MONEY Aging

Why Confidence May Be Your Biggest Financial Risk in Retirement

portrait of aging woman
F. Antolín Hernández—Getty Images

Seniors lose ability to sort out financial decisions but hold on to the confidence they can get it right.

You think it’s tough managing your 401(k) now, just wait until you are 80 and not quite as sharp as you once were—or still believe yourself to be.

Cognitive decline in humans is a fact. It starts before you are 30 but picks up speed around age 60. A slow decline in the ability to think clearly wasn’t an issue years ago, before the longevity revolution extended life expectancy beyond 90 years. But now we’re making key financial decisions way past our brain’s peak.

Managing a nest egg in old age is the most pressing area of financial concern, owing to the broad shift away from guaranteed-income traditional pensions and toward do-it-yourself 401(k) plans. Older people must consider complicated issues surrounding asset allocation and draw-down rates. They also must navigate an array of mundane decisions on things like budgets, tax management, and just choosing the right cable package. Some will have to vet fraudulent sales pitches.

About 15% of adults 65 and older have what’s called mild cognitive impairment—a condition characterized by memory problems well beyond those associated with normal aging. They are at clear risk of making poor money decisions, and this is usually clear to family who can intervene. Less clear is when normal decline becomes an issue. But it happens to almost everyone.

Normal age-related cognitive decline has a noticeable effect on financial decision making, the Center for Retirement Research at Boston College, finds in a new paper. Researchers have followed the same set of retirees since 1997 and documented their declining ability to think through issues. Despite measurable cognitive decline, however, these retirees (age 82 on average) demonstrated little loss of confidence in their knowledge of finance and almost no loss of confidence in their ability to manage their financial affairs.

Critically, the survey found, more than half who experience significant cognitive decline remain confident in their money know-how and continue to manage their finances rather than seek help from family or a professional adviser. “Older individuals… fail to recognize the detrimental effect of declining cognition and financial literacy on their decision-making ability,” the study concludes. “Given the increasing dependence of retirees on 401(k)/IRA savings, cognitive decline will likely have an increasingly significant adverse effect on the well-being of the elderly.”

Not everyone believes this is a disaster in the making. Practice and experience that come with age may offset much of the adverse impact from slipping brainpower, say researchers at the Columbia Business School. They acknowledge inevitable cognitive decline. But they conclude that much of its effect can be countered in later life if problems and decisions remain familiar. It’s mainly new territory—say mobile banking or peer-to-peer lending—that prove dangerously confusing.

In this view, elders may be just fine making their own financial decisions so long as terms and features don’t change much. They will be well served by experience and muscle memory—and helped further by smart, simplified options like target-date mutual funds and index funds as their main retirement account choices. The problem is that nothing ever really stays the same. Seniors who recognize the unfamiliar and seek trusted advice have a better shot at keeping their finances safe throughout retirement.

Read next: Why Your Employer May Be Your Best Financial Adviser

MONEY consumer psychology

7 Ways to Trick Yourself into Saving More Money in 2015

piggy bank in various clamps and a vice
Steve Greer—Getty Images

These simple strategies can help you squeeze more out of your budget—and end the year with a lot more cash socked away than you started with.

If your New Year’s resolutions included growing—or starting—your savings, you’re already ahead of the pack.

Only about a third of Americans recently surveyed by Fidelity made any kind of financial resolution this year; and of those who did, just over half were aiming to stash more cash.

Kudos to you for taking this important step toward financial security.

Want to make sure your good intentions aren’t derailed before the month is out? The key is taking initial actions that will make repeating good habits easier, says University of Chicago economist Richard Thaler.

“We tend to revert to our long-run tendencies,” says Thaler. “To effect real changes, you have to make some structural change in the environment.”

With that wisdom in mind, the seven life changes that follow will help you save more money this year.

1. Use Inertia to Your Advantage

Research by Thaler and others has shown that people are victims of inertia: If you aren’t used to saving money with regularity, it’s likely going to feel like such a chore to start that you’ll never bother—or, you’ll quit after one account transfer.

But when your money is already being saved automatically, inertia works in your favor, since it’ll take more effort to stop saving than to do nothing. That is why a growing number of 401(k) plans offer automatic enrollment with a default monthly contribution rate.

Still, you may need to stick a hand in the machine if you want to have financial freedom in retirement, since the default rate (often around 3% of salary) won’t get you far in your golden years. Most planners recommend saving at least 10% of income.

Even if you set up your own plan, you probably haven’t touched your contribution rate since; more than a third of participants haven’t, according to a TIAA-CREF survey.

You can benefit from another relatively new feature called “auto-escalation.” Offered by nearly half of companies, auto-escalation lets you set your savings rate to bump up annually at a date of your choosing and to an amount of your choosing.

For other savings accounts, harness your own “good” inertia by setting up automatic transfers on payday from checking to savings (if you don’t see the money, you won’t get attached to it). Better yet, ask your HR department if you can split your direct deposit to multiple accounts.

2. Keep Your Eye on One Prize

Setting up automatic savings works well if your income and expenses are predictable; but what if either or both aren’t set in stone? You can save money as you go, but you’ll be more successful if you narrow your objectives.

