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.

College Savings Plan Seminar – 9/21/16

If you haven’t already signed up for our latest workshop it’s not too late! Please see below for details.

The Benefits of a College Savings Plan

There are a myriad of options that exist when it comes to college savings plans; however, not all plans are created equal. In this workshop you will learn the pros and cons of each savings plan and why a simple bank account in your child’s name is probably not a good location for their college savings. Learn how to legally shelter your assets so you can qualify for the most financial aid. And for those of you that think “I have plenty of time”, we will talk about why it’s so hard to “catch-up” later in life and the benefits of saving early. Before you walk out the door you’ll learn how and where you can start a college savings account for as little as $15/month.

Date: Wednesday September 21st from 7pm – 9pm

Location: Acton-Boxborough Reginal High School

How to Sign Up: Register here Acton-Boxborough Benefits of a College Savings Plan or by calling (978) 266-2525

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.

Tip of the Week – Setup a Savings Account for Non-Monthly Bills

Setup a Savings Account for Non-Monthly Bills

Each and every one of us has reoccurring bills that we need to budget for. Some are payable monthly and are fairly uniform. The larger issue at hand is those bills such as oil, insurance, and taxes that sneak up on you quarterly, semi-annually, or even annually. These bills, as fate may have it, tend to be larger and always seem to hit when you can least afford it. To prevent being stung by these large infrequent bills, set up a separate savings account. Take an estimate of the total yearly cost of all your non-monthly bills, add them together, and divide by 12. This is the monthly amount you should be automatically transferring into your savings account (Hint: If you are having a hard time estimating this, take the total of last year’s non-monthly bills and multiply it by 9%). Next time one of these bills comes unexpectedly in the mail, you’ll have the funds to pay the bills, and you might even earn some interest on your savings.

 

Take a Look at Yourself

MONEY TALKS

In today’s day and age, people love to get caught up in the latest headlines: “Interest rates are near all-time lows”, “Gas below $3 a gallon for the first time in four years”, “Savvy investors should watch for bear market warning signs”. In fact, they often get so consumed with these external factors they’re convinced they have no control of their financial destiny. Some even go so far as to blame their financial problems on inflation, interest rates, politics or myriad other external factors. The truth of the matter is, although they may not know it, they are in complete control.

Don’t get me wrong exogenous, or external, factors do have an effect on your financial wellbeing. However, since you have as much control over the stock market as you do the weather, I would argue that there are far more sensible things to worry about. Perhaps this can best be illustrated by retelling one of my favorite stories by Bert Whitehead, a leading authority on financial planning and old colleague of mine. In 2002 a client came to him asking if he should pull his money from the stock market because of the rising possibility of war in the Middle East. His client was clearly agitated with the political landscape of the country and the resulting world events that had transpired. Without hesitation, Bert sarcastically responded, “Why? Are you getting drafted?” I know this is a serious topic and should not be taken lightly, but the point of the story is, although these predicaments often make the headlines, they rarely have a significant impact on our financial situation unless we are directly affected (e.g. getting drafted).

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 stick with the 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.

On any given day you probably make hundreds of decisions that have a direct impact on your finances, from deciding whether to dine in or go out, to buying toothpaste at CVS vs. Target. While every decision has some impact, certain decisions obviously carry more weight than others. To get you on the right track, I compiled a small list of steps you can take to give you power over your financial future.

Start off by setting up and contributing to your company retirement plan. It is tax deductible and more often than not your employer will match a portion of your contribution. Once your retirement plan is set up, put any extra money you can set aside into an emergency reserve fund. This will allow you to weather the storm (pardon the pun) when things go awry. Paying off credit card and other consumer debt will reduce the chances of hard earned money being wasted on interest payments. Buying a home that fits into your budget will allow you to afford discretionary items while paying your bills on time. Lastly, make sure to invest in your career. Education and experience are the primary vehicles that will drive your career and increase your earnings potential.

Over time the factors you can control will have a much greater impact on your finances than external factors. So before you go blaming the market for your latest woes, take a look at what you can control, it will go a lot further than you think.