Personal Finance Blog

Tips And Stories To Help You With Managing Money

Retirement Sneaks Up On You

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Retirement
The answer to how much you should be saving, simply put, is “as much as you can, but not more.”
When you are young and just starting down the employment path, it’s easy to ignore the fact that you’ll face retirement some day. But some day is not as far away as you think. If it arrives and you haven’t prepared, you may face some tight living in your “golden” years.

How much you need to save to be prepared is a personal question. How well do you want to live in retirement and how much do you earn? A rule of thumb is to estimate what you will be earning the year you retire. Subtract your retirement income, such as Social Security, pension, trust accounts, etc.) and then multiply it by the number of years you expect to live after retirement. Not exact, but at least a figure to shoot for.

The answer to how much you should be saving, simply put, is “as much as you can, but not more.” The earning years should not be miserable in order to finance the retirement years. But retirement savings must be high up on your priority list.

You can’t get a loan to finance your retirement. To make the figures more real, make a pie chart with five “slices.” Label them “bills,” “debt,” “spending,” “short-term savings” and “long-term savings.” If the long-term savings (i.e., retirement) is too small, look at the other categories and see where it is possible to make a shift. Possibly you need to trim short-term savings a bit in favor of long-term. Be wise, don’t decimate your emergency funds to make the difference. Be willing to sacrifice a few things, like lunching out, being too free with entertainment expenses, making unnecessary clothing purchases. Focus first on the necessities.

What kind of retirement account should you consider? How long do you have before retirement and how much do you make? Taxes should be a large part of your consideration. Some programs, such as an employee-sponsored 401(k), allows you to defer payment. Optimize your contribution to a company plan, especially if your employer offers a match.

Speak with a professional if you need help understanding your options, how to invest to maximize your returns. He or she can guide you through the maze of possibilities and help you adopt the best plan for your circumstances.

Yes, there are many questions. But the one that can be easily answered is: When do I start? The answer: Now.

Can Millionaires Cure Health Care Crisis

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Can Millionaires Cure Health Care Crisis
If nothing else the millionaire consortium on health care will shake up the industry and possibly induce new approaches in the market.
Does a record for amassing money and running successful businesses automatically qualify a trio of multi-millionaires to come up with successful solutions to the medical mess America has fallen into?

Jeff Bezos, Warren Buffet and Jamie Dimon think they can. They have announced that they are creating a new company to address health care costs for their U.S. employees. They think their solutions might work for other companies as well.

Their announcement recently sent shivers through people who are heavily invested in established health insurers and triggered a sell-off in their stocks.

Their particulars haven’t been published, but there are clues to what they might suggest based on their handling of their own businesses.

Buffett has Buffett’s Berkshire Hathaway; Bezos runs one of the country’s biggest retailers in Amazon; and Dimon heads JP Morgan Chase. Together, the three have a market worth of $1.62 trillion. They have used unique and daring methods to put themselves at the top of the earnings heap and are noted for inventive ways to meet challenges.

Buffet may have the most experience in the insurance world. Berkshire Hathaway owns several insurers, including GEICO. While that may not translate immediately into health insurance, Buffet at least knows how the market works. He is as long-time critic of America’s health care costs, calling them a “tapeworm” that harms the growth of the economy.

Dimon, as head of the largest U.S. bank in terms of both assets and deposits, also has an understanding of how money works. JP Morgan Chase got a big tax cut under the new national tax plan.

Bezos has cut a wide swath with his innovative approaches to online marketing. Now the richest man in the world, he has used some imaginative approaches to marketing, being willing to cut prices a little to attract customers. Amazon has built itself on that sort of thinking,

The trio said their project will focus on technology to provide simple, transparent care, avoiding the morass that complicates current health care and multiplies costs.

Though only time will tell if they are onto something good, some analysts who are familiar with their past performances say there is a good chance they can pull it off. Jeffries & Co. analyst Brian Tanquilut predicts that the new company will do such things as negotiating directly with health care providers such as hospitals and health care providers, bypassing the companies that act as middleman between patient and provider. That would reduce costs in medical and pharmaceutical chains, he said.

If nothing else the millionaire consortium on health care will shake up the industry and possibly induce new approaches in the market.

When To Quit Saving

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When to Quit Saving
According to Bach, anyone, regardless of income, can put money aside and let it accumulate.
Once you have your million, you can sit back, relax and quit saving, right? No way, says self-made multi-millionaire David Bach. Saving should be a lifelong habit, he advises. Learning to ”pay yourself first” is one of the basics he shares in his book, “The Automatic Millionaire.” He also is co-founder of AE Wealth Management.

He and his wife, Michelle, make it a practice to set aside the first 20 percent of their gross income.