Research from the University of Toronto found that savers often feel overwhelmed by the number of goals they need to put away money for—a stress that can lead to failure. Thinking about multiple objectives forces people to consider tradeoffs, leaving them waffling over choices instead of taking action.

One solution? Prioritize your goals, then knock out one at a time. If you know you need to contribute $5,000 to your retirement funds this year, focus on completing that first. Once it’s done, move on to saving for that dream home.

Another strategy is to think about your goals as interconnected; participants in the Toronto study were also able to overcome their uncertainty about saving when they integrated their objectives into an umbrella goal. So, for example, if you are saving for both a car and a vacation, consider setting up a “road trip” fund.

3. Focus on the Future

A part of what keeps people from saving is that we don’t connect our future aspirations with our present selves, research shows.

One way to get around that is by running some numbers on your retirement using a calculator like T. Rowe Price’s. When participants in a study by the National Bureau of Economic Research were sent exact figures showing how retirement savings contributions translated into income in retirement, they increased their annual contributions by more than $1,000 on average.

Another easy trick? Download an app like AgingBooth, which will show you how you’ll look as a geezer. One study showed that interacting with a virtual reality image of yourself in old age can make you better at saving.

This trick can work for more than just retirement. Another study found that when savers were sent visual reminders of their savings goals, they ended up with more cash stored up. Consider leaving photos of your goal (e.g., images of your children or dream home) next to the computer where you do your online banking to cue you to put more away.

4. Ignore Raises and Bonuses

As Harvard professor Sendhil Mullainathan has said, the biggest problem with getting a bonus is it’ll likely make you want to celebrate and spend it all—plus some.

The windfall creates an “abundance shock,” which gives you a misleading sense of freedom.

The simplest solution to this problem is to pretend you never got the raise or bonus in the first place, and to instead direct that new money into savings right away. (Remember the 401(k) auto-escalation tip? Set your contribution to bump up the week you get your raise.)

The same goes for when you return an item to a store for a refund or get a transportation reimbursement check in the mail. The faster you put extra cash into savings, the faster you’ll forget about spending it.

5. Make it Contractual

Carrots and sticks work.

One study asked smokers who were trying to quit to save money in an account for six months; at the end of the period, if a urine test showed them free of nicotine, the money was theirs. If not, the cash was donated to charity.

Surprise, surprise: People who participated in the savings account were more likely to have been cigarette-free at the six-month mark than a control group.

If you’re the type who responds to disincentives, enlist a buddy who can help you enforce upon yourself some kind of punishment if you don’t live up to your savings goal (e.g., you might promise a roommate that you’ll clean the bathroom for six weeks).

Maybe you respond better to positive feedback? Simply having a supportive friend or relative to report to on a set schedule may help you achieve results, as many of those who have participated in a group weight loss program like Weight Watchers can attest. Or you might look for some (non-monetary) way to reward yourself if successful.

You can use the website Stickk.com—inspired by the aforementioned study on smokers—to set up a commitment contract that involves incentives or disincentives.

6. Keep Impulses from Undoing Your Budget

Setting aside cash is only half of the equation when it comes to saving more: It’s just as important to keep spending under control.

Most people know to shop carefully—and early—for big-ticket items like cars or airline tickets (which are cheapest 49 days before you’re due to fly). But the premium for procrastinating on smaller items can also add up: Studies show that people spend more on last-minute purchases partly because shopping becomes a defensive act, focused on avoiding disappointment vs. getting the best value.

So give yourself plenty of time to research any item you’re planning to buy. And always go shopping with a list.

When you see an item that tempts you to diverge from your list, give yourself a 24-hour cooling-off period. Ask a sales clerk to keep the item on hold. Or, put it in your online shopping cart, until the same time tomorrow (chances are, that e-tailer will send you a coupon).

Or you could try this trick that MONEY writer Brad Tuttle uses to determine whether an item is worthy of his dough: Pick a type of purchase you love—in his case, burritos—and use that as a unit of measurement. For example, if you see a $120 shirt you like, you can ask yourself, “Is this really worth 10 burritos?” Likewise, you could measure the cost of an item in terms of how many hours of work you had to put in to earn the money to pay for it.

Also, since gift-shopping procrastination undoes a lot of people’s budgets, you might think about starting a spreadsheet where you can jot down ideas for presents year-round. That way, someone’s birthday rolls around, you can shop for a specific item on price rather than spending out of desperation.

Finally, remember that “anchor” prices can bias us to be thrifty or extravagant. So when you are shopping for products that range widely in price (like clothes or cars), start by inspecting cheaper items before viewing pricier ones. That way your brain will stay “anchored” to lower prices, and view the costlier options with more scrutiny.

7. Force Yourself to Feel Guilty

Surveys show that about a third of people don’t check their credit card statements every month.

That’s a problem, and not only because vigilance is your best defense against extraneous charges or credit card fraud. Seeing your purchases enumerated can also help reign in spending by making you feel guilty—one of many reasons people avoid looking.

