5 Mother’s Day Gifts That Keep On Giving

MONEY TALKS –

With Mother’s Day on the horizon, you may be scrambling around to find the perfect gift for mom. While none of the gifts below can be tucked in a card or fit into a box, they all will touch mom’s heart in one way or another. Following these simple steps will make mom proud and keep her happy for years to come.

1. Start Saving Early – Most of us have probably heard mom repeat the old adage that a penny saved is a penny earned. While saving pennies today won’t get you far (a Venti Latte at Starbucks will cost you four hundred and fifteen), saving dollar bills will. If you saved a dollar per day from the time you were 10 years old until you reach 16.5 years old, you could have almost $3,100*. While this won’t buy you a new BMW, it could go a long way towards purchasing that used Toyota Camry your neighbor is selling.

2. Finish Your Degree – On average, college graduates earn about a million dollars more over their lifetimes than high school graduates. In fact, the average salary for a 2016 college graduate has soared to over $50,000, while high school graduates are treading around $35,000. Higher earnings typically allow us to become financial independent earlier in life. Becoming independent will ease mom’s financial burden and allow her to focus on own needs such as a trip to the salon or a relaxing massage.

3. Pay Your Student Loans – If mom was nice enough to co-sign on your student loans, missing a payment or making a late payment could adversely affect her credit. This could prevent mom from qualifying for a home equity line to update the kitchen or from purchasing that condominium in Florida she’s been dreaming about for the last few years. Set up the auto pay function on your student loans to ensure your payments are always made in full and on time.

4. Do What You Love – Above all, mom wants to see you happy. Choosing a career in a field that interests and excites you will inherently lead to a happier and more rewarding life. Focusing your time and efforts on something you are truly good at will allow you to fully realize your unique abilities and add more value to the world.

5. Pay It Forward – As a young child it’s incomprehensible to understand how giving can be more rewarding that receiving. However; as we age and mature, the gratification from helping someone else far outweighs the rewards of receiving a tangible gift. Make mom proud by choosing a cause that you are passionate about and start giving back. There are lots of ways you can give back whether it be a simple monetary donation, giving physical goods, volunteering your time, sharing special skills, or by recruiting others to help.

I would be remiss if I didn’t mention that all mom’s love flowers. Stop by your local florist and pick up a flower bouquet or mixed floral arrangement. And don’t forget the card! Here’s to wishing all the moms out there a joyous mother’s day.

 

*Using an 8% interest rate, compounded monthly.

Take Control Over Your Taxes Before It’s Too Late

MONEY TALKS – Congratulations, you finally finished your 2016 tax return (with 4 days to spare). If you, like most Americans, just sighed in relief and thought to yourself “thank goodness I don’t have to worry about my taxes for another eight months”; unfortunately, you couldn’t be further from the truth. This common line of thinking often gets taxpayers in trouble because waiting until January of 2018 leaves you with limited tax planning options and very little control over the size of the check you write, when filing your tax return. To get a jump start on the tax year, here are a few planning strategies you should be thinking about now so you can take control over your taxes before it’s too late.

Adjust Tax Withholdings – The majority of salaried employees receive a Form W-2 (Wage and Tax Statement) in early February showing their wages earned (Box 1) along with their Federal income tax withheld (Box 2). What you may not know is the amount withheld is generally dependent on two factors; your taxable wages and how you filled out Form W-4 (Employee’s Withholding Allowance Certificate) on your first day of work. If you owed money with your 2016 tax return, then you should consider adjusting your withholding so more tax is withheld. Rather than messing around with the number of allowances you are claiming, which confuses most people, the easiest way to increase the amount you want withheld from each paycheck is to simply write the dollar amount on Line 6. Conversely, if you received a large refund (over $1,000) then too much is being withheld from your paychecks. While it’s nice getting money back in April, if you are receiving a refund year over year then you are essentially giving the government an interest free loan. Lowering the amount of allowances you claim will reduce the amount withheld from each paycheck, giving you more money to invest throughout the year.

