A version of this writing appears in Nerdwallet, NASDAQ.com & YahooFinance.com.
Zombies have gone mainstream in pop-culture due primarily to the popular cable television show – AMC’s The Walking Dead.
Wandering corpses are scary. Financial dead zones are equally frightening.
There are situations that corner money in a dangerous place.
The habits are so stealth you may never calculate how many dollars were bled or lost.
There are indeed occasions when the living are dead with their cash.
Random Thoughts on how to protect yourself and avoid financial ‘zombie traps.’
Bank fees can chip away at the flesh and blood of net worth – Moebs Services a leading economic research firm in a recent study discovered that overdraft revenue for banks, credit unions and Thrifts was an astounding $32.5 billion for the year ending June 2015. That’s the highest level since June 2010.
The Consumer Financial Protection Bureau registered approximately 410,000 complaints from December 2011 to June 2015. What’s amazing is that out of them only 1.6% were attributed to overdrafts. Consumers lost billions in fees by overdrawing accounts, but rarely took issue with a median $27 dollar fee for protection. Talk about bleeding dollars!
To avoid or minimize this zombie trap link-up a savings account or credit card to your checking. For an average charge of $5, money will transfer automatically to cover. You can actively opt-out of a bank’s automatic overdraft program, too. Even better – Consider institutions with no overdraft fees. Google Nerdwallet and check their list of banks that won’t bloody you with overdraft charges.
Don’t ignore 401K allocations. Your company retirement account is a potential dead zone. Once money is invested, there are two potential, lethal bites to net worth. First, there’s a tendency to build a stealth overweight in company stock whether it’s through payroll contributions or employer match.
The danger arises when 15% or more of your liquid assets are tied up in one investment and it underperforms or worse – drops dramatically in price, as witnessed in the energy sector over the last year. To manage risk, once (if) the stock allocation becomes monstrous, or 15-20% of the total value of a retirement account, protect yourself and trim it back to less than 15%.
Second, there’s a tendency to invest and forget: In other words, employees rarely review, alter or rebalance holdings. Money requires attention to deflect a zombie pitfall. Set aside 30 minutes every 3 months to ensure investment selections still fit your tolerance for risk, sell (take profits) from what’s performed the best, and determine whether you’re comfortable with your overall mix or asset allocation. Consider using the services of a Certified Financial Planner to provide an objective analysis of current investments and specific recommendation changes.
Minimum credit card payments. According to Nerdwallet, as of October 2015, U.S. household average credit card debt is $16,140. In zombie environs, this balance would be considered a herd. A group of living dead that moves as one, like waves. They overwhelm everything in their path.
So, if the minimum payment is roughly 5% of the balance (plus interest) at an interest rate of 15% (U.S. median), it would take close to 11 years to pay off the balance (assuming you stop using the card). Yikes. Talk about dead money!
In addition, you would incur $5,327 in interest charges. Minimum payments are not adequate weapons against herds. You’re going to need more firepower. Consider special deals that come with balance transfer offers, use liquid savings (which currently pay close to zero), or call the credit card company and ask for a lower rate – I’ve witnessed people negotiate attractive rates and save thousands.
Stealth, recurring charges. They are the most horrific. They’re like zombies in the fog. You won’t notice until it’s too late. Recently, after a close examination of my credit card statements, I discovered a quarterly payment of $9 dollars to a forgotten newsletter. I’m ashamed to say this had been going on for TWO YEARS. I bled money for 8 quarters!
Think about the recurrent payments you haven’t cleaned up because they’re a nuisance or frankly, you don’t remember. Debits for subscription periodicals you no longer read or membership fees for services you rarely use. This living dead walks among your credit balances. Just look.
PRINT (no online review) and closely examine your credit card and checking account statements at the minimum on a quarterly basis. Be proactive to battle the fog zombies. Call vendors to not only stop future debits but to reimburse you for services you haven’t used. I did. They rebated four quarters of charges.
Paying extra on a mortgage. Borrowers love to pay extra on their mortgages. It feels good. Like a cure that protects against lethal zombie bites. It isn’t. Most homeowners will stay in their residences for 5 years (not 30). Making larger payments is money taken from the life blood of liquidity. The additional cash has the potential for greater and higher uses like reducing high-interest debts, building emergency liquid reserves, bolstering investments that will be needed to generate retirement income. Unless you plan to remain in a house for 10 years or longer, paying extra only makes sense if you have adequately funded investments or completely paid off debts.
Overlooking important employer benefits. Benefits enrollment season is about to begin. Annually, I observe employees make mistakes that leave their futures up to chance. For example, they fail to take medical coverage or feel disability insurance isn’t required since “nothing bad is going to happen.”
There are hazards that have potential to wield long-term damage. A serious illness or a disability without adequate insurance coverage leaves you exposed to unrecoverable financial shocks. It would be like fending off a bunch of ravenous zombies with a plastic teaspoon.
It’s smart to accept when you’re outnumbered. To survive, transferring risk to a fighter with great resources (like an insurance company), is a money-smart way to live.
The dead can devour money.
They have an appetite for poor financial decisions.
Now you know how to detect and destroy them.
And live a zombie-free, financially less-frightening life.