Tips to Combat Burnout

March 3, 2021

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Denise and Chris Arand

Denise and Chris Arand

Executive Vice Presidents/Financial Strategists

2173 Salk Ave
#250
Carlsbad, CA 92008

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March 1, 2021

How to Find Your Net Worth

How to Find Your Net Worth

Usually when we think of net worth we imagine all the holdings of a wealthy tycoon who owns several multi-million dollar businesses.

Net worth is just a balance sheet of a person’s assets and liabilities, not unlike the balance sheets used in business. You also have a net worth, and it’s important to know what it is.

Calculating your net worth is simple. First, you’ll want to tally up all your assets. These would include:

  • Personal property and cars
  • Real estate equity
  • Investments
  • Vested retirement plans
  • Cash or savings
  • Any amounts owed to you
  • Cash value of life insurance policies

Next, you’ll calculate your liabilities (what you owe someone else). These would include:

  • Loans
  • Mortgage balance
  • Credit card balances
  • Unpaid obligations

Your total liabilities subtracted from your total assets equals your net worth.

The number could be positive, or it could be negative. Students, for example, often have a negative net worth because they may have student loans but haven’t had a chance to build any personal assets.

It’s important to realize that net worth isn’t always equal to liquid assets. Your net worth includes non-liquid assets, like the equity in your home.

Measuring your net worth regularly can be a strong motivation when saving for the future—it can mark progress toward a well-reasoned financial goal.

When you’re ready to put together a personalized strategy based on your net worth and (more importantly) your future goals, reach out! We can use your current net worth as a starting point, while keeping focused on the real target: your long-term financial picture.

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February 10, 2021

How to Save for Large Purchases

How to Save for Large Purchases

So you’re saving for retirement. Good for you!

You’re further in the game than a lot of people. But retirement’s probably not your only financial priority that requires saving for. Buying a house, raising children, buying cars for your children, and paying for college for your children are just a few expenses you can expect along the way. Preparing for those purchases now can protect your finances from getting blindsided when the time comes. Here are a few steps you can take to start preparing for substantial purchases today.

Write down upcoming expenses and purchases. Make a timeline of all your major, non-regular expenses. Determine how much they could cost, and then rank them in terms of urgency and importance. If it’s urgent and important–like saving for the delivery of a newborn–address it as soon as possible. If it’s important, but less urgent–like toddler-proofing your home–schedule it for later.

Budget out how much you’ll need and start saving. Once you have your priorities straightened out, figure out how much you’ll need to have saved and how much time you have available. Then, set up automatic deposits that put aside money for your savings goals.

Seek higher interest rates. Saving for your purchases in accounts with higher interest rates can give your money the extra juice you need to crush your goals. That may mean opening a high interest savings account with an online bank. But for some items, you might be able to find accounts specifically designed to help you. Meet with a licensed and qualified financial professional and see what options you have available!

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January 20, 2021

What All Early Retirees Have in Common

What All Early Retirees Have in Common

Early retirees track both their net worth and annual spending… and you should too!

Why? Because those two pieces of information are critical to evaluating your current financial situation and understanding what separates you from your financial goals.

Retiring early takes meticulous preparation, a willingness to sacrifice temporary comfort, and consistency. Every financial decision must effectively move you closer to your goal or you run the risk of failure.

Ignorance about your net worth hampers your ability to make certain financial decisions wisely. It may cause you to save less, if you assume your net worth is closer to your retirement goal than it actually is. When the time comes to retire, you’ll be in for a shock!

Failing to monitor your expenses can lead to a similar outcome. What if you never identify the expenses that eat up the majority of your cash flow? You might swear off lattes or designer clothes, but you might miss bigger saving opportunities. There’s a reason that so many early retirees cut back on housing, transportation, and food–they’re the biggest drains on cash flow!¹

Here’s the takeaway—imitate early retirees and regularly evaluate your net worth and spending, regardless of when you plan to retire.

Knowing what you’re worth and what’s eating up your cash flow empowers you to make effective decisions that bring you closer to your lifestyle goals.

What’s your financial status? How close are you to achieving your goals? And what’s standing in your way?

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January 13, 2021

Is the RV Life Right For You?

Is the RV Life Right For You?

2020 was the year of the RV.

You might have noticed as you scrolled through social media that more of your friends, family, and maybe even your in-laws are moving out of their homes and living on the open road. Don’t believe it? Search #vanlife on Instagram and see what comes up!

It’s not hard to see why. The RV lifestyle pairs material minimalism with adventure. The possessions and mortgage payments that can weigh you down are replaced by bare essentials and the open road.

People crave freedom. A bigger house and lots of toys can’t promise happiness. If you’re a born adventurer, exploring the country in an RV might be the opportunity for escape that you’ve been waiting for.

But it’s not a decision to be made lightly. RVs cost anywhere between $60,000 and $600,000.¹ Beyond that, you’ll have to buy gas, food, and pay for vehicle maintenance. Unless you have a job that allows you to work remotely, you’ll need to save diligently in order to afford life on the road.

That fact has made the RV lifestyle an attractive retirement choice. It’s increasingly common for retirees to sell their homes and use the proceeds to buy a van or RV.

So if you are an adventurer, love freedom, and have the career or savings to afford it, life on the road might be the choice for you!

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¹ “Is an RV the Perfect Retirement Lifestyle for You?,” Margo Armstrong, The Balance, July 21, 2020, https://www.thebalance.com/retire-in-an-rv-2388787

January 6, 2021

Bridging the Retirement Gap

Bridging the Retirement Gap

If you’re already eyeing the perfect recliner for your retirement, hold that thought. And you might want to start rifling through the ol’ couch cushions for a little extra change…

Here’s a doozy: women age 65 and older are 80% more likely to be impoverished than men of the same age.¹

That number represents a staggering degree of human tragedy. But there’s a sad logic to it when you consider that women save 43% less for retirement than their male counterparts.¹

But that’s not all. According to the 2016 Financial Finesse Gender Gap in Financial Wellness Report, to retire at age 65 (without a career break):

  • Men need $1,559,480.
  • Women need $1,717,779.

