What Are the Effects of Closing a Credit Card?

November 11, 2019

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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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November 6, 2019

Common Financial Potholes

Common Financial Potholes

The journey to financial independence can feel a bit like driving around with your entire retirement fund stashed in the open-air bed of a pickup truck.

Every dollar bill is at the mercy of the elements. Think of an unforeseen medical emergency as a pop-up windstorm that whips a few thousand dollars out of the truck bed. And that time your refrigerator gave out on you? That’s swerving to avoid a landslide as it tumbles down the mountain. There goes another $1,000.

Emergencies like a case of appendicitis or suddenly needing a place to store your groceries usually arrive unannounced and can’t always be avoided. But there are a few scenarios you can bypass, especially when you know they’re coming.

These scenarios are the potholes on the road to financial independence. When you’re driving along and see a particularly nasty pothole through your windshield, it just makes sense to avoid it.

Here are some common potholes to avoid on your financial journey.

Excessive or Frivolous Spending
A job loss or a sudden, large expense can change your cash flow quickly, making you wish you still had some of the money you spent on… well, what did you spend it on, anyway? That’s exactly the trouble. We often spend on small indulgences without calculating how much those indulgences cost when they’re added up. Unless it’s an emergency, big expenses can be easier to control. It’s the small expenses that can cost the most.

Recurring Payments
Somewhere along the line, businesses started charging monthly subscriptions or membership fees for their products or service. These can be useful. You might not want to shell out $2,000 all at once for home gym equipment, but spending $40/month at your local gym fits in your budget. However, unused subscriptions and memberships create their own credit potholes. If money is tight or you’re prioritizing your spending, take a look at your subscriptions and memberships. Cancel the ones that you’re not using or enjoying.

New Cars
Most people love the smell of a new car, particularly if it’s a car they own. Ownership is strange in regard to cars, however. In most cases, the bank holds the title until the car is paid off. In the interim, the car has depreciated by 25% in the first year and by nearly 50% after 3 years.

What often happens is that we trade the car after a few years in exchange for something that has that new car smell – and we’ve never seen the title for the first car. We never owned it outright. In this chain of transactions, each car has taxes and registration fees, interest is paid on a depreciating asset, and car dealers are making money on both sides of the trade when we bring in our old car to exchange for a new one.

Unless you have a business reason to have the latest model, it’s less expensive to stop trading cars. Think of your no-longer-new car as a great deal on a used car – and once it’s paid off, there’s more money to put each month towards your retirement.

To sum up, you may already have the best shocks on your financial vehicle (i.e., a well-tailored financial strategy), but slamming into unnecessary potholes could damage what you’ve already built. Don’t damage your potential to go further for longer – avoid those common financial potholes.

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October 28, 2019

3 Simple Benefits of Indexed Universal Life Insurance

3 Simple Benefits of Indexed Universal Life Insurance

If you’re not familiar with indexed universal life insurance, you’ve come to the right place.

What is an IUL?
Indexed universal life insurance (IUL) is a type of permanent life insurance that has an investment element that helps the policy build cash value.

Part of the premium for an IUL is invested in stock options that track an index, like the S&P 500 or NASDAQ 100. This provides a higher growth potential than a whole life policy or a standard universal life policy (both of which provide a conservative fixed return). Gains may be capped in an indexed universal life policy, but the policy provides protections that prevent stock market meltdowns or slow slides from eroding the cash value in your policy.

Here are some of the main benefits of an IUL:
1. It protects your downside. Unlike direct investments, mutual funds, or other types of investments – an indexed universal life policy protects your downside. If the market drops for the index (or indexes) your policy tracks, you keep the gains and are sheltered from the losses. Don’t you wish your 401k or private investments could do that?

2. The cash value in your policy grows tax-deferred. Without the frequent tax liability that often comes with trading in and out of stocks or funds, the cash value can grow unhindered by the ball and chain of capital gains or income taxes.

3. Gains for an indexed universal life policy can be significantly higher than with a whole life policy or a universal life policy. Even with capped gains, which is a tradeoff in exchange for providing a floor to protect your policy from losses, the gains in an indexed universal life policy can outpace the earnings in fixed-rate policies. As with any investment, time tends to be your best friend, smoothing the down years (flat years for an IUL) with strong years to build an upward trend line.

An indexed universal life insurance policy can help supplement your retirement savings strategy and work in parallel with your existing 401k and IRAs – but with access to your cash value before age 59 ½ – or after – and without the dreaded 10 percent penalty for early withdrawal.