Manage Retirement Contributions – The easiest way to reduce your taxable income is by contributing to a qualified retirement plan such as a 401(k). The employee contribution limits for a 401(k) are $18,000 for those under 50 years old and $24,000 for those north of the border. Ideally, from a tax standpoint, you should be maxing out your contributions to lower the amount of income subject to taxation. If you aren’t sure how much you contributed last year, take a look in Box 12 of your W-2. You should see the letter D followed by a number, which was your 2016 401(k) contributions. If that number is below your respective contribution limit, increase your contributions to maximize your tax savings.

Spring Clean – Donating clothing and household items to a qualified charity is a great way to save on taxes because the fair market value of your contributions is tax deductible. Household items include furniture and furnishings, electronics, appliances, linens, and other similar items. Keep in mind that you can’t take a deduction for clothing or household items unless they are in good used condition or better. One area often overlooked is recordkeeping. Remember that the burden of proof is always on the taxpayer, not the IRS. If you gave property, you should keep a receipt or written statement from the organization you gave the property to, or a reliable written record, that shows the organization’s name and address, the date and location of the gift, and a description of the property.

As with most areas of life, proper planning is crucial to achieving your goals. Tax planning is a fundamental component of any good financial plan. The key take away here should be that it’s much more effective implementing tax strategies now rather than waiting until the next year’s W-2 shows up in the mail.

5 Ways to Turbo Boost Your Savings in 2017

MONEY TALKS – Achieving your goals and aspirations may be closer than you think. Saving is the foundation to any good financial plan. Follow these five steps to boost your savings to the next level!

  1. Max Out Your Retirement Plans – In 2017 you can defer up to $18,000 of your salary into an employer sponsored retirement plan such as a 401(k), 403(b), or 457 plan. If you are age 50 or older, the IRS has a special “catch-up” provision which allows you to contribute an additional $6,000 for a total contribution limit of $24,000. If your employer doesn’t offer a retirement plan you may still be eligible to contribute to a Traditional or Roth IRA. The IRA contributions limits for 2017 are $5,500 or $6,500 for those age 50 or older. If you didn’t maximize your IRA last year there is still time. The Internal Revenue Code has a special provision permitting you to make a 2016 contribution up until April 17th of 2017.
  1. Know How Much You Are Spending – Most people have no idea what they are actually spending. While some bold participants may blurt out a response when asked, in my experience what people say they are spending and what they are actually spending are two very different numbers. A good back of the envelop approach to calculate your spending is to look at your final pay check for 2016. Take your year to date gross pay and subtract any taxes paid as well as any employee benefits such as medical, dental, and retirement contributions. This in effect is your take home pay. From there subtract any additions you made to long term savings accounts throughout the year and you have calculated your annual spending. Most people are surprised by how much they are spending. Now that you know how much you’re spending, keep any eye on major outflows and set up an automatic transfer to your savings account to ensure some money is put away before hitting your pocket.
  1. Review Your Investment Portfolio – When it comes to determining an appropriate asset allocation, most people take the set it and forget it approach. Meaning they randomly picked some stock and/or bond mutual funds when they enrolled in their employer retirement plan, and they have not looked at it since. For many of us this could be 5, 10, or even 20+ years. Review your most recent portfolio statement to see if your current allocation is still appropriate for your age. Traditionally younger investors can be more aggressive and allocate a higher percentage of their portfolio towards equities. On the other hand, seasoned investors whom are approaching retirement may want to reduce their risk by diversifying into more bond funds and less stocks. If your current asset allocation is appropriate for your age, be sure to rebalance your accounts annually to make sure your portfolio stays properly aligned.
  1. Take Responsibility – The glamorization and/or demonization of politics and economics by the media can be hard to ignore because they are on the face of every TV station, newspaper, and social media site. Nonetheless, it’s essential to remember that for the most part these situations are out of your control. However, that doesn’t mean you should sit idly by and hope for the best. To use a weather analogy, while you don’t have control over when the next snow storm will hit, you do have the ability to buy snow tires for your car, a new shovel, and salt for your driveway. By personally managing the internal factors in your life such as; how much you save, your consumer loan balance, and the size of the home you purchase, you are taking responsibility over the aspects in your life that allow you to control your own financial destiny rather than taking a back seat to external factors over which you are powerless.
  1. Invest in Yourself – Many people don’t realize that the greatest financial asset they have is themselves; i.e. their ability to earn a living. Investing in post-secondary education, technical training programs, and advanced degrees go a long way toward building a complete resume. Combine these skills with quality work experience and you have just positioned yourself for a financially rewarding career.    