Women have to come up with $158,299 more! This increase is due to the unique set of circumstances women face while preparing for retirement:

  • Women live longer
  • Women pay more for healthcare

To summarize, women all too often aren’t in a position to save as much as men, even though they need more to sustain their retirements. The tragic result is that many spend their retirements in poverty instead of living out their dreams.

But that doesn’t have to be your story. The savings gap may seem huge, but it can be bridged. And it all starts with a solid insurance strategy. Just think of it as pulling the footrest lever on your dream retirement recliner!

Your unique situation and goals all factor into how you want to kick back when you retire. I’m here to help. When you have a moment, give me a call or shoot me an email.

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December 30, 2020

The Millennials Are Coming, the Millennials Are Coming!

The Millennials Are Coming, the Millennials Are Coming!

Didn’t do so well in history at school? No worries.

Here’s an historical fact that’s easy to remember. Millennials are the largest generation in the US. Ever. Even larger than the Baby Boomers. Those born between the years 1980 to 2000 number over 92M.¹ That dwarfs Generation X at 61M.

When you’re talking about nearly a third of the population of the United States, it would seem that anything related to this group is going to have an effect on the rest of the population and the future.

Here are a few examples:

  • Millennials prefer to get married a bit later than their parents. (Will they also delay having children?)
  • Millennials prefer car sharing vs. car ownership. (What does this mean for the auto industry? For the environment?)
  • Millennials have an affinity for technology and information. (What “traditional ways of doing things” might fall by the wayside?)
  • Millennials are big on health and wellness. (Will this generation live longer than previous ones?)

It’s interesting to speculate and predict what may occur in the future, but what effects are happening now? Well, for one, if you’re a Millennial, you may have noticed that companies have been shifting aggressively to meet your needs.² Simply put, if a company doesn’t have a website or an app that a Millennial can dig into, it’s probably not a company you’ll be investing any time or money in. This may be a driving force behind the technological advancements companies have made in the last decade – Millennials need, want, and use technology. All. The. Time. This means that whatever matters to you as a Millennial, companies may have no choice but to listen, take note, and innovate.

If you’re either in business for yourself or work for a company that’s planning to stay viable for the next 20-30 years, it might be a good idea to pay attention to the habits and interests of this massive group (if you’re not already). The Baby Boomers are already well into retirement, and the next wave of retirees will be Generation X, which will leave the Millennials as the majority of the workforce. There will come a time when this group will control most of the wealth in the US. This means that if you’re not offering what they need or want now, then there’s a chance that one day your product or service may not be needed or wanted by anyone. Perhaps it’s time to consider how your business can adapt and evolve.

Ultimately, this shift toward Millennials and what they’re looking for is an exciting time to gauge where our society will be moving in the next few decades, and what it’s going to mean for the financial industry.

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¹ “Millennials: Coming of Age,” Goldman Sachs, http://www.goldmansachs.com/our-thinking/pages/millennials/

² “May We Have Your Attention: Marketing To Millennials,” Kelly Ehlers, Forbes, Jun 27, 2017, https://www.forbes.com/sites/yec/2017/06/27/may-we-have-your-attention-marketing-to-millennials/?sh=2f3cb7cb1d2f

December 28, 2020

More financial tips for the new year

More financial tips for the new year

There’s nothing like the start of a brand new year to put you in a resolution-making, goal-setting, slate-cleaning kind of mood.

Along with your commitment to eat less sugar and exercise a little more, carve out some time to set a few financial aspirations for the new year. Here are some quick tips that may add up to significant benefits for you and your family.

Check your credit report
Start the new year with a copy of your credit report. Every consumer is entitled to one free credit report per year. Make it a point to get yours. Your credit report determines your credit score, so an improved score may help you get a better interest rate on an auto loan or a better plan for utilities or your phone.

Check your credit report carefully for accuracy. If you find anything that shouldn’t be there, you can file a dispute to have it removed. There are several sites where you can get your free credit report – just don’t get duped into paying for it.

Up your 401(k) contributions
The start of a new year is a great time to review your retirement strategy and up your 401(k) contributions. If saving for retirement is on your radar right now – as it should be – see if it works in your budget to increase your 401(k) contribution a few percentage points.

Review your health insurance policy
The open enrollment period for your health insurance may occur later in the year, so make a note on your calendar now to explore your health insurance options beforehand. If you have employer-sponsored health insurance, they should give you information about your plan choices as the renewal approaches. If you provide your own health insurance, you may need to talk to your representative or the health insurance company directly to assess your coverage and check how you might be able to save with a different plan.

Make sure your coverage is serving you well. If you have a high deductible plan, see if you can set up a health savings account. An HSA will allow you to put aside pretax earnings for covered health care costs throughout the year.

No spend days
Consider implementing “no spend days” into your year. Select one day per month (or two if you’re brave) and make it a no spend day. This only works well if you make it non-negotiable! A no spend day means no spur of the moment happy hours, going out to lunch, or engaging in so-called retail therapy.

A no spend day may help you save a little money, but the real gift is what you may learn about your spending habits.

Do some financial goal setting
Whether we really stick to them or not, many of us might be pretty good at setting career goals, family goals, and health and fitness goals. But when it comes to formulating financial goals, some of us might not be so great at that. Still, financial goal setting is essential, because just like anything else, you can’t get there if you’re not sure where you’re going.

Start your financial goal setting by knowing where you want to go. Have some debt you want to pay off? Looking to own a home? Want to retire in the next ten years? Those are great financial goals, but you’ll need a solid strategy to get there.

If you’re having trouble creating a financial strategy, consider working with a qualified financial professional. They can help you draw your financial roadmap.

Clean out your financial closet
Financial tools like budgets, savings strategies, and household expenses need to be revisited. Think of your finances like a closet that should be cleaned out at least once a year. Open it up and take everything out, get rid of what’s no longer serving you, and organize what’s left.