Summing It Up
As both a permanent life insurance policy and a tax-deferred investment vehicle that shields you from market losses, an indexed universal life policy can help provide for your family at nearly any point in life and then provide for your beneficiaries when you pass away.

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October 16, 2019

Tips on Managing Money for Couples

Tips on Managing Money for Couples

Couplehood can be a wonderful blessing, but – as you may know – it can have its challenges as well.

In fact, money matters are the leading cause of stress in modern relationships. The age-old adage that love trumps riches may be true, but if money is tight or if a couple isn’t meeting their financial goals, there could be some unpleasant conversations (er, arguments) on the bumpy road to bliss with your partner or spouse.

These tips may help make the road to happiness a little easier.

1. Set a goal for debt-free living. Certain types of debt can be difficult to avoid, such as mortgages or car payments, but other types of debt, like credit cards in particular, can grow like the proverbial snowball rolling down a hill. Credit card debt often comes about because of overspending or because insufficient savings forced the use of credit for an unexpected situation. Either way, you’ll have to get to the root of the cause or the snowball might get bigger. Starting an emergency fund or reigning in unnecessary spending – or both – can help get credit card balances under control so you can get them paid off.

2. Talk about money matters. Having a conversation with your partner about money is probably not at the top of your list of fun-things-I-look-forward-to. This might cause many couples to put it off until the “right time”. If something is less than ideal in the way your finances are structured, not talking about it won’t make the problem go away. Instead, frustrations over money can fester, possibly turning a small issue into a larger problem. Discussing your thoughts and concerns about money with your partner regularly (and respectfully) is key to reaching an understanding of each other’s goals and priorities, and then melding them together for your goals as a couple.

3. Consider separate accounts with one joint account. As a couple, most of your financial obligations will be faced together, including housing costs, monthly utilities and food expenses, and often auto expenses. In most households, these items ideally should be paid out of a joint account. But let’s face it, it’s no fun to have to ask permission or worry about what your partner thinks every time you buy a specialty coffee or want that new pair of shoes you’ve been eyeing. In addition to your main joint account, having separate accounts for each of you may help you maintain some independence and autonomy in regard to personal spending.

With these tips in mind, here’s to a little less stress so you can put your attention on other “couplehood” concerns… Like where you two are heading for dinner tonight – the usual hangout (which is always good), or that brand new place that just opened downtown? (Hint: This is a little bit of a trick question. The answer is – whichever place fits into the budget that you two have already decided on, together!)

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October 14, 2019

Getting a Degree of Financial Security

Getting a Degree of Financial Security

The financial advantage gap between having a college degree and just having a high school diploma is widening!

In 2015, the average college graduate earned 56% more than the average high school graduate. This is the widest gap between the two that the Economic Policy Institute has recorded since 1973!

This income difference is making saving for retirement difficult for millennials without a college degree. According to the Young Invincibles’ 2017 ‘Financial Health of Young America’ study, millennial college grads – even with roadblocks like student debt – have saved nearly $21,000 for retirement. That’s quite a lot more as compared to the amount saved by those with a high school diploma only: under $8,000.

However, a college grad may encounter a different type of retirement savings roadblock than a reduced income – student loan debt. But the numbers show that even with student loan debt, the advantages of having a college degree and a solid financial strategy outweigh the retirement saving power of not having a college degree.

Here’s an issue plaguing both groups: more than two-thirds of all millennial workers surveyed do not have a specific retirement plan in place at all.

Regardless of your level of education or your level of income, you can save for your retirement – and take steps toward your financial independence. Or maybe even finance a college education for yourself or a loved one down the road.

The first step to making the most of what you do have is meeting with a financial advisor who can help put you on the path to a solid financial strategy. Contact me today. Let’s work to get your money working for you.

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October 9, 2019

Are You Sitting Down?

Are You Sitting Down?

When things go wrong or we face an unexpected expense, we usually have one of two choices: Use credit to navigate a short-term cash crunch, or dip into savings.

In either case, it’s a good idea to have liquid funds available. Using credit can actually make your money problem worse if you don’t have enough to pay off the balance each month to avoid incurring interest charges. If you use savings but don’t have a comfortable cushion put away, repairing your home’s ancient A/C system may deplete your emergency stores, leaving you with nothing to replace the washer and dryer that decided to break down at the same time.

Ideally, you’ll have enough money saved to cover the unexpected. However, if you’re like many American households, that may not be the case. The U.S. personal savings rate continues to fall.