Another perk of staying up-to-date with your bills: It makes you more aware of paying for redundant services, like Geico and AAA car insurance or Netflix and Amazon Prime and Hulu Plus.

Keep in mind that shaving off a recurring monthly payment gives you 12x the bump in savings. So a few of these expenses could boost your annual savings by a few hundred bucks. That’s a lot of burritos.

More on resolutions:

Read next: These Types of People End Up More Successful and Make More Money

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MONEY 401(k)s

Why Your Employer May Be Your Best Financial Adviser

150121_RET_ADVISOREMPLOYER
Thomas Barwick—Getty Images

Employers are offering more than 401(k) advice. They are adding financial wellness programs that help workers budget, save for a home, and more.

Large employers are taking on the roles of retirement adviser and financial educator in increasing numbers, new research shows. This is welcome news, because the federal government and our schools have not done a great job on this front, and individuals generally have not been able to manage well on their own.

Employers have been tiptoeing into retirement planning for workers for years as part of their 401(k) plan benefits. Typically, the advice has been offered in the form of printed materials and online informational websites. More recently, personalized advice has become available through call-in services and, in some cases, face-to-face meetings with planners arranged through work.

But what started as help with, say, settling on a contribution rate and choosing appropriate investment options has evolved into a more rounded service that may offer lessons in how to budget and save for college or a home. A breathtaking 93% of employers intend to beef up their efforts at helping workers achieve overall financial wellness in a way that goes beyond retirement issues, according to an Aon Hewitt survey.

This effort promises to fill a deep void. Just five states require a stand-alone personal finance course in high school, and just 13 require money management instruction as part of some other class. Meanwhile, the Social Security and pension safety net continues to grow threadbare. Someone has to take charge of our crisis in financial know-how.

Employers don’t relish this role. It comes with lots of questions about fiduciary duty and liabilities related to the advice that is proffered. Yet legal obstacles are slowly being cleared away to encourage more employer involvement, which is coming in part out of self interest. Financially fit workers are more productive and more engaged, research shows.

A company that offers a financial wellness benefit could save $3 for every $1 they spend on their programs, according to a Consumer Financial Protection Bureau report. These programs also reduce absenteeism and worker disability costs. That’s because money problems may cause stress that leads to ill health. So helping employees improve not just their retirement plan but their entire financial picture makes sense.

Among the upgrades most popular with employers, Aon found:

  • 69% offer online investment guidance, up from 56% last year, and 18% of the rest are very likely to add this feature in 2015.
  • 53% offer phone access to financial advisers, up from 35% last year.
  • 49% offer third-party investment advice, up from 44% last year.

Aon also found that 34% of employers have cut their 401(k) plan’s administrative and other costs, compared with just 27% a year ago. This echoes a BrightScope study, which found that employers generally are beefing up investment options while reducing fees in their 401(k) plans. In all, it seems employers are embracing their role as financial big brother—for their own good as well as the good of their workers.

MONEY Gas

5 Cheap Gas Factoids That’ll Get Your Motor Running

gas station
Sharon Meredith—Getty Images

One way to appreciate the way gas price have plunged is to simply gas up. Depending on what you drive and where you live, filling up the tank is probably around $30, maybe even less.

Not long ago, that fill-up probably cost more like $50. Here are a few more factoids to help wrap your brain around just how cheap gas has gotten in recent months—and how much money drivers can expect to save if prices remain low.

Prices are falling by 1¢ daily.
As of Monday, according to AAA, the national average for a gallon of regular was $2.13, down from $2.20 the previous Monday. Over the last three weeks, the average has dropped 27¢, and one month ago, the average was $2.60. Prices at the pump have decreased for more than 100 consecutive days, and recently prices have been falling by an average of more than 1¢ per day. If we stay on the pace of a 1¢ daily drop—which is a complete and total impossibility, of course—gas would be free in 213 days, just in time for road trips in August.

Only 1 state averages over $3 per gallon.
Unsurprisingly, it’s Hawaii, where the average is $3.42. Alaska is usually the other persistently high outlier for gas prices, and the average there dropped under $3 recently, measuring $2.93 on Monday. Bear in mind that sub-$3.50 gas is very cheap for the Aloha State, where the average was $4.16 for 2014 overall. Average Hawaii gas prices were as high as $4.67 in 2012.

19 States (and counting) are averaging under $2.
They are: Alabama, Arkansas, Colorado, Iowa, Idaho, Indiana, Kansas, Louisiana, Michigan, Minnesota, Missouri, Mississippi, New Mexico, Ohio, Oklahoma, South Carolina, Tennessee, Texas, and Missouri—which is the cheapest state of all, averaging just $1.77 per gallon. Meanwhile, Arizona, Montana, Nebraska, South Dakota, Virginia, and Wisconsin are all averaging $2.05 or less, and they are likely be the next states to break the $2 barrier.

One gas station is charging $1.49 per gallon! It’s in Texas, as GasBuddy pointed out in a post that also noted that 45% of all gas stations in the country are charging under $2 per gallon. Remember that as recently as December, it was considered an extraordinarily big deal that any gas station was bold enough to cut prices below the $2 mark. We’ve reached the time when sub-$2 gas more or less seems standard—and when the average of one month ago ($2.60) seems high, even though that’s roughly $1 cheaper than the year-long average in 2012.