5 New Year’s Resolutions for 2017

MONEY TALKS – Lakeside Financial Planning was fortunate enough to be featured in a recent article on Investopedia’s advisor insights platform. The article is published below or you can view the original source by clicking here.

1. Pay off Consumer Debt
Credit cards can have interest rates well into the double digits. Paying off credit card debt is a great way to free up cash flow for the future. Credit card purchases are generally for short term items that have no lasting value. Putting away your credit cards and learning to live within your means can go a long way towards financial independence. If you are prone to consumer debt, try consolidating your credits cards down to one and using cash for everyday purchases.

2. Build an Emergency Reserve
Wage earners should have a minimum of 10% of their gross annual income in a long term savings account. An additional 20% should be saved as an emergency reserve. The best place for your emergency reserve is within your 401(k) or other tax sheltered accounts because the interest earned is tax deferred. Self-employed and retired individuals should build their cash/emergency reserves to an even greater level. As an additional test, the combined value of cash and emergency reserves should be at least 20% of your mortgage balance.

A Home Equity Line of Credit or HELOC is loan where a homeowner can borrow against the equity they have in their home. Unlike a conventional home equity loan where the borrower is advanced the entire lump sum up front, a HELOC is different in that the borrower only draws on the line of credit if needed. A HELOC could be used to cover a variety of expenses including unforeseen outlays for home improvements or medical bills. Homeowners should consider getting a HELOC as a supplement to their cash/emergency reserves as an added security blanket.

3. Purchase Long Term Disability Insurance
For most workers, the ability to earn a living is their most significant financial resource. A disabling illness or injury stops income, often leads to additional medical costs, and prevents savings for key goals such as education and retirement. Despite these facts, employees are more likely to have dental insurance than long term disability. The reason for this is most people associate disability with serious accidents. Since very few employees have high risk jobs, the general inclination in the workforce is to say, “I don’t need it” when it comes to disability insurance. In reality this couldn’t be further from the truth as 90% of disability claims are due to illness not injury. Even people who don’t have high risk jobs are still at risk of disability from cancer, cardiovascular, muscular, or other illnesses. A disabling illness or injury can have a devastating effect on you and your family. Purchase long term disability insurance now to protect you and your family’s financial security.

4. Increase Retirement Savings
Most company retirement plans allow you to enroll in a plan where your contributions are automatically deducted from your paycheck and directly deposited into the retirement plan. The beauty of automatic deductions is, since you never see the money, it’s nearly impossible for you to spend it. The only problem with this out-of-sight, out-of-mind enrollment process is most people set up a standard contribution rate when they enroll in their plan and never think to increase it. Lots of employers now offer an auto increase plan where your contribution percentage will increase by 1% per year. If your employer offers an auto increase plan be sure to enroll, if not then be sure to increase your contribution percentage manually each year. Consider investing in an Individual Retirement Account (IRA) if your employer does not offer a retirement plan.

5. Create an Estate Plan
Approximately 55 percent of American adults do not have a will or other estate plan in place. The primary reason for this staggering statistic is twofold; one being that no one wants to think about their own demise. The other; more alarming reason, is because many Americans are ill-informed on benefits of an estate plan. The most common excuses I hear are; “I don’t have children so I don’t need an estate plan” and “estate plans are only for wealthy families.” Both of these statements couldn’t be further from the truth. Most people don’t know that one of the primary purposes of an estate plan is to give guidance while you are still living. Questions such as, whom do you want to make medical decisions on your behalf or what are your wishes concerning life-prolonging procedures are typically addressed in a comprehensive estate plan. Regardless of your wealth or family situation an estate plan is beneficial for everyone involved.

How Much Do I Need to Retire?

MONEY TALKS – Friends and family often ask me how much savings they need in order to retire. While I am more than happy to talk in generalities, I try to steer away from giving any specifics when I don’t have all the facts. Without a complete view of their financial picture, it would not only be impossible but irresponsible of me to answer their questions.

Unfortunately, more often than not, before I have a chance to respond, they hastily begin shouting out numbers. “Do I need ½ million? 1 million?” Typically this leads to me awkwardly trying to explain that the solution isn’t that simple and ethically I really shouldn’t answer their question. This response is usually met with a bewildered look and the inevitable “So you’re saying that’s not enough?” (Heavy sigh) At this point I coyly suggest that if they really want to know the answer they should become a client.