National Savings Rate
The savings rate is calculated as the ratio of personal savings to disposable personal income. In March 2018, the U.S. personal savings rate was about 3% shows that we’re not as good at saving as we used to be. In the past, the long-term average personal savings rate was over 8%, with some periods of time when it was over 15%. Kind of shames our current 3% savings rate, doesn’t it?

The national personal savings rate is also skewed by higher income savers, with the top 1% saving over 51% and the top 5% saving nearly 40% of their disposable income. Unsurprisingly, lower income families can have more difficulty with saving, as most of their paycheck is often already earmarked for basic bills and normal household expenses.

A recent survey by GOBankingRates found that nearly 70% of Americans have less than $1,000 saved and more than a third have nothing saved at all. Yikes. Age and levels of responsibility can influence savings rates. Anyone with a growing family – particularly a homeowner or a household with children – knows that surprise expenses aren’t all that surprising because the surprises just keep coming. This can put pressure on the best laid plans to try to increase savings.

How to Save More
If you have a 401(k), your contribution to it comes from a payroll deduction, meaning your 401(k) contribution is paid first – before you get the rest of your paycheck. If you have a 401(k) or a similar type of retirement account, there are lessons that can be borrowed from that account structure which can be used to help build your personal savings.

Paying yourself first is a great way to begin building your emergency fund, which can leave you better prepared for the proverbial rainy day. If you look at your monthly expenses, and if your household is like most households, you’re almost certain to find some unnecessary spending.

Start paying yourself first – by putting some money aside in a separate account or a safe place. This can help prevent some of those unnecessary expenditures (because there won’t be money available) while also leaving you better prepared.

The next time the car needs repairs, the A/C stops working, the fridge stops freezing, or the lawnmower breaks down, you’ll be ready – or at least you’ll be in a better position to bail yourself out!

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October 2, 2019

3 Easy Ways To Save For Retirement (Without Investing)

3 Easy Ways To Save For Retirement (Without Investing)

Our retirement years will be here sooner than we think.

Ideally, you’ve been putting away money in your IRA, 401k, or other savings accounts. But are you overlooking ways to save money now so you can free up more for your financial strategy or help build your cash stash for a rainy day?

1. Pay Yourself First.
If you’re making contributions to your 401k plan at work, you’re already paying yourself first. But you can also apply the same principle to saving. (If you open a separate account just for this, it’s easier to do.) If you prefer, you can accomplish the same thing on paper by keeping a ledger. Just be aware that paper makes it easier to cheat (yourself). With a separate account, you can schedule an automatic transfer to make the process painless and fuhgettaboutit.

Here’s how it works. Whenever you get paid, transfer a fixed dollar amount into your special account – before you do anything else. If you don’t pay yourself first, you might guess what will happen. (Be honest.) If you’re like most people, you’ll probably spend it, and if you’re like most people, you might not really know where it went. It’s just gone, like magic.

Paying yourself first helps to avoid the “disappearing money” trick. Hang in there! After a while, as the money starts adding up, you’ll impress yourself with your savings prowess.

2. Got A Bonus From Work? Great! Keep it.
What do you think most people are tempted to do if they get a bonus or a raise? What are YOU most tempted to do if you get a bonus or a raise? Probably spend it. Why? It’s easy to think of 100 things you could use that extra cash for right now. Home repairs or upgrades, a night out on the town, that new handbag you’ve been coveting for months… Maybe your bonus is enough for you to consider trading in your car for a nicer one, or getting that new addition to your house.

Receiving an unexpected windfall is fun. It’s exciting! But here is where some caution is wise. Pause for a moment. If you had everything you needed on Friday and then get a raise on Monday, you’ll still have everything you need, right? Nothing has changed but the calendar. If you hadn’t gotten that bonus, would your life and your current financial strategy still be the same as it was last week? Consider putting (most of) that extra money away for later, and using some of it for fun!

3. Pay Down That Debt.
By now you’ve probably heard a financial guru or two talking about “good” debt and “bad” debt. Debt IS debt, but some types of debt really are worse than others.

Credit cards and any high-interest loans are the first priority when retiring debt – so that you can retire too, someday. Do you really know how much you’re paying in interest each month? Go ahead and look. I’ll wait… Once you know this number, you can’t “unknow” it. But take heart! Use this as a powerful incentive to pay those balances off as fast as you can.

The cost of credit isn’t just the interest. That part is spelled out in black and white on your credit card statement (which you just looked at, right)? The other costs of credit are less obvious. Did you know your credit score affects your insurance rates? Keeping those cards maxed out can cost more than just the interest charges.