Review your household budget
Take a good look at your household budget. Remember, a budget should be updated as your life changes, so the beginning of a new year is an excellent time to review it. Don’t have a budget? An excellent goal would be to create one! A budget is one of the most useful financial tools available. It’s like an x-ray that reveals your income and spending habits so you can see and track changes over time.

Make this year your financial year
A new year is a great time to do a little financial soul searching. Freshen up your finances, revisit your financial strategies, and greet the new year on solid financial footing.

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This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies for saving and/or investing that may be available to you. Before investing or enacting a savings or retirement strategy, seek the advice of a financial professional, accountant, health insurance representative, and/or tax expert to discuss your options.

December 21, 2020

Permanent or Term Life: Which is right for you?

Permanent or Term Life: Which is right for you?

Life insurance has many benefits.

Most people purchase life insurance to serve as a safety net for the financial health of their family if something happens to them as the primary provider. A life insurance policy in such cases could be used for funeral costs, medical bills, mortgage payments, or other expenses.

You’re finally convinced you need a life insurance policy, and you’re ready to buy. But what do you need exactly? What type of life insurance is best for you?

When preparing to purchase life insurance, there are two main types of policies to consider – permanent and term. Read on for a short primer on the differences and which one may be right for you.

Term life insurance at a glance
Term life insurance offers life insurance coverage for a set amount of time – the “term”. If you pass away during the term, the policy pays out to your beneficiary. A term policy is sometimes called a pure life policy because it doesn’t have financial benefits other than the payout to your dependents should you die within the term.

There are different terms available depending on your needs. You could purchase a term life policy for 10, 20, or 30 years.

Term life insurance pointers
When purchasing a term life policy, consider a term for the number of years you’ll need coverage. For example, you may want life insurance to provide for your child in case you die prematurely. So, you may select a 25-year term. On the other hand, you may want a life insurance policy to help with the mortgage should something happen to you. In this case, you may opt for a 30-year term which will expire when your mortgage is paid off.

You’ll need to purchase enough insurance to cover your family’s needs if something happens to you and you cannot provide for them. Term life insurance benefits could serve as income replacement for your wages, so buy enough to pay for the expenses your paycheck covers.

For example, if you cover the mortgage, car payment, and child care, make sure the term life policy you purchase can cover those expenses.

Term life insurance policies when appropriately used should expire around the time the need for them goes away, such as when your children are self-sufficient, or your mortgage is paid off.

Permanent insurance at a glance
This type of policy can provide coverage for your entire life, unlike a term policy that expires at a set time. A permanent life policy also contains an investment benefit which is known as the policy’s cash value. The cash value of a permanent life policy grows slowly over time but is tax-free (provided you stay within certain limits), so you don’t pay taxes on the accumulating value.

A permanent life policy can be borrowed against. You can borrow against the cash value, but you must abide by the repayment terms to keep the policy payout unchanged.

Some permanent life insurance policies offer dividends. The dividends are paid to the policyholders based on the insurance company’s financial profits. Policyholders can take dividends in the form of cash payouts or use them to earn interest, payback a loan on the policy, or purchase additional life insurance coverage.

Some of the key points regarding permanent life insurance include:

  • The premium can remain the same throughout the policy term if you abide by the conditions and terms in the policy
  • The policy offers a guaranteed death benefit

Cost of life insurance
Term life insurance is generally less expensive than permanent life insurance because the policy has a pre-selected term. Permanent life insurance, on the other hand, covers the insured for their entire lifespan, so you can expect premiums to be higher.

Which life insurance policy is right for you?
If you aren’t sure which policy is right for you, talk to a qualified financial professional who can help you find the right type of life insurance policy to meet your goals and budget.

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This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies for saving and/or investing that may be available to you. Market performance is based on many factors and cannot be predicted. Before investing or enacting a savings or retirement strategy, seek the advice of a financial professional, accountant, and/or tax expert to discuss your options.

December 9, 2020

Setting Up Your Reindeers For Success

Setting Up Your Reindeers For Success

Dasher. Dancer. Prancer. Vixen. Comet. Cupid. Donner. Blitzen. (And Rudolph too, of course.)

This is a holiday roll-call that’s instantly recognizable: the reindeer that pull Santa’s magical sleigh. But what if things got so hectic at the North Pole (not a stretch when you’re in charge of delivering presents to every child on Earth), that when it was time to hitch up the reindeer on Christmas Eve, they were all out of order?

Prancer. Cupid. Dasher. Comet. Dancer. Vixen. Blitzen. Donner.

Hmmm, someone’s missing…. what happened to Rudolph? (Looks like he got left behind at the North Pole. In all the hubbub one of Santa’s elves forgot to review the pre-flight checklist.)

Since so much can change during the year from one crazy “Happy Holidays!” to the next, your ducks – or reindeer, that is – may not even be in a row at this point. They could be frolicking unattended in a field somewhere! And who knows where your Rudolph even is.

We can help with that. An annual review of your financial strategy is key to keeping you on track for your unique goals. Lots of things can change over the course of a year, and your strategy could need some reorganizing. I mean, did you hear about everything that changed for Prancer? (What do you call a baby reindeer, anyway?)

Here are some important questions to consider at least once each year (or even more often):

1. Are you on track to meet your savings goals? A well-prepared retirement is a worthy goal. Let’s make sure nothing drove you too far off track this year, and if it did, let’s explore what can be done to get you back on the right path.

2. Do you have the potential for new savings? Did your health improve this year? Did that black mark on your driving record expire? Changes like these have the potential to positively impact your life insurance rate, but we’d need to dig in and find out what kinds of savings might be in store for you.

3. Have your coverage needs increased? Marriage, having a child, or buying a home are all instances in which your life insurance coverage probably should be increased. Have any of these occurred for you over the last year? Have you added the new family member as a beneficiary?