In an effort to provide friends and family with some guidance (and to quell the family banter), I have devised a quick back of the envelop calculation to give you a ballpark estimate of how much savings you need to retire. The calculation is rather easy to complete but does require some preliminary information before you can get started. I have included here a list of the necessary data as well as a simple worksheet that will walk you through this back of the envelope approach. Please bear in mind that this is a rudimentary calculation that won’t give you an exact figure, but it can be used as a reality check to see if you are on target to retire comfortably.

Here’s what you will need:

  • Pay statement
  • Federal and state tax returns
  • Social Security statement
  • Pension statement
  • Estimate of any other income you may receive in retirement.

In order to help illustrate the underlying methodology let’s consider the following scenario:

  • Tom (60) and Rachael (58) are married with four kids. Tom, an engineer by trade, is the primary wage earner with a gross salary of $150,000 per year. Rachael works as teacher earning $50,000 per year. Tom’s net take home pay is $3,750 and Rachel’s net take home pay is $1,250.
  • They both get paid twice per month, for a total of 24 times per year.
  • Last year they paid $18,400 in Federal taxes and $6,600 in state taxes.
  • Neither Tom nor Rachel are eligible for medical benefits through their employer after they retire. When eligible, they plan to go on Medicare and purchase a supplemental Medigap policy.
  • Tom is eligible for Social Security and expects his annual benefit at full retirement age to be about $43,000. Rachel earnings as a teacher do not qualify for Social Security benefits; however, through her teachers union, she is entitled to a pension benefit of $40,000 per year. Neither plan to seek part-time employment in retirement.
  • Tom and Racheal both plan to work until their mid-sixties. They live a healthy lifestyle and plan to live well into their nineties.

Now let’s work through the numbers:

retirement-chart

Based on the chart above, Tom and Rachel would need about $1.5 million in order to retire.

While I hope that you find the above exercise helpful, please keep in mind that is a static calculation which doesn’t take into account life changes that may occur in retirement. To get a more precise calculation or recommendation, I would encourage you to reach out to a qualified financial advisor.


*Multiplier is based on a success rate of 90% or more for a 15, 30, and 45 year portfolio. The calculations were completed by William P. Bengen, CFP® and can be found is his book Conserving Client Portfolios During Retirement.

** Note: the Savings Required field is not specific in nature and does not take into account your individual facts and circumstances. Accordingly, this should not be relied upon when determining how much money you need to retire, nor does it substitute for any legal, financial, tax, or accounting advice.

10 Habits of the Healthy, Wealthy, & Wise

MONEY TALKS

1. Save – Saving more than you spend is a key concept to accumulating wealth. The extra money saved can then be invested to grow and compound over the years. Given enough time, your investment earnings may one day actually exceed the money you are saving!

2. Build a Reserve – Establishing a cash reserve or long term savings account can give you the security you need in the event of an emergency. Having liquid funds available may allow you to weather the storm without having to deplete other investments that are subject to market conditions.

3. Organize Spending – Creating separate bank accounts for your personal spending, household bills, and long term savings can go a long way towards balancing your budget. Start by funding your household checking with enough money to pay your monthly bills. Next, create a dedicated savings account funded based on a percentage of your income, say five or ten percent. The remaining money should be deposited into your personal checking and can be used for whatever you desire.

4. Buy Used Things – No one thinks twice about buying a “used” home; however, when it comes to buying a car, furniture, or children’s toy, the concept suddenly becomes taboo. Before making your next large purchase consider what alternatives exist in the secondary market. You may walk away with a lot more than you think along with some extra change in your pocket.

5. Don’t Procrastinate – Not paying your bills on time can lead to late fees and interest penalties. Over time these can accumulate to the point where the majority of your payment is going towards interest and penalties rather than paying down principal. Avoid getting stuck in this rut by paying your bills on time and in full.

6. Ditch Bad Habits – Daily stops for coffee and weekday lunches out with your colleagues can accumulate into some serious spending over time. Drinking your employer provided coffee and bringing last night’s leftover dinner for lunch are easy alternatives to help curb those bad habits. Don’t be afraid of treating yourself to the occasional iced coffee or Friday lunch to celebrate your accomplishments.