Americans could save $75 billion on gas this year.
AAA analysts predicted that, compared to fuel costs in 2014, American drivers would collectively save “$50-$75 billion on gasoline in 2015 if prices remain low.” That forecast was made at the end of 2014, when the national average was $2.26 per gallon. Based on the continue swift decrease in prices, and by indicators such as the Saudi prince who said “we’re never going to see $100″ as the per-barrel price of oil ever again, it wouldn’t be surprising if we wind up on the high side of AAA’s predictions. Another 2015 gas price forecast, from GasBuddy, predicted recently that the national average would bottom out at $2.23 in January. We’re already 10¢ below that mark nationally.

Granted, the plummeting price of gas isn’t entirely good news for consumers. Studies—not to mention logic—indicate that cheap gas equates to more driving, and more driving is correlated to more traffic accidents and deaths on the road. What’s more, cheap gas provides an incentive against utilizing more environmentally-friendly, fuel-efficient hybrids and alternative-fuel cars, such as the Toyota Prius, which doesn’t save drivers as much in gas costs when gas is inexpensive.

Finally, the drop in gas prices has helped push the argument that gas taxes should be raised in order to fix America’s roads and address other infrastructure needs. Over the weekend, a New York Times editorial noted that in light of gas prices falling 40% since June, now is “the perfect time for Congress to overcome its longstanding terror of offending the nation’s motorists and raise the tax on gasoline and diesel fuel.”

MONEY Debt

7 Ways to Free Yourself From Debt—for Good!—in 2015

How to pay off debt
PM Images—Getty Images

These smart and easy strategies can get you back in the black before you know it.

If you’re in debt, getting out may seem impossible.

One in eight Americans don’t think they’ll ever pay off what they owe, according to a survey by CreditCards.com.

But it’s a new year and a new balance sheet. And the seven steps here can help you put hundreds more towards your bills every month—while still living the kind of life you want.

Can you taste the freedom?

1) Know What You Owe

It may sound easy, but this can be the hardest part, says Gail Cunningham, spokesperson for the National Foundation of Credit Counseling. “A disturbing number of people come to our offices with grocery bags filled with bills,” she adds.

After you’ve tallied up your total debt, make a “cash-flow calendar” to track how much money is going in and out of your accounts, and when, Cunningham says. When do you get your paycheck, and how much do you get net taxes and benefits? When is each bill due every month, and what is the typical cost? How much do you spend on each of your other expenses, and when?

The more you want to procrastinate on this step, the more you need to do it.

“People resist doing this,” Cunningham says. “I think that’s because they’re afraid of what they’ll find. There’s nothing like seeing your spending staring back at you. That could force a behavioral change.”

2) Follow the 10×10 Rule

If you want to create a debt-repayment plan you can follow, you need to set reasonable and sustainable goals. Curb rather than cut your spending, advises Kevin R. Weeks, president of the Association of Independent Consumer Credit Counseling Agencies.

“Just like a New Year’s resolution to get in shape, it’s very difficult to go cold turkey and say, ‘I’m going to do all this, this week, or today,'” Weeks says. “People bite off more than they can chew, with good intentions.”

Start slowly by following Cunningham’s 10×10 rule: “If you could shave $10 off 10 disposable spending accounts, you’d never miss it, never feel it, never feel deprived—and you’d have another $100 in your pocket,” she says. “Little money adds up to big money.”

3) Spend Cash

Researchers have found that when people shop with credit cards and gift certificates, they are more likely to make impulse purchases on luxury items because they feel like they’re using “play” money. If that sounds like you, cut up the plastic.

And force yourself to feel the pain associated with spending real money by going on a cash-only diet.

“People who live on a cash basis typically save 20% over their previous spending, without feeling deprived,” Cunningham says. “It’s because using cash creates a heightened sense of awareness. You are more contemplative, and you realize you’re going to have to pay for things with hard-earned cash. Something clicks in that allows you to feel better about not buying the item.”

4) Tackle Christmas First

There are two possible ways you can go when it comes to prioritizing your debts: You can pay off your highest interest-rate balance first to cut your financing charges the most or you can pay off a small debt first to build confidence and momentum.

To decide which path is best, you need to know what drives you, Weeks says.

Whichever way you choose to go, Cunningham recommends beginning with a goal of paying off all your holiday spending debt by the end of the first quarter of 2015.

“That will keep you from dragging that debt along with you all the way through 2015,” Cunningham says. “You’ll be back to where you were debt-wise before the holidays.”

No matter what, expect a series of small steps. “It’s going to take time,” Weeks says. “If you’re looking to lose 50 pounds, you should focus on losing the first five and then you move yourself forward. It’s the same thing on the financial side.”

5) Reduce Your Rates

Don’t do all the work yourself. Get your lender to cut your interest rates.

One way to do that is a balance transfer. Many credit cards offer promotions of 0% interest for a year or more if you transfer your debt from an old card and pay a small fee.

