Ask Dr. Per Cap is a program funded by First Nations Development Institute with assistance from the FINRA Investor Education Foundation.

Social Security Increase

Dear Dr. Per Cap: When are Social Security payments going up?  With soaring prices I could use the extra cash.

Signed,

Fixed Income Frieda

Dear Frieda

Social Security benefits are due for a roughly 9% increase starting in January.  This is welcome news for the nearly 70 million Americans who receive Social Security income because they’re retired, disabled, survivors of workers who have passed on, or dependents of beneficiaries.

Next year’s increase will be the largest COLA in forty years.  Nope, we’re not talking about super-size soft drinks.  COLA stands for cost-of-living adjustment.  It’s an automatic benefit increase to offset higher living expenses from inflation.  Unfortunately we’re still seeing record high inflation numbers throughout much of the economy impacting everything from food prices, auto insurance, home prices, and rents.  Even services like nail salons, barber shops, and repair companies are hiking prices to cover higher labor costs.

We’re definitely going through some tough economic times and hopefully larger Social Security payments will make it easier on a lot of households.

About ten years ago Social Security stopped mailing checks to people.  So no more checking the PO box or waiting on the mail carrier.  Instead payments go direct deposit into a bank account or on a rechargeable debit card.  As an idea of how much extra money to expect, the average monthly Social Security payment for a retiree will go from $1,669 to $1,814.  I realize $145 isn’t a Powerball Jackpot but it might help cushion the shock when paying the grocery bill.

Keep an eye out for a COLA notice in the mail during the month of December that will list your new Social Security payment amount.  Your COLA notice can also be viewed online if you’ve created a my Social Security account using the Social Security Administration’s official website at ssa.gov

In the meantime keep working that monthly budget to cut costs where you can.  Energy prices are closely tied to inflation, especially natural gas which many folks use to heat their homes.  So think about weather proofing your home this winter with basic supplies like adhesive backed foam insulation for doors and windows or spray sealant in a can.  Maybe lower the thermostat a few degrees too and snuggle up with an extra thick Pendleton blanket, especially on cold nights.

More Pay-In-Four

Dear Dr. Per Cap:

Earlier this year you wrote about the credit bureaus now including payments made on Pay-in-4 loans on credit reports.  However, I’ve paid back four Affirm loans this year for online purchases and my credit score hasn’t budged a point.  What gives?

Signed,

Wise Borrower

Dear Wise Borrower

Thank you for sharing.  Let’s remember that Pay-in-4 or point-of-sale loans allow shoppers to make small purchases with payments.  Hugely popular in stores and online checkouts the loans are similar to old school layaway except you get the product right away instead of waiting until you’ve made all the payments.

I indeed wrote about how the credit bureaus now allow point-of-sale loans, often referred to as buy now, pay later loans, to be included on credit reports.  In fact all three major credit bureaus – Equifax, Experian, and TransUnion have adopted this policy.

However, many of the big name point-of-sale lenders like Klarna, Afterpay, and Affirm have yet to follow through and actually report these consumer loans to the credit bureaus.  Why is that?

Their concern is over the way point-of-sale loans are structured which could hurt a borrower’s credit score more than help it.  We have to remember that the credit scoring system is based on an old way of doing business when most loans were long term commitments – like car loans and home mortgages.  As a result the scoring models are designed to reward long term loans.

However, point-of-sale loans are a completely different animal.  People often open and close multiple point-of-sale loans in a short period of time.  And even if paid back on time, the current FICO credit scoring models can ding a person’s score because they might interpret point-of-sale plans as churning loans as opposed to responsible borrowing.

So what’s happening is the point-of-sale loan companies are running a little scared right now while leaning on the credit bureaus and FICO to come up with a better way to report and measure point-of-sale loans so they don’t hurt customers’ FICO scores; which of course could mean less business from fewer customers using point-of-sale loans.

Hopefully the credit bureaus, FICO, and the point-of-sale companies will figure out a healthy compromise in the not so distant future that works for consumers.  Until then don’t look to point-of-sale loans as a way to boost your FICO score.

Ready For Gig Work?

Dear Dr. Per Cap:

I’ve got a nice little side hustle doing freelance consulting for a couple of tribes and a non-profit.  I’d really like to quit my regular job and be self-employed full time.  Am I ready?