7. Know Your Limits – Most investors lose money because they overestimate their risk tolerance. When the market goes down they panic, sell their holdings, and suffer catastrophic losses. Choosing a more conservative portfolio and staying the course will get you far ahead of the typical investor who changes direction based on current market conditions.

8. Eat Healthy – Small changes can make a big difference in your overall health. Drinking water instead of sugary drinks is a great way to cut calories and reduce your sugar intake. Adding color to your meal is an easy way to improve your plate appearance and get more essential vitamins, minerals, and fibers into your body. Choose red, orange, and dark green fruits and vegetables when preparing dishes.

9. Exercise – Heart disease has risen to become the leading cause of death in the United States. Regular exercise can help combat disease and prevent a wide range of health problems. Not to mention, exercise and physical activity can also help you to maintain weight loss, improve your mood, boost your energy, and promote better sleep.

10. Wear Your Seat Belt – Each year about 33,000 people are killed in motor vehicle crashes. Tragically many of these fatalities could have been prevented. Seat belt use is the most effective way to save lives and reduce injuries in motor vehicle crashes. Make sure that you and your passengers buckle up every time you get into a vehicle no matter how short the trip.

Protect Your Retirement Nest Egg

MONEY TALKS – Retirement planning can be a stressful time for many baby boomers because there are so many questions that cannot be answered; how long will I live, what will my health be like in twenty years, will my spouse or I need long term care, and the elephant in the room; how much money do I need? Scientific advances in the medical community have made it not only possible but likely that a healthy retiree in their sixties could live well into their nineties. While it’s great that retirees are living longer, healthier, and more active lifestyles than ever, on the flip side of the coin, there is a vast amount of time their retirement savings must last. Pulling funds out of a portfolio for thirty plus years creates tremendous strain on the portfolio. To further compound things, factors such as the retiree’s age, withdrawal rate, and current market conditions have a paramount impact on the longevity of the portfolio. Perhaps most frightening, even a modest loss in the early stages retirement, regardless of the size of an investment portfolio, can derail an otherwise solid investment plan leaving a retiree in a precarious position.

Sequential Risk

Sequential risk is not a term that is used in everyday conversation; however, anyone who has recently retired or has retirement on the horizon should make sure they have a basic understanding of the concept. In essence, sequential risk is the notion of making withdrawals from an investment portfolio during or immediately after periods of poor performance. A retiree who begins taking withdrawals from their portfolio following a market downturn is at a much higher risk to deplete their portfolio. To demonstrate the magnitude of sequential risk let’s look at two similar scenarios with drastically different endings.

Early Retirement Losses

John & Lisa have accumulated a million dollars and decide to retire at age 65. They determine that they will need $90,000 to live on of which $25,000 will come in the form of Social Security and the remaining $65,000 will be withdrawn from their portfolio annually (adjusted for inflation). Unfortunately for John & Lisa, during the first year of their retirement the market falls and has a 20% loss. In years two through fourteen their luck changes and the market remains stable returning 7% annually. In year fifteen they are hit with even more luck as the market surges and they receive a 30% return on their investment. The good news for John & Lisa is that they’ve had a healthy and active retirement and maintained their same standard of living for the last fifteen years. The bad news is at age 81 they can no longer support themselves financially because they have less than $25,000 remaining in their portfolio. To make matters worse, the recent financial stress has caused John & Lisa’s health to take a turn for the worse and now they are considering moving into a state subsidized nursing home.

Losses Down the Road

John & Lisa’s neighbors, Bruce and Diane, have also accumulated a million dollars and decide to retire at age 65. They too will need $90,000 in living expenses and will receive $25,000 from Social Security. Fortunately for Bruce and Diane in their first year of retirement the market spikes and returns 30%. In years two through fourteen the market remains unprecedentedly stable and returns 7% annually. Unfortunately in year fifteen their string of good luck changes and the market drops 20%. Fortunately for Bruce and Diane, due to the positive early returns, their portfolio was large enough to withstand the latest market downturn. Despite losing over $229,000 in their portfolio over the last year, they still have over $900,000 dollars remaining. Like John & Lisa, Bruce and Diane have lived a healthy and active retirement. However, instead of looking for nursing homes, Bruce and Diane are looking at independent living villas in Costa Rica because the winters in Florida are just too cold for them.