If you haven’t had a chance to review your strategy this year, we can fit one in before Santa shimmies down the chimney. Which of your reindeer do you need to wrangle back into the ranks before the New Year gets going?

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November 23, 2020

Dollar Cost Averaging Explained

Dollar Cost Averaging Explained

Most of us understand the meanings of “dollar” and “cost”, and we know what averages are…

But when you put those three words together – dollar cost averaging – the meaning may not be quite as clear.

Dollar cost averaging refers to the concept of investing on a fixed schedule and with a fixed amount of money. For example, after a careful budget review, you might determine you can afford $200 per month to invest. With dollar cost averaging, you would invest that $200 without regard to what the market is doing, without regard to price, and without regard to news that might impact the market temporarily. You become the investment equivalent of the tortoise from the fable of the tortoise and the hare. You just keep going steadily.

When the market goes up, you buy. When the market goes down, you can buy more.

The gist of dollar cost averaging is that you don’t need to be a stock-picking prodigy to potentially succeed at investing. Over time, as your investment grows, the goal is to profit from all the shares you purchased, both low and high, because your average cost for shares would be below the market price.

Hypothetically, let’s say you invest your first $200 in an index fund that’s trading at $10 per share. You can buy 20 shares. But the next month, the market drops because of some news that said the sky was falling somewhere else in the world. The price of your shares goes down to $9.

You might be thinking that doesn’t seem so great. But pause for a moment. You’re not selling yet because you’re employing dollar cost averaging. Now, with the next month’s $200, you can buy 22 shares. That’s 2 extra shares compared to your earlier buy. Now your average cost for all 42 shares is approximately $9.52. If your index fund reaches $10 again, you’ll be profitable on all those shares. If it reaches $12, or $15, or $20, now we’re talking. To sum up, if your average cost goes up, it means your investment is doing well. If the price dips, you can buy more shares.

Using dollar cost averaging means that you don’t have to know everything (no one does) and that you don’t know for certain what the market will do in the next day, week, or month (no one does). But over the long term, we have faith that the market will go up. Because dollar cost averaging removes the guesswork involved with deciding when to buy, you’re always putting money to work, money that may provide a solid return in time.

You may use dollar cost averaging with funds, ETFs, or individual stocks, but diversified investments are potentially best. An individual stock may go down to zero, while the broad stock market may continue to climb over time.

Dollar cost averaging is an important concept to understand. It may save you time and it may prevent costly investment mistakes. You don’t have to try to be an expert. Once you understand the basics of dollar cost averaging, you may start to feel like an investment genius!

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Market performance is based on many factors and cannot be predicted. This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies for saving and/or investing that may be available to you. Examples used in this article are hypothetical. Before investing or enacting a savings or retirement strategy, seek the advice of a licensed financial professional, accountant, and/or tax expert to discuss your options.

November 18, 2020

The Most Important Retirement Rule

The Most Important Retirement Rule

The best way to determine your retirement target savings is to use your income.

Here’s why.

Almost nobody wants to work 40 hours a week in retirement. Not you, not me. To avoid that, you must have money at your disposal to cover expenses like food, travel, and medical bills.

But how much do you need?

There’s a 38% chance that if you retire at 65 you will live to 85, and a 5% chance that you’ll make it to 95.¹ That means you’ll need enough cash to cover at least 20 years of life with no income.

This is where your paycheck comes into play.

Aiming to save 20 to 30 times your income helps prepare you to maintain your current lifestyle into retirement. You might even have extra spending money if you’re debt free!

Plus, it forces you to scale your savings as your income grows.

Setting a goal based solely on how much you want to spend in retirement can result in lowering your savings goal. You might splurge more now, telling yourself that you’ll just live on less later. But you’re cheating your future self!

Using your income as a retirement benchmark forces you to increase your savings amount as your paycheck grows. Let’s say you make $80,000 annually and you start saving. Your goal is to stash away 20 times your income, or about $1.6 million.

After a while, you’re able to save 5 years worth of earnings, or about $400,000.

But then you get a raise! Suddenly you’re making $100,000 per year. Your retirement target shifts up accordingly to $2 million. That $400,000 you have in the bank is a hefty slice of cash, but it’s now only worth 4 years of income instead of 5.

In other words, basing your saving around your income actually encourages you to save more as your income increases.

The best thing about this method is that it focuses on the most important part of retiring—to sustain the lifestyle that you envision. Meet with a licensed financial professional to map out what that would look like for you and how much you must save to make that vision a reality.

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¹ “How Long Will Your Retirement Really Last?,” Simon Moore, Forbes, Apr 24, 2018, https://www.forbes.com/sites/simonmoore/2018/04/24/how-long-will-your-retirement-last/?sh=31a59fb37472

November 4, 2020

Disappearing Pensions and Protecting Your Retirement

Disappearing Pensions and Protecting Your Retirement

The old days of working at the same company for 30 years and retiring with a company pension are just about over.

Today, very few companies offer pension plans and those that do are finding those plans in peril.

Most modern workers must learn to plan their retirement without a pension. Luckily, there are still great financial tools for your retirement strategy, and workers who save diligently and prepare well can still look forward to a well-funded retirement.

Disappearing Pensions and the Rise of the 401(k)
A company pension was commonplace a few decades ago. In exchange for hard work and service for somewhere around 30 years, a company would provide you with a guaranteed income stream during your retirement.

Many Americans enjoyed a comfortable and secure retirement with a pension. Coupled with their social security benefits, they lived fairly well in their golden years.

The reason pension plans are going the way of the wind has many factors, including changes in workers’ behavior, longer life expectancies, and rising costs for employers.

A study by the professional services firm Towers Watson found that from 1998 to 2013, the number of Fortune 500 companies offering pension plans dropped 86 percent, from 251 to 34.1 Couple that with the Revenue Act of 1978, which allowed for the creation of 401(k) savings plans, and you’ll have a good view of the modern retirement landscape.

How to Retire Without a Pension
The company pension isn’t coming back, so what can workers do to secure a retirement like their parents and grandparents had?

