs no longer exist, or that pay stubs are no longer important. Reviewing your pay stub can help you spot errors and be aware of where the money that isn’t deposited into your account is going. There is good information about your finances located on this slip, knowing about your withholdings, taxes, benefits and retirement contributions can help you be better off financially. In this post, I’ll show you how to locate your pay stub (for state of Indiana employees), and define some of the information you see on your pay stub. If you are not a state of Indiana employee, check with your Human Resources Department.

For state of Indiana employees, your pay stub can be found in PeopleSoft. The same place you go to submit your time, except instead of selecting "Time Reporting", you'll go to "Payroll and Compensation". From there, you click on "Pay Inquiry" and this will open a new window with your pay stub. 

Now that you've found your pay stub, again, if you are not a state of Indiana employee, be sure to ask your HR department, let's look at the earnings and taxes. Below is an example of a pay stub for John Smith, making a $40,000 salary. 

Pay stub example

For state of Indiana employees, we have information about our employment anniversary (Bonus Date) at the top of our paychecks, this refers to when you will be awarded paid time off. You can find more about this in the State of Indiana Employee Handbook, or your agency's employee handbook. Just below that, is your Tax Filing Status, this correlates to the W-4 tax form that you completed with your HR representative. You can change your exemptions at any time, this will impact your take home pay amount. If you opt for less money withheld for federal taxes, you need to plan ahead for tax filing season, as you might owe money instead of getting a tax return. The IRS has an IRS Withholding Calculator that can help you estimate what you should claim on your W-4.

The majority of your paystub describes income earnings, tax withholdings, retirement contributions and medical premiums. Let's review some common terms. 

Pay Period: The dates on your pay stub will inform you of your pay schedule, whether it's weekly, bi-weekly, or monthly. If you're paid weekly you would multiply the pay by 52 to calculate the annual salary. If paid bi-weekly multiply by 26, and if paid monthly, multiply by 12. State of Indiana employees are paid bi-weekly or 26 times a year. 

Gross Earnings: This is the total amount earned for the pay period, including wages/salary, plus bonuses and tips if applicable. For this example, the pay stub shows how much John Smith has earned year to date (YTD), after 25 out of 26 pay periods. 

Non Taxable Earnings: The IRS definition of a non-taxable wage is fairly narrow, but an example of such is disability wages and worker's compensation. 

Deferred Compensation: This part of your income is set aside to be paid to you at a later time, also known as invested retirement funds. You don't pay taxes on this portion of income until the money is paid out.

TaxSaver Benefits (Cafeteria 125 Plan): This is an employee benefit offered by section 125 of the Internal Revenue Code, allowing for your premiums to be deducted before taxes are applied to your income. This allows for your take home pay to be a little bit bigger. 

Taxable Earnings: This portion of your income, is used to figure the taxes you'll pay to Federal, State and Local entities as well as your premium for Medicare/FICA. You can learn more about tax and premium calculations in the next post, The Anatomy of Your Paycheck Part Two, where I break down the other half of your paycheck.

Some pay stubs summarize your paid time off. Like you can see on John Smith's pay stub, state of Indiana employee pay stubs reflect overall taxes, deductions and take-home income for the pay period and YTD. 

Net Pay: This is your take-home pay. Calculated after all taxes, insurance premiums, deferred compensation/retirement contributions and deductions have been subtracted out, this is the remainder of your income. 

If you're like most people, the number on your pay stub that really matters is the cash dollar amount on your paycheck. We are all excited to get paid and have money deposited into our accounts. Although, it is important to review your pay stub, being tuned into where every dollar goes will help you take full advantage of your employee benefits. If there is a mistake in your pay or an opportunity to better your retirement or take-home pay, this is where you'll likely notice it. In our next post, we will analyze another part of your pay stub: insurance premiums and retirement accounts. Be sure to check out the Anatomy of Your Paycheck Part Two on January 8, 2020. This will be our first post of the New Year. 

Save Energy, Save Money

Save Energy, Save Money

 

By Kelly Griese

Wednesday, December 11, 2019

Save Energy, Save Money

We already know you love saving money, because you’re reading the MoneyWise Matters blog (and are hopefully a subscriber)! That’s why we’re confident you’ll love this post, because it’s all about saving money… and energy. How great is that? You can help the planet and your budget at the same time. 

In order to help you improve your home’s energy efficiency, we teamed up with Indianapolis Power & Light Company. They taught us that small changes can have a big impact on energy bills. But if you’re not an IPL customer, don’t worry, we have links to energy providers in your community at the end of this article.

Here are five easy things you can do this weekend to improve your energy efficiency:

  1. Replace the air filter in your furnace every 6 months. A clogged filter is problematic for several reasons. When it comes to energy efficiency, a clogged filter requires your furnace to work harder. Replacing the filter will not only improve the air quality of your home, but it will allow that air to flow through the filter with greater ease. (Side note… you should also consider cleaning the air vents and hoses that connect to your clothing dryer. Dryers also have to work harder when the vents and hoses are clogged with dust, plus, all that debris is a fire hazard.) 
  2. Replace the incandescent light bulbs in your home with LED bulbs. Incandescent bulbs may cost a little less in the store (as little as 70 cents per bulb), but they don’t last nearly as long (about 1,000 hours), and 90% of the energy is wasted in heat, while only 10% goes toward producing light. Meanwhile, standard LED bulbs run anywhere from $1-$3, but they are much more efficient and will last a lot longer (about 25,000 hours). According to Energy.gov, your lighting energy costs can be cut 50%-80% by switching out your incandescent light bulbs to LEDs.
  3. Using setbacks on your thermostat is another great way to get significant savings. In the winter, 68 degrees is the recommended temperature when you are home and awake, and 63 degrees is recommended when you are away at work or on vacation. In the summer, it is best to set your thermostat to 78 degrees when you are home and 83 degrees when you are away.
  4. Seal air leaks and cover drafty windows. Replacing windows can be expensive and time consuming, but there are plastic kits you can buy in most home-improvement stores to help you insulate the windows you have in the meantime. Install new caulking and weather-stripping to help seal air leaks around doors because they can wear out over time or may have never been installed when your home was built.
  5. Unplug electronics and appliances that are not being used. If you have a guest room, that is a great place to start. Nearly everything that plugs into the wall outlet will draw small amounts of power even when turned off. You can save energy by unplugging anything you do not regularly use. You may also want to consider an energy efficient power strip for your entertainment system. It will cut power to devices that are not in use, but still provide power to things like your internet modem and DVR when you are away from home.

To tackle some of these projects and identify other energy bandits in our homes, one of our Indianapolis-based staff members scheduled a FREE energy assessment with IPL. Watch as Brandon Kline, our Elections Outreach Coordinator, tours his home with Casey Roehm from CLEAResult®, who manages IPL’s residential and commercial energy efficiency programs. 

IPL’s eScore™ Home Energy Assessment is free to IPL customers. An energy advisor will come to your home, conduct a walk-through assessment, and install energy-efficient products to help you start saving immediately. Your home will be given an eScore of 1-10, and the energy advisor will provide you with recommendations to improve that score. All of the recommendations will appear in your eScore dashboard, which you can view online when you log into your IPL account.  One of the “coolest” parts about the eScore program is that the advisor can install a FREE smart thermostat by Nest. To qualify, customers must enroll in IPL’s CoolCents® program, and they must have electric heat or central cooling, a compatible HVAC system and working Wi-Fi. You can learn more about the CoolCents® program by clicking here


So what if you’re not an IPL customer? Energy providers throughout Indiana offer similar ways to save. We compiled a list of the energy efficient programs in other parts of the state.

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