Similar Story – Different Ending

While the facts remain strikingly similar, the end of their stories is vastly different. Unfortunately no one can predict what the stock market is going to do tomorrow, let alone next month, year, or ten years from now. Unless you have a flux capacitor, trying to plan your retirement date around future market forecasts is a futile and will not get you far. So what can be done to mitigate sequential risk?

Mitigate Sequential Risk

There are a multitude of different strategies that work well to help reduce the risk associated with early retirement withdrawals. However, regardless of the specific strategy chosen, they all centrally revolve around two main concepts; minimizing volatility and monitoring withdrawal rates. Strategies that focused on minimizing volatility may be a more appropriate approach as changing your withdrawal rate in retirement is not feasible for many retirees, especially for those living on a fixed income.

Ultra-Conservative Portfolio

Rather than taking a traditional approach of starting at 60% stocks (40% bonds) and reducing the weight as you age, consider taking a road less traveled. In order to minimize volatility during the onset of retirement, switch to an ultra-conservative portfolio. Dropping to a 30% stock allocation in early retirement has historically kept losses, even during the worst bear markets, to single digits. Minimizing the effects of market crashes protects your nest egg during the most critical stage of your retirement. As you get further along into retirement, gradually increase your equity exposure to as much as 60%.

Dedicated Cash Flow Stream

Another hybrid approach to minimize an early retiree’s volatility involves creating a dedicated cash flow stream to fund withdrawals. Using this approach, the amount of the withdrawal would be the same; however, a dedicated portion of the portfolio would be specifically set aside to fund the withdrawals. The simplest approach to create a dedicated cash flow stream is through the use of a laddered Certificate of Deposit. A ladder is sequential series of maturing term CD’s. For example purchasing a 12 month, 24 month, 36 month, 48 month, and 60 month CD. The maturing CD’s give a retiree a guaranteed cash flow without having to worry about current market conditions because the portion subject to withdrawals has already been prefunded and cannot lose value. The volatility in the remaining portion of their portfolio is mitigated because no funds are being withdrawn from this portion.

Fundamental Philosophy

Both approaches are based on the fundamental philosophy that an early retiree is at a greater risk from a market downturn than a mature retiree due to the number of withdrawal years. Consider reducing your sequential risk by transitioning to a more conservative portfolio at the onset of retirement or by creating a dedicated cash flow stream to eliminate or minimize early withdrawals from your portfolio.

5 New Year’s Resolutions for 2016

1. Pay off Consumer Debt

Credit cards can have interest rates well into the double digits. Paying off credit card debt is a great way to free up cash flow for the future. Credit card purchases are generally for short term items that have no lasting value. Putting away your credit cards and learning to live within your means can go a long way towards financial independence. If you are prone to consumer debt, try consolidating your credits cards down to one and using cash for everyday purchases.

2. Build an Emergency Reserve

Wage earners should have a minimum of 10% of their gross annual income in a long term savings account. An additional 20% should be saved as an emergency reserve. The best place for your emergency reserve is within your 401(k) or other tax sheltered accounts because the interest earned is tax deferred. Self-employed and retired individuals should build their cash/emergency reserves to an even greater level. As an additional test, the combined value of cash and emergency reserves should be at least 20% of your mortgage balance.

A Home Equity Line of Credit or HELOC is loan where a homeowner can borrow against the equity they have in their home. Unlike a conventional home equity loan where the borrower is advanced the entire lump sum up front, a HELOC is different in that the borrower only draws on the line of credit if needed. A HELOC could be used to cover a variety of expenses including unforeseen outlays for home improvements or medical bills. Homeowners should consider getting a HELOC as a supplement to their cash/emergency reserves as an added security blanket.

3. Purchase Long Term Disability Insurance

For most workers, the ability to earn a living is their most significant financial resource. A disabling illness or injury stops income, often leads to additional medical costs, and prevents savings for key goals such as education and retirement. Despite these facts, employees are more likely to have dental insurance than long term disability. The reason for this is most people associate disability with serious accidents. Since very few employees have high risk jobs, the general inclination in the workforce is to say, “I don’t need it” when it comes to disability insurance. In reality this couldn’t be further from the truth as 90% of disability claims are due to illness not injury. Even people who don’t have high risk jobs are still at risk of disability from cancer, cardiovascular, muscular, or other illnesses. A disabling illness or injury can have a devastating effect on you and your family. Purchase long term disability insurance now to protect you and your family’s financial security.