Here are a few retirement planning tools that every worker can put to good use.

Take Full Advantage of Your Company 401(k) Plan
If your company offers a 401(k) retirement plan, make sure you’re taking full advantage of it. Here are a few ways to maximize your 401(k) plan.

  • Make the match: If your employer offers matching contributions, don’t leave the match on the table. Contribute the required percentage to collect the most you can.
  • Get fully vested: Make sure you are fully vested before you make any employment changes. Your contributions to a 401(k) will always be yours, but to keep 100% of your employer contributions, you must be fully vested.

Open a Roth IRA
A Roth plan is funded with taxed income. The upside is that you won’t pay taxes when you take it out. If your 401(k) contributions are maxed out, a Roth could be a good savings vehicle for you.

Consider an Annuity If you like the idea of a guaranteed income stream, consider an annuity. An annuity is an insurance product, so most of the time it isn’t invested. In exchange for a lump sum of money, an annuity will pay a guaranteed monthly income stream.

Talk to a Trusted Financial Professional
Pensions are all but gone. This means today’s workers must be more involved in how they create a strategy for their retirement. There are many great retirement savings tools. Talk to a trusted financial advisor to understand and learn how you can make sure your retirement income is going to be there when you need it.

This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies for saving and/or investing that may be available to you.

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“Pensions Are Taking the Long, Lonely Road to Retirement,” Lou Carlozo, U.S. News and World Reports, Jul 20, 2015, https://money.usnews.com/money/personal-finance/mutual-funds/articles/2015/07/20/pensions-are-taking-the-long-lonely-road-to-retirement

October 26, 2020

Is Your Home An Investment?

Is Your Home An Investment?

It’s a law of the universe that your house is an investment, right?

Just ask your grandparents who bought a $250,000 home for $50,000 during the 1950s. Better yet, listen to your savvy landlord buddy who rules an urban real estate empire that they gobbled up following the Great Recession. We’re surrounded by evidence that conclusively demonstrates the power of houses as investments… or are we?

Hmmm.

It turns out that buying a place of residence may not actually pay off in the long run like it might appear on paper. Here’s why you might want to rethink having your primary residence be an investment only.

Houses (usually) don’t actually grow more valuable
Think about that suburban mansion your grandparents snagged for $50,000 that eventually “grew” to be worth $250,000. On paper, that looks like an awesome investment; that house quintupled in value! But remember, $1 in 1950 had about the purchasing power of $10 today. Four gallons of gas or two movie tickets were just one buck!¹ That means $50,000 at that time could buy a $539,249 house today. Your grandparents actually lost money on that house, even though it looked like they made off like bandits!

It’s all because of one simple feature of economics: inflation. Prices tend to rise over time, meaning that your dollar today doesn’t go as far as it would have in 1950. So while it looks like your grandparents netted a fortune on their house, they actually didn’t. They lost over half its value! Unless your neighborhood suddenly spikes in popularity with young professionals or you start renting, your house probably won’t accrue any real worth beyond inflation.

Houses have to be maintained
But it’s not just that houses usually don’t actually appreciate in value. They also cost money in property taxes, utilities, and maintenance. Homeowners spend, on average, $1,105 annually to maintain their dwelling places.² You can expect to pay $12,348 annually on the average mortgage and $2,060 for utilities.³ & ⁴ That comes out to a total of $15,513 per year on keeping the house and making it livable. Let’s say your home is worth about $230,000 and appreciates by 3.8% every year. It will grow in value by about $8,740 by the end of the year. That’s barely more than half of what it costs to keep the house up and running! Your house is hemorrhaging money, not turning a profit.

It’s important to note that homeownership can still generally be a good thing. It can protect you from coughing up all your money to a landlord. Buying a property in an up-and-coming neighborhood and renting it out can be a great way to supplement your income. Plus, there’s something special about owning a place and making it yours. But make no mistake; unless you strike real estate gold, your place of residence probably shouldn’t be (primarily) an investment. It can be home, but you might need to rely on it to help fund your retirement!

Market performance is based on many factors and cannot be predicted. This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies for saving and/or investing that may be available to you. Any examples used in this article are hypothetical. Before investing or enacting a savings, investment, or retirement strategy, seek the advice of a licensed financial professional, accountant, and/or tax expert to discuss your options.

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Market performance is based on many factors and cannot be predicted. This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies for saving and/or investing that may be available to you. Any examples used in this article are hypothetical. Before investing or enacting a savings, investment, or retirement strategy, seek the advice of a licensed financial professional, accountant, and/or tax expert to discuss your options.


“7 Things You Could Buy For $1 in 1950,” Megan Elliott, Showbiz Cheatsheet, Oct 9, 2016, https://www.cheatsheet.com/money-career/things-you-could-buy-for-1-dollar.html/

“How Much Should You Budget For Home Maintenance,” Paula Pant, The Balance, May 26, 2020, https://www.thebalance.com/home-maintenance-budget-453820

“National Average Monthly Mortgage Payment,” Hannah Rounds, LendingTree, July 11, 2018, https://www.lendingtree.com/home/mortgage/national-average-monthly-mortgage-payment/#:~:text=What%20is%20the%20average%20monthly,the%20typical%20homeowners'%20monthly%20income

“How much is the average household utility bill?,” Nationwide, https://www.nationwide.com/lc/resources/personal-finance/articles/average-cost-of-utilities#:~:text=The%20typical%20U.S.%20family%20spends,climate%2C%20and%20your%20usage%20patterns

August 12, 2020

What It Means To Live Paycheck to Paycheck

What It Means To Live Paycheck to Paycheck

A 2017 survey found that 78% of Americans live paycheck to paycheck.(1)

“Paycheck to paycheck” is an expression we’ve all heard, but what does it really mean? Have we taken the time to understand its implications for our daily lives and futures? Here’s a crash course in what it means to live paycheck to paycheck.