“That may sound like a lot, but because we’ve worked up to it gradually over the course of 15 years, it has become our new “normal.”

Bach didn’t become a millionaire overnight, he points out. “When I first heard of this concept (paying yourself first) I was doing what most people do – trying to budget, beating myself up for failing and then scrambling at the end of the year to find some money to put in my retirement and savings accounts, only to find another year had come and gone and I had not made any financial progress,” he writes.

When the idea caught on, he began setting money aside regularly, but it was 1 percent of his paycheck, not 20 percent. After three months, he realized how easy 1 percent was and he kicked up to 3 percent. “I can tell you from personal experience that once you decide to pay yourself first and then make it automatic, it’s done. Within the first three months, you forget that money that is going into savings.”

As he was able he continued to increase his “pay-myself” contribution up to 10 percent, then 15 percent and on up to 20 percent.

Bach doesn’t accept excuses. Anyone, regardless of income, can put money aside and let it accumulate, he insists. A lot depends on one’s mindset. “If you are not paying yourself first now, it’s probably because you think you can’t afford to, but once you decide to do it, and make it automatic, you’d be amazed how effortlessly you can learn to live on a little less.”

If 1 percent seems a reasonable self-pay goal for you, it’s better to start there than not to start at all, he says. It’s a decision that, over time, can assure your personal financial health and set you on the path to wealth.

Make That Windfall Count

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Make That Windfall Count
Your emergency fund will grow faster if you put it into a high-yield online savings account.
An unexpectedly large birthday gift, a cash bonus at work, a bequest from a deceased relative. You just never know when you might find yourself with $1,000 or more that isn’t committed to your current budget.

What to do with it? David Bach, New York Times bestselling author and co-founder of AE Wealth Management, has three suggestions that will make the gift more valuable than it appears on the surface. (Sure, allow yourself a little splurge, but don’t blow the whole amount.)

• Build up your rainy day fund. If you haven’t yet reached a goal of having six months’ living expenses on hand in case of a financial emergency, you can buy another $1,000 (or whatever amount) of mind’s ease. A safety net can spare you a dilemma when life takes a sharp right turn and you lose your job, have a medical emergency, car repairs – any one of those little clinkers that make life interesting. Your emergency fund will grow faster if you put it into a high-yield online savings account, or a money market account that pays reasonable interest.

• Increase your 401(k). The more you set aside in your employer-sponsored retirement account, the better. Use your windfall to increase your contribution to the retirement plan by 2 percent. Especially if your employer matches a set amount of the contribution, you’ll have a deeper cushion when you retire. A 401(k) offers significant tax advantages.

• Open a “dream account”. If you are looking into the future and seeing yourself at a Super Bowl game, signing up for grad school, traveling outside the country – you name it – a bit of unexpected money can give you a jump start. Open an investment account specifically for that dream. Commit yourself to adding to the amount regularly and before you know it, you are en route to the end point of that goal.

Help Children Avoid Student Debt

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Help Children Avoid Student Debt
The best gift you can give your child is to arm them with sound financial management skills.
Where does the time go? All of a sudden, the playground phase is past and your child (children) are getting serious about college. If you are lucky, you will have started preparing while they were still small, but it’s never too late to take steps that hopefully will see them through higher education without an unmanageable amount of debt.

Share these tips with your college-bound kids:

Start savings accounts that will give a better return than regular savings. If you don’t have a large amount of cash to begin, open a term deposit account with whatever you can afford. Many financial institutions offer perks such as low (as little as $5) initial deposits; allow you to continue making deposits through the term; set the term from 12 months to five years.

If your child has money from gifts or from early jobs, teach him or her wise money habits, putting a set percentage of personal money into savings. The best gift you can give your child as he or she sets out to undertake adult activities is to arm them with sound financial management skills.

Encourage high school students to work hard, taking high school concurrent enrollment and Advanced Placement courses that will minimize the number of college courses they will need to get a degree. Advise that they look at scholarship opportunities and maintain the grades needed to take advantage of them.

The Internal Revenue Service has authorized two types of education plans: prepaid tuition and college savings. Paying tuition ahead of time avoids the increases that are tacked onto tuitions nearly every year. You can purchase credits at current prices for attending in-state colleges and universities. (Helping the student to make a choice of a higher education institution well ahead of time can ease the issues at enrollment time.)

College savings plans, money set aside in investment accounts, can cover tuition, fees and room and board. Make a careful study of these “529 plans” and get an early start on savings.

Bottom line: Start your planning as far ahead of high school graduation as feasible. If possible, be as specific as you can about your higher education goals so you don’t waste time by too-frequent course adjustments.