But you’re still not getting ahead.

Well, sometimes, it’s the unchallenged assumptions about how we’re handling our money which rise up and bite us in the keister.

So, in the course of working with clients, I’ve identified some mistakes I see (as well as ones I’ve made myself!), which can be fixed. All it takes is thinking a little differently…

Hidden Mistake #1: Inappropriate Mental Accounting
Definition: Tendency for families to divide money into separate accounts based on subjective criteria.

Typical Example: Treating $100 you received as a gift from Grandma, differently than a $100 bill earned.

Typical Example #2: Having money languishing in a savings account earning 0.25%, while carrying high-interest debt to pay off at 12%.

Cure: Funnel income, no matter the source, into one savings account.

Any "found money", such as a tax refund or gift from Grandma, quickly decide where that money is best utilized.

As for expenses, occasionally change how you pay. If you always pay with a credit card, try cash. This will get you remembering that all of it, for the purposes of your mental "books", should be lumped into one, monthly bucket.

Hidden Mistake #2:  Manipulative Price Anchoring
Definition: Our tendency to relate the value of a purchase to a price point which, rationally, should have no bearing on the amount spent.

Typical Example: The "rule of thumb" to spend two months’ salary on an engagement ring.

Typical Example #2: A realtor will tell you that "in 2007 this house was going for $500,000 and is now listed at only $350,000!" … causing you to think this house is undervalued.

Cure: For big ticket purchases like a house, car, or engagement ring, ask a friend whose financial values you respect for their input.

For everyday purchases, avoid looking at the MSRP or sticker price.

Ask yourself:

    Can I afford this today?
    What do I really want to spend?
    What is this really worth to me?

(2) if the person had a valid will, the estate will still have to go through the probate process, but the court will carry out their wishes as stated in their will; or

(3) if the person had a valid living trust (and their assets were re-titled in the name of their living trust), their wishes would be carried out in private, without the court’s involvement. 
 
So … why does it matter to you? 

The answer to this question depends on how much you care about what your loved ones have to deal with after you are gone and how much control you want to have as to who gets what, and when and how they get it. 
 
If you do nothing, you get no input on any of these questions and the court and one of your eager family members/friend/creditor who petitions the court will make these decisions on your behalf through a process called probate.  Why do you care about probate?  Often, the probate process can take 12-16 months, can be extremely costly, and the process is completely public.  The probate process can often lead to squabbling between family members and airs the family’s dirty laundry. 
 
If a person leaves a valid will, it will still have to go through the probate process described above, but the court will have the benefit of knowing how you want your affairs handled.  Instead of relying on the laws of intestate succession (which is the law that distributes your assets to your family members in the order of their relation to you), the court will pass on your assets to the specific people you have identified in your will. 

Through a valid will, you can control WHO gets your assets, but you will have no control as to HOW and WHEN they get it.  
 
A living trust (that has been properly funded), on the other hand, gives you more control.  If you are working with an attorney who has expertise in this field, you can control WHO gets your assets, and WHEN and HOW they get it without the court’s involvement.  Even better–with a living trust, it is a private administration and can generally be handled in a short period of time.    
 
You may be asking yourself: why would someone ever do a will instead of a living trust?  Typically, a person will choose a will over a living trust for one of two reasons:

(1) they don’t know the difference between the two, or
(2) the "cost" of doing a living trust.  
 
There are some obvious advantages to doing a living trust over a will, but starting with something is better than nothing.  If you are not yet ready to make a leap into the world of living trusts, a basic, will-based estate plan is a starting point.  In addition to giving the court direction about how you want your assets distributed, a will-based estate plan should also include your advance health care directive (which identifies the person(s) that will make health care decisions for you, if you’re incapacitated) and a durable power of attorney (which identifies the person(s) that will make financial and legal decisions, when you can’t). 

Like all government law, Social Security is not a simple piece of legislation. Since the Social Security Act became law in 1935, hundreds of amendments have been piled onto it, and have thereby added to the complexity. So to make the best decision about how to file for it, you’ll need to consider four things: 1) health 2) income before retirement and 3) income during retirement and 4) taxes.

Retirees cannot rely on conventional wisdom! Simplistic "rules" such as "Always file for early benefits" or "You need to stop working to receive benefits" are NOT always true. There are specific cases that break every rule of thumb. And these one-size-fits-all answers leave many retirees failing to maximize the benefits they have earned.

At least four methods are used when electing how to take Social Security. And if you’re married, the two of you can mix and match these in more than 16 different ways (!). Each choice results in a different cash flow. By using the cash flows and the time value of money, you can determine which method will offer you the best maximum value.

So these methods differ significantly… they depend on your historical earnings, marital or divorce status, continued work in retirement, life-longevity and rates of return. The choice alone could be worth $250,000 of income or more. Filing options include "early filing," "standard filing," "delayed filing," "file and suspend," and many combinations of these options for married couples. It is DEFINITELY worth careful study and analysis of each option… yet a majority of Americans make their choice impulsively and emotionally.

The decision is even more crucial for women. For 42% of single women older than 62, Social Security is their sole source of income. Women on average outlive men. Thus, planning for retirement is usually much easier for men (who statistically tend to have more assets and die younger). Widows are twice as likely to live under the poverty line as men who have lost their wives. And the poverty rate for elderly single women is 23% compared with just 5% for retired couples.

So couples must take their joint longevity into account before either one files for benefits. The person with the longer life expectancy will inherit either a wise or a foolish decision that will last a lifetime. Given that a husband’s benefits are often higher and the wife’s life expectancy longer, each case needs to be analyzed carefully.

Unfortunately, many people file after considering only one or two options in isolation. Even worse–the Social Security Administration’s new online filing system enables quick decision-making. People can easily submit their request without any professional advice or planning.

Before filing, then, you obviously should be informed about all the options. To begin, you need to know your personal Social Security earnings and the projected benefits for both you and your spouse. You can request an estimate at www.ssa.gov/estimator and then print the results. Or call the Social Security Administration at 800-772-1213. You can also get a copy of "Retirement Benefits" (Publication No. 05-10035) online.