Living paycheck to paycheck technically means that all of your “income” goes towards your “outgo” each month and you’re not saving anything. You get paid, spend everything, and have to rely on that next check to make ends meet. And millions of Americans seem okay with this lifestyle of razor thin margins. They’re certainly comfortable with sharing it on their social media!

But the paycheck to paycheck lifestyle means more than just spending all you earn. It means you’re constantly on the verge of a financial catastrophe. What happens if you’re spending your whole paycheck each and every month and you lose your job? Suddenly, you’re facing your normal expenditures but the cash isn’t coming in. Or what if you face an emergency car repair? Where will you find the money to cover that unexpected expense? Living paycheck to paycheck means you’re standing right on the knife’s edge of money mayhem!

Thoughtless spending doesn’t just leave you exposed to a present-day disaster. It also means you aren’t preparing for your future. By definition, a paycheck to paycheck lifestyle excludes saving. You can’t stash money away for a house or your retirement if you let every penny fly out the window. Most Americans are poorly situated for the future; 70% have less than $1,000 in savings, and 45% have saved exactly $0.00.(2) That’s not enough to cover a new transmission, much less the retirement lifestyle most of us envision!

But there are alternatives to the paycheck to paycheck trap. You can take steps to move away from financial insecurity towards financial freedom. Let’s talk about what that would look like for you!

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August 5, 2020

Savings accounts vs. CDs – which is better?

Savings accounts vs. CDs – which is better?

Interest rates are on the rise, which might not be great news if you carry revolving debt.

But savings accounts and certificates of deposit (CDs) might start looking more attractive as places to put your money. Currently, both savings accounts and CDs might be good options, so which is better? In large part, whether a savings account or a CD is the better tool for saving depends on your savings goal.

Access to funds Savings accounts offer more flexibility than CDs if you need to withdraw your money. However, be aware that many banks charge a fee if your balance falls below a certain threshold. Some banks don’t have a minimum balance requirement, and some credit unions have minimum balance requirements as low as a penny. It could be worth it to shop around if you think you might need to draw down the account at any moment.

CDs, on the other hand, have a maturity date. If you need access to your funds before the maturity date, which might range from six months to up to five years depending on which CD you choose, expect to sacrifice some interest or pay a penalty. Accessing funds held in a standard CD before its maturity date is called “breaking the CD”.

“Liquid CDs” allow you to withdraw without penalty, but typically pay a lower interest rate than standard CDs.

Interest rates CDs are historically known for paying higher interest rates than savings accounts, but this isn’t always the case. Interest rates for both types of accounts are still hovering near their lows. Depending on your situation, it might be better to choose an account type based on convenience. If interest rates continue upward, CDs may become more attractive.

In a higher interest rate environment, CDs might be a great tool for saving if you know when you’ll need the money. Let’s say you have a bill for college that will be due in thirteen months. If you won’t need the money for anything else in the meantime, a twelve-month CD might be a fit because the CD will mature before the bill is due, so the money can be withdrawn without penalty.

If your goal is to establish an emergency fund, however, a CD might not be the best option because you don’t know when you’re going to need the money. If an emergency comes your way, you won’t want to pay a penalty to access your savings. Keep an eye on current rates, and if CD interest rates start to increase, then you might consider them for longer-term savings if you won’t need the funds until a fixed date in the future. For emergency savings, consider a savings account that keeps your money separate from your checking account but still provides easy access if you need it.

Depending on your situation, a CD or a savings account may be the better fit. Shop around for the best rates you can find, and make sure you understand any penalties or fees you might incur for withdrawing funds.

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This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies for saving and/or investing that may be available to you. Market performance is based on many factors and cannot be predicted. Before investing or enacting a savings or retirement strategy, seek the advice of a financial professional, accountant, and/or tax expert to discuss your options.

July 20, 2020

How much will this cost me?

How much will this cost me?

If you’re dipping your toe in the pool of life insurance for the first time, you’re bound to have a lot of questions.

At the top of your list is probably how much setting up a policy is going to cost you.

There are several things that can determine how much you’ll pay for life insurance, including the type of policy you select. But before we dive in and look at cost, let’s check out the types of life insurance available.

Major types of life insurance
Life insurance is customizable and can suit many different needs, but for the most part, life insurance comes in three main varieties.

Term life insurance: A term life policy is active for a preselected length of time. It could be 15, 20, or 30 years. If something happens to you during that term, your beneficiary will receive the death benefit of the policy.

Permanent life insurance: Permanent life insurance is a policy that stays active as long as you’re alive. When you pass away, the policy pays out to your named beneficiary. The value of the policy increases over time, and you can borrow against this “cash value” in some circumstances.

Universal life insurance: Universal life insurance works like a permanent life policy in that it pays out to your beneficiary, but it also accrues interest over the policy term (which may be affected by market performance).

How your cost is calculated
The insurance company estimates the cost of a life insurance policy based on your risk factors. Risk factor data is gathered and evaluated based on the information in your application. Then the insurance company uses historical data, trends, and actuarial processes to come up with a premium for you.

The cost of some life insurance policies can change over time, while others remain the same.

What risk factors does the company use?
When the insurance company is calculating your rate, they look at several factors, including:

Your demographics: Your demographics include your age, weight, gender, and health. The company will also want to know if you smoke, and other health-related issues you may have.

The amount of the death benefit: The death benefit is the amount the policy will pay to your beneficiaries when you pass away. The larger the death benefit you select, the more expensive the policy.

Your lifestyle: Lifestyle habits and hobbies can affect the cost of your policy. The insurance company will want to know if you ride a motorcycle regularly, or how often you drink alcohol, for example.

Your risk and life insurance cost
The risk of when your death will occur ultimately determines your life insurance costs. That’s why the younger you are the less the policy should cost. If you wait to purchase your life insurance policy when you’re older, the policy will most likely cost more.

But there are things you can do that may help lessen the cost of the policy. Anything that will increase your health status may help with your life insurance costs. Quitting smoking and starting a regular exercise program can promote your health and in turn this may also have a positive effect on your health insurance premium.