You can save $265.48 on a $5,000 debt with a typical balance transfer, according to a new report from Creditcards.com. That’s assuming a 3% balance transfer fee, a 12-month 0% intro APR, and the debt being paid off within the year.

You could do even better than that if you used Money’s pick for a balance transfer card, the Chase Slate, which currently offers a 0% APR for 15 months, no balance transfer fee in the first 60 days, and standard APR of 12.99% to 22.99% after the promotional period.

If you won’t be able to pay off your debt in the promotional period, however, this might not be the best option. You don’t want to move your debt only to possibly get stuck with a higher APR than the one you already have. A better choice: Move your debt to the Lake Michigan Credit Union Prime Platinum Visa, which has no balance transfer fee and an ongoing APR starting at an ultra-low 6%.

Or, simply call your issuer and request that your APR be reduced. In another report, CreditCards.com found that two-thirds of people who asked for a lower rate got it.

6) Stop lending so much money to the IRS

The average household got a $3,034 tax refund last year. In other words, every month, an extra $253 was taken out of your paycheck and loaned to the IRS interest free!

Sure, you’ll get it back after you file your taxes, but don’t you need it now?

“I don’t want anybody to receive an income tax refund—that $250 a month can make a major, life-changing difference,” Cunningham says.

Rather than paying interest on your debt every month while the government gets your money, you should be funneling that cash toward your balance. On a $5,000 debt at 16%, adding $250 a month to a payment of $200 a month, you’d save $675 in interest and get your debt paid off in just over a year vs. two and a half.

You can put your money back in your pocket by adjusting your withholding on a W-4 tax form.

Of course, you don’t want to owe money at tax time, so use the government’s withholding calculator to figure out exactly how many allowances you should take. File your new W-4 with your human resources department and give yourself a raise.

7) Ask for help

If you can’t stop taking on debt or are really unable to make payments on what you owe, you may need professional help. Credit counseling can be especially useful if you’re struggling with student loan debt or medical debt, not just credit card debt.

Find a nonprofit credit counselor through the National Foundation of Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies. Financial counseling should be free, though agencies can charge an enrollment fee for a debt management plan, which will consolidate your debt into one payment with a more reasonable interest rate, Weeks says.

If you don’t need professional help, but you need someone to keep you honest, ask a friend to be your accountability partner, Cunningham suggests. Share your debt repayment plan and check in periodically about how you’re doing. Leverage the positive power of peer pressure.

“People don’t want to let somebody down,” Cunningham says. “They don’t want to have to admit that they weren’t as committed to their plan long-term.”

More on paying off debt:

More on resolutions:

MONEY consumer psychology

7 Reasons to Pretend You Make Less Money

Trick your brain and your wallet will follow.

We all know you can get in financial trouble by pretending to have more money than you actually do — and most of us know that you can’t make an educated guess at someone’s salary by checking out the car they drive. So you can appear to be wealthy even if you’re not. But can you get ahead by telling yourself (and intimating to others) that your paycheck is smaller than it actually is? There are some pretty compelling reasons to do it, and you could find yourself in a far better position than if your paycheck just barely covers expenses.

Here are some reasons to consider pretending your paycheck is just a bit smaller than it really is.

1. Sock Away Money in an Emergency Fund

If you don’t have an emergency fund (or even if you do), you can pretty much count on having an emergency. Car transmissions break, you need to travel unexpectedly or someone in your family ends up needing help. Experts recommend six to 12 months’ worth of expenses in your emergency fund. If you don’t yet have that, you may want to make sure you have access to credit. (You can check your free credit report summary on Credit.com to get an idea of how you would be judged by potential lenders.) But having the money saved is a better alternative.

2. Pay Down Debt Faster

If you pretend you make, say, 10% less than you actually do, you can probably cut expenses to accommodate the reduced pay. But the money you will save isn’t pretend — and you can send it to your creditors, reducing or eliminating debt much more quickly. This little fib helps keep your spending in check, which will free you to direct the money someplace else, making some other dream a reality more quickly. You can even figure out a timeline for getting out of credit card debt with this nifty calculator.

3. Save for a Down Payment or Your Kid’s College

Whether you’re looking to buy a house, educate a child or take a trip around the world, your dream is likely to require a significant chunk of change. And one way to get that is to pretend that earmarked money does not even exist. You can have it transferred into a designated account the same day you get paid so that you are not tempted to use it for the heavily discounted camping equipment that you know about because the advertisement for it popped up in your inbox. (Another money-saving hint: Most of us will spend less if we unsubscribe.)

4. Put More Money in Retirement Savings

Retirement seems a long way off when you are in your 20s, and it is. But most people’s expenses grow with time (particularly if you choose to raise children). It is not going to suddenly become easier to save more, at least not until you have far less time to do it, and the money has less time to grow. How many people have you heard complaining that they wished they hadn’t saved so much for retirement?

5. Friends Won’t Pressure You to Splurge

We’re not suggesting you do away with little luxuries altogether. You and a friend want to go get manicures? Go for it (sometimes). But think about whether all of your get-togethers need to involve a meal out, shopping or manicures. Maybe they made a resolution to move more. Walks can do double duty to help get your body and finances in better shape. And if your friends know you are on a beer budget, chances are they won’t assume you have a champagne salary.