4. Increase Retirement Savings

Most company retirement plans allow you to enroll in a plan where your contributions are automatically deducted from your paycheck and directly deposited into the retirement plan. The beauty of automatic deductions is, since you never see the money, it’s nearly impossible for you to spend it. The only problem with this out-of-sight, out-of-mind enrollment process is most people set up a standard contribution rate when they enroll in their plan and never think to increase it. Lots of employers now offer an auto increase plan where your contribution percentage will increase by 1% per year. If your employer offers an auto increase plan be sure to enroll, if not then be sure to increase your contribution percentage manually each year. Consider investing in an Individual Retirement Account (IRA) if your employer does not offer a retirement plan.

 5. Create an Estate Plan

Approximately 55 percent of American adults do not have a will or other estate plan in place. The primary reason for this staggering statistic is twofold; one being that no one wants to think about their own demise. The other; more alarming reason, is because many Americans are ill-informed on benefits of an estate plan. The most common excuses I hear are; “I don’t have children so I don’t need an estate plan” and “estate plans are only for wealthy families.” Both of these statements couldn’t be further from the truth. Most people don’t know that one of the primary purposes of an estate plan is to give guidance while you are still living. Questions such as, whom do you want to make medical decisions on your behalf or what are your wishes concerning life-prolonging procedures are typically addressed in a comprehensive estate plan. Regardless of your wealth or family situation an estate plan is beneficial for everyone involved.

5 Reasons Why to Consider Leasing Your Next Car

Last week I had an interesting conversation with a local automotive retailer in town. Our discussion centered on the benefits of leasing and which customers were good leasing candidates. At first I was cynical, but the more I listened the greater appreciation I had for the flexibility that leasing affords you. Leasing is not for everyone; however, there are some compelling reasons why you should consider leasing your next car.

1. Cheaper Monthly Payment

With a traditional auto loan, your payments are based on the entire cost of the vehicle. For example, if you purchased a $27,000 vehicle and secured a 36 month loan, the principle portion of your payment would average $750 per month. However, when you lease a vehicle, the principle portion of the lease is not based on the value of the car. In a lease, the principle payment is based on the vehicle’s decline in value, or depreciation, during the term. So if that same $27,000 car is expected to depreciate $9,000 over the first 36 months, the principle lease payment would only be $250 per month.

2. Less Tax Due

When you purchase a new car, the state sales tax due is based on the purchase price. Going back to our previous example, a $27,000 vehicle would generate a tax bill of nearly $1,700. In contrast, when you lease a vehicle, the sales tax is based not on the sales price, but on the total monthly payment (principle + interest). If we assume a 4% interest rate, the total lease payment would be about $325/month. This means that the tax due on the lease would only be about $20 per month. The beauty with leasing is you can amortize the tax payments over 36 months as opposed to purchasing, where you need to pay the entire tax bill upfront.

 3. Predetermined Residual Value

When you purchase a new car it’s often difficult, if not impossible, to predict what the resale value will be down the road. When you are ready to trade in or sell the vehicle, whether it’s two, three, or ten years from now, there are many variables out of your control such as the manufacturer reputation and market demand that can affect the worth of your vehicle. With a close-end lease, as most auto leases are, the residual, or future value is predicted up front and put in writing on the contract. At the end of your lease, if the car is worth less than the agreed upon residual value, simply hand over the keys and walk away. Conversely, if the car is worth more at the end of the lease then you have the option to buy the car at the lower residual value or negotiate that positive equity into a new lease.

4. Manufacturer Warranties

Most standard manufacturer bumper-to-bumper warranties cover 3 years or 36,000 miles, whichever comes first. Coincidentally, many leases have a term of 36 months. This means, in most scenarios, the car will be covered under warranty during the duration of the lease. This could save you thousands of dollars in repairs over the course of the lease. Not to mention the peace of mind from not worrying about an unexpected repair bill hitting your checkbook right before the holidays.