A life insurance agent can help
If you’re looking for a life insurance policy and wondering about the cost, a qualified life insurance agent can be a great help. A life insurance agent has access to many different insurance companies and can work to get you matched with the right policy at the right price for you.

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This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies for saving and/or investing that may be available to you. Market performance is based on many factors and cannot be predicted. Before investing or enacting a savings or retirement strategy, seek the advice of a financial professional, accountant, and/or tax expert to discuss your options.

July 8, 2020

It may not be as hard as you think

It may not be as hard as you think

Once upon a time, a million dollars was a lot of money.

And it still is. If you time it right, becoming a millionaire might be within reach for nearly anyone. There are some catches, however – you’ll have to stay focused, and time plays a significant role, so starting early is part of the millionaire game.

Time is important because you’ll use the leverage of compound interest to help build your nest egg. For example, let’s assume an average rate of return of 8% in a tax-deferred account, like an IRA or a 401(k). This 8% example is lower than the historical return for the S&P since its inception in 1928. Historically, the S&P has rewarded investors with about a 10% average annual return, including dividends.[i]

Then let’s assume your current savings are at zero. Let’s also assume that you can find $100 per month in your budget to invest. $100 per month is about $3 per day.

Starting your account with your first $100 and then contributing $100 per month (every month) will yield the following amounts, assuming that your account’s returns stay at the 8% average:

  • After 10 years, you’ll have about $17,600\
  • After 15 years, you’ll have about $33,000\
  • After 20 years, you’ll have about $55,000

Uh oh. None of those numbers are even close to $1 million. To reach $1 million by saving $100 per month, you’ll need 55 years at the 8% rate of return, at which time your account would be worth approximately $1,025,599. (By the way, the account would grow by $75,000 from year 54 to year 55 since your compound growth would be based on a much bigger number.)

If you can step up your investment to $150 per month, you might be able to shave five years off your goal and reach $1 million in 50 years. At $200 per month, you might reach your goal in just over 45 years.[ii]

Looking at these numbers, ask yourself how much you can save each day. When you spend money now, it’s gone. It never has a chance to grow. By saving (and investing) instead of spending, you can help set yourself up for a comfortable future where you can afford the treats you’re skipping now so you can fund your savings.

At $15 per day – the price of dinner at a fast food restaurant – you could save $450 per month, enough to make you a millionaire in just over 35 years.

The market refers to the process of investing a consistent amount monthly, regardless of the price of shares, “dollar cost averaging”. Let time take care of the math through compounded returns. Just keep saving for your future consistently.

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Market performance is based on many factors and cannot be predicted. This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies for saving and/or investing that may be available to you. Before investing or enacting a savings or retirement strategy, seek the advice of a financial professional, accountant, and/or tax expert to discuss your options.

[i] https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp
[ii] https://www.investor.gov/additional-resources/free-financial-planning-tools/compound-interest-calculator

June 24, 2020

Read this before you walk down the aisle

Read this before you walk down the aisle

Don’t let financial trouble ruin your future wedded bliss.

Most newlyweds have a lot to get used to. You may be living together for the first time, spending a lot of time with your new in-laws, and dealing with dual finances. Financial troubles can plague even the most compatible pairs, so read on for some tips on how to get your newlywed finances off to the best possible start.

Talk it out If you haven’t done this already, the time is ripe for a heart to heart talk about what your financial picture is going to look like. This is the time to lay it all out. Not only should you and your fiancé discuss your upcoming combined financial situation, but it can be beneficial to take a deep dive into your past too. Our financial histories and backgrounds can influence current spending and saving habits. Take some time to get to know one another’s history and perspective when it comes to how they think about money, debt, budgeting, etc.

Newlyweds need a budget Everyone needs a budget, but a budget can be particularly helpful for newlyweds. A reasonable, working household budget can go a long way in helping ease financial stress and overcoming challenges. Money differences can be a big cause of marital strife, but a solid, mutually-agreed-upon budget can help avoid potential arguments. A budget will help you manage student loans or new household expenses that must be dealt with. Come up with a budget together and make sure it’s something you both can stick with.

Create financial goals Financial goal setting can actually be fun. True, some goals may not seem all that exciting – like paying off credit cards or student loans. But formulating financial goals is important.

Financial goal setting should start with a conversation with your new fiancé. This is the time to think about your future as a married couple and work out a financial strategy to help make your financial dreams a reality. For example, if you want to buy a house, you’ll need to prepare for that. A good start is to minimize debt and start saving for a down payment.

Maybe you two want to start a business. In that case, your financial goals may include raising capital, establishing business credit, or qualifying for a small business loan.

Face your debt head on It’s not unusual for individuals to start married life facing new debt that came along with their partner – possibly student loans or personal credit card debt. You may also have combined debt if you’re planning on financing your wedding. Maybe you’re going to take your dream honeymoon and put it on a credit card.

Create a strategy to pay off your debt and stick to it. There are two common ways to tackle it – begin with the highest interest rate debt, or begin with the smallest balance. There are many good strategies – the key is to develop one and put it into action.

Invest for the future Part of your financial strategy should include preparing for retirement, even though it might seem light years away now. Make sure you work a retirement strategy into your other financial goals. Take advantage of employer-sponsored retirement accounts and earmark savings for retirement.

Purchase life insurance Life insurance is essential to help ensure your new spouse will be taken care of should you die prematurely. Even though many married couples today are dual earners, there is still a need for life insurance. Ask yourself if your new spouse could afford to pay their living expenses if something happened to you. Consider purchasing a life insurance policy to help cover things like funeral costs, medical expenses, or replacement income for your spouse.

Newlywed finances can be fun Newlywed life is fun and exciting, and finances can be too. Talk deeply and often about finances with your fiancé. Share your dreams and goals so you can create financial habits together that will help you realize them. Here’s to you and many years of wedded bliss!