6. Friends & Family Won’t Consider You a Human ATM

Do you often or always pick up the tab for groups because you can afford it? If you say, “my treat” too often, it’s possible you’re sending a signal that because you have more, you have an obligation to share it with your friends and family. You may feel that way as well, and if you do, you would be especially wise to pretend you have a little less money than you actually do. If you do choose to give or lend money to friends and relatives, make sure everyone is clear on what is a gift and what is a loan. Money misunderstandings have the potential to damage relationships.

7. Your Income Could Drop

It’s easy — and tempting — to think your salary will be on an upward trajectory from your first day of work until your last. (Don’t the retirement calculators assume that?) And who plans for a furlough or the loss of a big client? During hard times, it’s not unheard-of for companies to levy across-the-board salary cuts. And if you’re acting as if you make every dime that you actually do, it will be harder to adjust than if you’ve been acting as if you made less.

More from Credit.com

This article originally appeared on Credit.com.

MONEY Saving

How the Great Unbundling of Pay TV Could Backfire on Consumers

Cable remote
Brad Wilson—Getty Images

Cable TV customers love the idea of paying just for the services they want—and skipping those they couldn't care less about. To see how such an a la carte model could turn to misery, however, look no further than the airline business.

For years, couch potatoes have dreamed of an a la carte pay TV model. Instead of the standard package—a bloated bundle with hundreds of channels that you’re paying for whether you ever tune in or not—the a la carte option would allow customers to pick and choose and pay for only those deemed worthy. Every household is different, but the average pay TV customer watches only 17 channels, a small fraction of the 189 channels that are factored into the average package’s monthly bill.

To which the natural reaction of many customers tired of constantly rising cable bills is: Wouldn’t it be a cinch to save a bundle simply by eliminating the bundle?

In fact, while the oversized bundle remains the standard, the door to unraveling the cable package has been opened, thanks to the arrival of a broad variety of viewing options—notably including standalone streaming options that require no cable package from HBO, the Dish Network, and of course Netflix. Admittedly, Dish’s just-introduced Sling TV streaming service is also a bundle, but it comes with only 11 popular, very watchable channels (including all-important ESPN), and at just $20 a month, it’s a potentially big money saver.

To many, it’s a just and foregone conclusion that the big cable bundle will continue to lose its dominance in the marketplace, and that cord cutters and upstart competitors will push us all toward an increasingly a la carte system. There are likely to be more small and affordable packages along the lines of Sling TV, and we’ll probably see more options to pay to stream content from favorite individual channels, which HBO and CBS have already made possible.

And yet, as much as consumers loathe the big pay TV providers, analysts have long warned that we should be careful what we wish for in terms of an a la carte viewing future that doesn’t necessarily involve Cablevision, Comcast, Verizon, or Time Warner Cable.

Back in 2010, New Yorker business columnist James Surowiecki wrote that if the bundle disappeared, the cost per customer for each channel would soar, “perhaps on a customer-by-customer basis.” The likely result would be that loads of channels would go out of business, and that the average customer would pay roughly the same amount monthly he was paying for the big bundle, only with far fewer channels.

The landscape has changed since then, what with the consensus assumption that TV in the future will be delivered via the Internet rather than cable. Yet the argument that unbundled TV will not necessarily yield cheaper prices remains. Among cable defenders, this acclaimed manifesto from 2013 summed up the big upside to the bundle, including more content and cheaper prices when they’re broken down on a per-person, per-channel basis:

Cable TV is socialism that works; subscribers pay equally for everything, and watch only what they want, to the benefit of everyone.

More recently, Wired offered some deep-held concerns for consumers regarding a future dominated by Internet TV options:

It will be deeply fragmented. That could threaten the very companies that pioneered this space to begin with—and make it more difficult and more expensive to get everything you want to watch.

In light of Dish’s rollout of Sling TV this week, Neil Irwin of the New York Times summed up previous research on the topic of how an a la carte TV scene would play out, writing, “contrary to many peoples’ intuition, the unbundling of cable service could actually lead to slightly higher prices for fewer channels.”

Irwin pushes the issue further, diving into the idea that not only could unbundling provide worse value, but there’s a good chance it’d make the average customer even more miserable regarding pay TV than he is right now. And the cautionary tale he cites as an example of how this could come about is the one that travelers have been living through for the past two decades or so. After all, the airline industry has steadily unbundled the flight product, which was once a package including food, checked bags, and the privilege of actually sitting on the plane next to your travel companion. With today’s more a la carte model, the price of airfare may include nothing more than bare-bones transportation.

What’s more, the airlines that have embraced the a la carte, fee-laden way of doing business most just so happen to be the most hated carriers of all. And across the board in the industry, flight prices have gone up, not down, while the unbundling has been underway.

Is pay TV heading in this same direction? Irwin acknowledges that unbundling undeniably benefits certain kinds of consumers—travelers who don’t fly with bags or care about legroom, and TV viewers who watch only a few channels and no sports. Yet he writes that the effects of unbundling on the average TV customer will be similar to what we’ve seen with the airlines:

For many more people, the result will probably be little or no reduction in total fees, combined with the hassle of making constant decisions about what channels you really want and which you don’t.