Signed,

Gig Worker

Dear Gig Worker

Congrats on your freelance success!  Sounds like you’ve come to appreciate a flexible work schedule, professional and creative independence, lucrative pay, and other joys of self-employment.  However, from someone who has been self-employed for nearly twenty years, let me say it brings some financial challenges. Self-employment taxes, gross receipts, and monthly billing schedules are just a few financial hurdles a freelancer must navigate.

Probably  the biggest adjustment for a full time freelancer is the unpredictability of your income.  Rather than a steady paycheck your income can fluctuate wildly from month to month.  Think feast or famine. You also might find yourself waiting to get paid until after you render services, sometimes up to 30 days or longer.  Moreover, having to personally cover work expenses like travel costs and meals until they are reimbursed, can be a temporary yet sizable burden.

Therefore, you need to budget carefully by saving extra money earned during busy months to cover any slow months.

Many beginning freelancers also overlook self-employment taxes.  An employer will automatically withhold federal income tax, Social Security and Medicare contributions, and possibly state income tax from your paycheck.  As a freelancer it’s your responsibility to handle those liabilities by making quarterly estimated payments to the U.S. Treasury and your state tax and revenue department.  Estimated taxes apply to other self-employed folks like artists, food vendors, and craftspeople too.

20% of your gross income is a pretty good estimate to set aside for taxes.  Which means a $5,000 check from a consulting gig or $5,000 in sales from an art show is actually more like $4,000 after factoring in estimated tax payments.  Pay extra close attention too.  It’s really easy to blow off estimated payments because you probably won’t get a phone call or warning letter if you don’t make those payments during the year.

But trust me.  At tax time you’ll be on the hook for a whole lot of back taxes if you make that mistake.

Another often overlooked financial challenge of self-employment is the lack of fringe benefits like health insurance or an employer sponsored retirement plan.  When you factor in savings from a group insurance plan and matching 401k contributions a good job can easily add 25% or more to the actual salary a person earns.  In other words a self-employed person has to earn at least $75,000 a year to cover benefits somebody with a $60,000 annual salary receives.

Here’s a good rule of thumb.  You’re ready to quit your day job and freelance full time when you have a solid workflow from at least a couple of steady paying clients.  And you’re confident you’ll earn enough from freelancing to cover all your monthly expenses and those fringe benefits you’re now going to have to cover out of pocket.  Good luck, Indian Country needs more good consultants!

Tis The Season

Dear Dr. Per Cap:

Every year the holiday season starts earlier.  A store near me had holiday displays with Christmas music in September.  I’m so tired of how the holidays have been commercialized and I’m made to feel like Scrooge if I don’t break the bank buying gifts for everyone.  Help!

Signed,

Don’t Call Me Scrooge

Dear Don’t Call Me Scrooge

At the rate we’re going, the old saying “Christmas in July” will be a real thing.  And lookout when Santa shows up at your annual 4^th of July pow wow to hand out candy cane flavored snow cones and sunscreen.

Unfortunately, as long as stores and online retailers rely on the holiday shopping season for the bulk of their annual sales the continued encroachment of the holidays will continue.  But that doesn’t mean you have to buy into the corporate message of indulgence or feel guilty about not wanting to spend a ton of money on gifts.

In our house we’ve pulled way back on holiday spending in recent years and have many friends who do the same.  We save money by reusing decorations from previous years and giving fewer gifts.  Heck we have LED lights older than the Polar Express and a few years ago when asked what I wanted for Christmas I replied “Anything as long as it all fits in a shoe box”.

In addition to the financial struggle the holidays continue to take a toll on people’s mental and physical health with peaks in depression and stress levels.  As well as overindulging in big meals and sweets.

You’ve taken the first step by acknowledging corporate America has gone overboard.  Hold fast in your conviction and take joy in the simple pleasures this holiday season.  You’re certainly no Scrooge as long as you enjoy the holidays on your own terms.

And remember the best things in life are not free – they’re bought with two scoops of love and a sprinkle of good will!

Ask Dr. Per Cap is a program funded by First Nations Development Institute with assistance from the FINRA Investor Education Foundation. For more information, visit www.firstnations.org. To send a question to Dr. Per Cap, email askdrpercap@firstnations.org.