 5. Safety & Technology

Now more than ever, the automotive industry is being scrutinized and held to higher safety standards. By leasing a new car every few years, you are guaranteeing that you and your family are protected by the latest and greatest safety features such as collision avoidance, lane departure warnings, and drowsy driving warnings. Likewise, if you enjoy having the newest high-tech features such as advanced parking guidance, adaptive cruise control, and GPS-linked temperature control, then leasing is worth considering.

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As with most things in life, one size does not fit all. While the attraction of driving a new car with a low payment can be compelling, there are some disadvantages to leasing that you should be aware of before you drive off the lot. Unlike a traditional auto loan where your monthly payment eventually ceases, once you’re in the leasing habit, your payments last forever. Another area to pay attention to is your mileage allotment. Most leases have a limited amount of miles you can drive, typically 10,000 to 15,000 per year. If you exceed your allotted mileage you are charged a steep penalty that can be as much as 25 cents per mile. Lastly, be sure to keep in mind that even though you don’t own the car you are still responsible for the maintenance including oil changes, tire rotations, and manufacturer recommended care. Failure to properly maintain the car during the lease could result in excess wear-and-tear charges when you turn the car in.

Clearly there are pro’s and con’s to leasing that should be considered before you sign on the dotted line. Each one of us has a unique set of circumstances that may make one option more advantageous than the other. However if you like the idea of trading up every few years for a new reliable car while enjoying a low monthly payment, then leasing might be worth considering.

Budgets and Diets: the reasons why most fail

MONEY TALKS

Turn on the TV today and within minutes you’ll see several commercials with a weight loss solution designed just for you. “Drop 5 pounds in a Week,” “21 Day Fix,” “How to Lose Weight Fast.” Many of these program are well intentioned and will help you to lose weight, but, as many of us know from experience, they can be difficult to stick with. The same can be said for budgets.

At their core, dieting and budgeting are very similar concepts. A balanced diet works when you burn more calories than you take in. Likewise, a balanced budget works when your income exceeds your spending. The fundamental concept of earning (or burning) more than you spend (or blend) is simple to understand yet hard to practice.

The common dominator in any unsuccessful diet or budget is the feeling of deprivation. No one wants to be starved of their favorite food or weekend activity, particularly when the gratification of a fatter bank account or thinner waistline is so far away. With no immediate rewards, we often concentrate more on the loss. The challenge is to change our perspective and develop a process that better aligns our goals with our emotions.

When creating a budget, many of us start by drafting a list of expenses followed by the daunting task of identifying the specific areas we can cut back on or live without. The problem with this process is the focus is on how much we can take away or deprive, not how much we can save. A better and more satisfying approach is to decide how much you are going to save per month, save it, and spend the rest.

So where should you begin? Create a checking account that you use to pay all your fixed household expenses like your mortgage, utilities, car loan, etc. Each time you get paid, say 2x a month, put the equivalent of ½ of your monthly expenses into the household expense account. In addition, set up a savings account for bills like insurance or taxes that may not occur monthly. Figure out the total annual cost of all your non-monthly bills, divide by 24, and put that amount per paycheck into the savings account. Whatever is left from your paycheck after funding your household checking and savings accounts is your spending money. However, before you begin spending your disposable income, take $20 and put it in an envelope in your desk drawer labeled “long-term savings.”

Now start spending. The beauty of this system is it doesn’t matter what you choose to spend your disposable money on. Nowhere am I going to tell you where you can or cannot spend the money. The only rule is that when the money is gone you can’t spend anymore until your next paycheck. At the end of the pay period, if you still have money left over, gradually increase the amount you are saving until you find a happy balance between saving and spending. If you spent all your money and had to reach back into that envelop to grab your $20, try withdrawing your spending money each paycheck in cash. Spending cash is much more tangible then purchasing goods or services with a credit or debit card – you actually have to pull the money from your pocket, count it out, and hopefully take notice of how much is left as you wait for your change.

Budgeting, much like dieting, only works when you are emotionally vested in the process. By allowing yourself choices, you remain in control, making it much more likely you will “buy in” and continue the process. Giving clients options shifts the focus towards their goals, as opposed to their behavior, empowering them emotionally and inspiring them to stay the course and reap their future rewards.