The airlines have been working hard over the years to perfect systems for extracting maximum revenues out of passengers. A recent New Yorker story described the broad airline strategy of inflicting “calculated misery” on customers and all but force them to pay fees to avoid the pain: “Basic service, without fees, must be sufficiently degraded in order to make people want to pay to escape it.”

Bloomberg View columnist Megan McArdle responded to the idea of “calculated misery” with a slightly different take on the matter. “The problem isn’t greedy airlines” trying to milk customers by making them miserable, she writes. “It’s us.”

When travelers use search engines to find and book the cheapest tickets possible, McArdle explained, we’re sending a message to airlines that low flight prices are the most important and perhaps only criterion in our purchasing decisions. “To win business, airlines have to deliver the absolute lowest fare,” McArdle writes. “And the way to do that is … to cram us into tiny seats and upcharge for everything.”

It’s understandable that people want cheap airfares, just like we want cheap pay TV bills. It’s just that the way providers get to these end points may ultimately make us less—not more—happy. In the end, the standard could become an assortment of confusing fees and bills that, when tallied up, isn’t cheap at all.

MONEY Savings

The Financial Resolution that 62% of Americans Really Ought to be Making

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Jonathan Kitchen—Getty Images

A new Bankrate study finds that most of us are missing a key piece of our financial well-being: emergency savings.

It’s not just your body you should be resolving to get fit this year.

Look beyond the mirror and into your savings account. If it’s as lean as you wish your figure was, know that you’re in a troubling majority.

Only 38% of Americans have enough money in their savings accounts to pay for unexpected expenses such as a $1,000 emergency room visit or a $500 car repair, according to a report by Bankrate.com released Wednesday.

Who’s Prepared and Who’s Not

Unsurprisingly, the Bankrate report found that the likelihood of having savings increased with one’s age, education level, and income.

Only 33% of millennials surveyed had sufficient savings to pay for either of the expenses noted earlier, compared to 44% of senior citizens. Another study, released Monday by GOBankingRates, also found that Gen Y-ers were the least likely age group to be saving for an emergency.

In the Bankrate survey, those with household incomes above $75,000 were most likely to have sufficient savings to cover unexpected expenses, with 62% prepared.

And according to the GOBankingRates poll, women are 16% more likely than men to be saving for emergencies.

What’s especially troubling about the Bankrate results is that for many Americans the $1,000 and $500 figures in the survey are far less than the minimum of three to six month’s worth of living costs financial planners recommend people have in emergency savings. That means that even more than 62% of people are unprepared for a big crisis like a job loss.

Will You Shore Up Your Reserves in 2015?

Many Americans seem to have overlooked this vital part of their financial health when setting goals for this year.

Less than a third of us even made financial resolutions for 2015, according to a study by Fidelity. Of those who did, saving more was the top goal, but most intended those increased savings to be funneled to retirement or college savings accounts.

While saving for longer-term goals is important, it’s even more important that you have enough squirreled away so that if you face a financial hardship you don’t have to go into debt—which is why building emergency savings should be among your top priorities.

Luckily, fattening up these savings will require less sweat than losing weight.

First step: Set up an FDIC-insured savings or money-market account independent of your regular checking and savings for your emergency fund so that you avoid the temptation to spend those funds. (Finding an account that pays above average interest can help you grow your savings faster, so check out Money’s Best Banks for our picks.)

Start with a goal of putting away three months’ worth of non-discretionary expenses, such as health insurance, utilities, rent or mortgage, and food. Divide by 12 and automate that much to be transferred from your checking to savings each month.

Depending on your type of job, your household expenses, and whether you are the sole breadwinner, you may need to increase the amount in your account to cover six to nine month’s worth of costs.

But don’t stress about that for now; that’s what 2016 is for.

Need help finding more in your budget to save? See our guide on how to make saving easier.

More on resolutions from Money.com:

MONEY money management

7 Super Simple Ways to Simplify Your Finances in 2015

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Tay Junior/Getty Images

Make this the year you finally take control of your money—instead of letting it control you.

With the New Year comes a new chance to get a handle on your finances, and though the task may feel daunting, it’s not impossible.

Today’s technology can make it a lot easier to manage your accounts efficiently. So vowing to simplify your finances in 2015 could end up being the most manageable resolution you make this year.

Before the year gets into full swing—and the rest of your life gets complicated!—take these steps to streamline your financial life.

1. Figure Out What’s Important to You

The more financial objectives you have on your plate, the more challenging it will be to accomplish any of them, given the limited resources of time and money.

For best results, concentrate on between three and five financial goals at a time.

And be very specific about what you want, says Ellen S. Rogin, a Northfield, Ill. financial planner and author of Picture Your Prosperity. Having a clear picture helps you figure out what actions you need to take to accomplish your objective.

There are many different ways to prioritize and clarify your goals. You could write each down on an index card in great detail, then sort based on your gut, for example. But Rogin warns about getting too wrapped up in the analytical approach.