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June 17, 2020

3 Ways to Shift from Indulgence to Independence

3 Ways to Shift from Indulgence to Independence

On Monday mornings, we’re all faced with a difficult choice.

Get up a few minutes early to brew your own coffee, or sleep a little later and then whip through a drive-thru for your morning pick-me-up?

When that caffeine hits your bloodstream, how you got the coffee may not matter too much. But the next time you go through a drive thru for that cup o’ joe, picture your financial strategy shouting and waving its metaphorical arms to get your attention.

Why? Each and every time you indulge in a “luxury” that has a less expensive alternative, you’re potentially delaying your financial independence. Delay it too long and you might find yourself working when you should be enjoying a comfortable retirement. Sound dramatic? Alarmist? Apocalyptic? But that’s how it happens – one $5 peppermint mocha at a time. This isn’t to say that you can’t enjoy an indulgence every once in a while. You gotta “treat yourself” sometimes, right? Just be sure that you’re sticking with your overall, long-term strategy. Your future self will thank you!

Here are 3 ways to shift from indulgence to independence:

1. Make coffee at home. Reducing your expenses can start as simply as making your morning coffee at home. And you might not even have to get up earlier to do it. Why not invest in a coffee pot with a delay brewing function? It’ll start brewing at the time you preset, and what’s a better alarm clock than the scent of freshly-brewed coffee wafting from the kitchen? Or from your bedside table… (This is a judgment-free zone here – do what you need to do to get up on time in the morning.)

Get started: A quick Google search will yield numerous lists of copycat specialty drinks that you can make at home.

2. Workout at home. A couple of questions to ask yourself:

1) Will an expensive gym membership fit into your monthly budget? 2) How often have you gone to the gym in the last few months?

If your answers are somewhere between “No” and “I’d rather not say,” then maybe it’s time to ditch the membership in favor of working out at home. Or perhaps you’re a certified gym rat who faithfully wrings every dollar out of your gym membership each month. Then ask yourself if you really need all the bells and whistles that an expensive gym might offer. Elliptical, dumbbells, and machines with clearly printed how-tos? Yes, of course. But a hot tub, sauna, and an out-of-pocket juice bar? Maybe not. If you can get in a solid workout without a few of those pricey extras, your body and your wallet will thank you.

Get started: Instead of a using a treadmill inside the gym, take a walk or jog around your local park each day – it’s free! If you prefer to work out at a gym, look into month-to-month membership options instead of paying a hefty price for a year-long membership up front.

3. Ditch cable and use a video streaming service instead. Cable may give you access to more channels and more shows than ever before, but let’s be honest. Who has time to watch 80 hours of the greatest moments in sports every week? Asking yourself if you could cut the cable and wait a little longer for your favorite shows to become available on a streaming service might not be a bad idea. Plus, who doesn’t love using a 3-day weekend to binge-watch an entire series every now and then? There’s also the bonus of how easy it is to cancel/reactivate a streaming service. With cable, you may be locked into a multi-year contract, installation can be a hassle (and they may add an extra installation fee), and you can forget about knowing when the cable guy is actually going to show up.

Get started: Plenty of streaming services offer free trial periods. Go ahead and give them a try, but be careful: You may have to enter your credit card number to access the free trial. Don’t forget to cancel before your trial is over, or you will be charged.

Taking time to address the luxuries you can live without (or enjoy less often) has the potential to make a huge impact on your journey to financial independence. Cutting back here and investing in yourself there – it all adds up.

In what areas do you think you can start indulging less?

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June 15, 2020

Should I pay off my car or my credit cards?

Should I pay off my car or my credit cards?

Credit card statements and auto loan statements are often among the bigger bills the mail carrier brings.

Wouldn’t it be great to just pay them off and then use those monthly payments for something else, like building your savings and giving yourself a bit of breathing room for a treat now and then?

Paying extra money on your credit card bills and your car loan at the same time may not be an option, so which is better to pay off first?

In most cases, paying down credit cards might be a better strategy. But the reasons for paying off your credit cards first are numerous. Let’s look at why that usually may make more sense.

  • Credit cards have high interest rates. When you look at the balances for your auto loan vs. your credit card, the larger amount may often be the auto loan. Big balances can be unnerving, so your inclination may be to pay that down first. However, auto loans usually have a relatively low interest rate, so if you have an extra $100 or $200 per month to put toward debt, credit cards make a better choice. The average credit card interest rate is about 15%, whereas the average auto loan rate is usually under 7%, if you have good credit.[i]

  • Credit cards charge compound interest. Most auto loans are simple-interest loans, which means you only pay interest on the principal. Credit cards, however, charge compound interest, which means any interest that accrues on your account can generate interest of its own. Yikes!

  • You’ll lower your credit utilization. Part of your credit score is based on your credit utilization, which specifically refers to how much of your revolving credit you use. As you pay down your balance, you’ll not only pay less in interest, you may also give your credit score a boost by reducing your credit utilization.

The numbers don’t lie
Let’s say you have a 5-year auto loan for $30,000 at 7% interest. You also have an extra $100 per month you’d like to use to pay down debt. By adding that 100 bucks to your car payments, over the course of the loan you can cut your loan length by 10 months and save $972.32.[ii] Impressive.

Let’s look at a credit card balance. Maybe the credit card interest rate is higher than the car loan, but hopefully the balance is lower. Let’s assume a balance of only $10,000 and an interest rate of 15%. With your minimum payment, you’d probably pay about $225 monthly. Putting the extra $100 per month toward the credit card balance and paying $325 shortens the payment length for the card balance by 26 months and saves $1,986 in interest expense.[iii] Wow!

The math tells the truth. In the above hypothetical scenarios, even though the balance on the credit card is one-third that of the total owed for the car, you would save more money by paying off the credit card balance first.

Financial strategy isn’t just about paying down debt though. As you go, be sure you’re saving as well. You’ll need an emergency fund and you’ll need to invest for your retirement. Let’s talk. I have some ideas that can help you build toward your goals for your future.

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