She says it’s often more effective to spur your creative juices—journaling, meditating or drawing pictures of what you want out of life, now and in the future.

2. Make Good Habits Automatic

When people are left to their own devices, they are typically not very proactive about their finances, says Bob Wander, financial planner and founder of Wander Financial Services in New York.

“Thus, for saving money,” he adds, “it has to be automatic, whether 401(k) payroll deduction or direct deposit from a bank account.”

So if you really want to save for a goal, decide now how much you want to stash each month and have that money moved from your account on payday. If you never see it, you’ll never miss it.

With your 401(k), you may even have the option to automatically increase your contributions annually on a date of your choosing (the month you expect to get a raise is a good one, since you won’t feel any pinch).

To avoid getting hit with expensive late fees, Wander also suggests setting up automatic payment for your bills. This may take 30 minutes or so to set up, but then you’ll never have to worry about making timely payments again. (You will need to make sure you have enough money in your account, but steps 5 and 6 should help with that.)

3. Buy One Fund—and Be Done

Is the dizzying array of investment choices in your 401(k) paralyzing you from investing at all? Or do you own 20 funds in hopes of having picked at least some of the right ones?

Target-date mutual funds can be particularly useful for people who feel uncomfortable creating an investment strategy, says Kristi Sullivan, financial planner and owner of Sullivan Financial Planning in Denver.

You select one of these based on the year you want to retire, and with just one single fund in your portfolio, you’re automatically exposed to a variety of stocks and bonds. What’s more, your asset allocation is automatically rebalanced based on your time horizon until retirement, growing more conservative as time goes on to protect the money you’ve accumulated.

Two thirds of 401(k) plans offer target-date funds, according to the most recent survey from the Plan Sponsor Council of America.

4. Consolidate Investment Accounts

According to the Bureau of Labor Statistics, U.S. employees have a median job tenure of 4.6 years, and that number is even lower for millennials. Transitioning to a new job is exciting, but don’t forget about your old 401(k) during the move.

“It’s harder to understand your finances when you have 401(k) plans with three or four former employers,” says Andrew Tupler, a financial planner in Bridgewater, N.J.

You can rollover your 401(k)s into an IRA. And with all your old retirement funds in one place, it’s easier to divide your money into the most effective asset allocation, make changes to beneficiary designations or addresses, and to pull money out during retirement, he adds.

5. Get a Check and Balance for your Checks and Balances

It’s good financial practice to monitor your bank and credit card account activity on a regular basis, Wander says. That way, you can spot and report any fraudulent activity early (which helps limit your liability), make sure you’re not overdrawing your bank accounts, and prevent yourself from spending more than you can manage on credit cards.

But who remembers to check every day?

Fortunately, most banks and credit cards allow customers to set up online alerts that do much of the monitoring for you.

While you should still review transactions yourself periodically, these alerts can let you know when you’re approaching a certain balance and when any unusual purchases have been made. You may even be able to set the dollar amounts for balances or purchases.

Additionally, for credit cards, you can set payment reminders. That way, if you won’t get hit with a late fee (which averages $35, according to CreditCards.com).

6. Get the Bigger Picture

Online financial tool Mint.com allows you to see your bank accounts, investments, credit cards, loans, and credit scores in one place in real time. And you have the ability to access that information anywhere, whether you’re on your work computer, smartphone or home PC, says Jorge Padilla, a client advisor at Lubitz Financial Group in Miami.

This gives you a broader picture of your finances, and ensures that you have all your financial information at your fingertips if you need to make a decision at the spur of the moment, Padilla says. Plus, having your investments together will make it easier to match up gains and losses during tax season.

The tool also allows you to create a custom budget. But it makes the otherwise laborious task of tracking your expenses automatic, by categorizing your purchases for you and totaling up the amount you spend per category.

Additionally, you can print reports or export data into Excel or Quicken—which allows for easy collaboration with your tax preparer come April, Padilla notes.

7. Pool Your Plastic

Transferring credit card balances on high-interest rate cards to one with a lower rate may help you consolidate your monthly payments and save on interest—though keep in mind that some of these cards have upfront fees of around 3% of the balance that erode some of the benefits.

So, if you expect to be able to pay off your debt in 15 months, go for MONEY’s 2014 pick for best balance transfer card, Chase Slate. You get a rate of 0% for that long and no balance transfer fee if you move your debt within the first two months. But after the 15 months, the rate resets to an APR that starts between 13% and 23%.

Need longer than 15 months to zero out your debt? Lake Michigan Credit Union Prime Platinum Visa has no balance transfer fee and the ongoing APR starts at 6%—which is about the lowest out there.

If you do transfer the balance, you might be tempted to close the old account to ward off any future temptations—but this may do more harm than good, says John Ulzheimer, a credit expert for CreditSesame.com. Since you will still have the same amount of debt but less available credit, your debt-to-limit ratio will increase, and that’s a number credit agencies pay close attention to in calculating your credit score.

A better move, if you’re worried about using the cards again: Shred them rather than canceling them. You’ll still have the credit line in your name, but you won’t have the temptation in your wallet.

More on resolutions from Money.com:

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