Every month you chip away at the balances, you’ll owe less and pay less in interest. (You’ll feel better, too.) And you know what to do with the leftover money since you knocked out that debt. Hint: Save it.

But keep this in mind – life is about balance. It’s okay to treat yourself once in awhile. Just make sure to pay yourself first now, so you can treat yourself later in retirement.

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September 25, 2019

Improve Your Love Life... With a Financial Strategy?

Improve Your Love Life... With a Financial Strategy?

You may not know this, but a financial advisor is also a relationship expert.

It’s true!

Here’s the proof: Ally Bank’s Love & Money study discovered that 84% of Americans think a romantic relationship is not only stronger but also more satisfying when it’s financially stable. What does it mean to be financially stable?

Here’s a simple 5-point checklist to let you know if you’re on the right track:

  1. You aren’t worried about your financial situation.
  2. You know how to budget and are debt-free.
  3. You pay bills on time – better yet, you pay bills ahead of time.
  4. You have adequate insurance coverage in case of trouble.
  5. You’re saving enough for retirement.

If you didn’t answer ‘yes’ to all of these, don’t worry! Chances are this checklist won’t come up on the first date. But when you have the “money talk” with someone you’ve been seeing for a while, wouldn’t it be great to know that you bring your own financial stability to the relationship? It’s clearly a bonus (remember that stat up there?).

Everyone could use a little help on their way to financial stability and independence. Contact me today, and together we can work on a strategy that could strengthen your peace of mind – and perhaps your love life!

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September 23, 2019

When Should You Retire?

When Should You Retire?

Have you ever thought about when you want to retire?

You’ve probably daydreamed about what you want to do when you no longer have to withstand the 9-to-5 routine, but do you know when you want retirement to become a reality?

The average retirement age for people in the US is about age 63, but there is a large group of people who continue to work past 65. Two motivations that could be contributing to this situation are:

  • They choose to work, but don’t have to.
  • They have no choice but to keep working.

It’s apparent that the first option might be more preferable than the latter – even if you love what you do.

Here’s why: having the choice is better than having no choice at all. Imagine that as you approach the time when you want to retire that you love your job and gain a lot of satisfaction in what you do. But there is no option for you to stop even if you wanted to, because of bills or obligations to yourself or your family.

As you approach retirement age – whatever that may be – there could be other things in your life that matter to you, that come into conflict with the job you love. Some of these “other things” may include (but aren’t limited to) spending time with family, volunteering at an organization you’re passionate about, traveling the world, etc. Except for a lucky few, we can’t be both traveling around the world AND doing the job we love. That’s when having the resources to choose comes in handy.

It’s important to have a strategy to reach your retirement goals, whether it’s retiring at age 65 (or earlier). Having a strategy in place doesn’t mean you absolutely have to retire when you plan to, but you’ll at least have the option to do so.

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September 4, 2019

Savings Rates Need Some Serious Saving

Savings Rates Need Some Serious Saving

Ever hear the old story of the 7 years of plenty followed by 7 years of famine?

In the years when there was an abundance of crops, it was wise to store up as much as possible in preparation for the years of famine. However, if instead of saving you ate it all up during the 7 years of abundance, the result would be starvation for you and your family during the 7 lean years. This might be an extreme example in our modern, First World society, but are you “eating it all up” now and not storing enough away for your retirement?

The definition of retirement we’ll be using is: “An indefinite period in which one is no longer actively producing income but rather relies on income generated from pensions and/or personal savings.”

According to this definition, the “years of plenty” would be the years that you are still working and generating income. While you still have regular income, you can set aside a portion of it to save for retirement. This amount is called the “Personal Savings Rate.”

According to the latest statistics, the personal savings rate for Americans is approximately 2.4% annually. If you compare that with the average during the 1970’s of a 10% annual savings rate, you’ll see it has decreased significantly. This should set off some alarms concerning the impact on your retirement savings.

Suppose you’re looking to retire for at least 10 years (e.g., from 65 years old to 75 years old). Even if you’re planning to live on only half of the income that you were making prior to retirement, you would need to save up 5 years worth of income to last for the 10 years of your retirement. But if you’re currently saving only 2.5% of your income per year, it would take 200 years to save up 5 years of income replacement!

So unless you’ve found the elixir of everlasting life, we’re going to need to do some serious “saving” of the personal savings rate. Is there a solution to this dilemma? Yes. If you’re looking for possible ways to store up and prepare for your retirement, I’d be happy to have that conversation with you today.

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September 3, 2019

Big Financial Rocks First

Big Financial Rocks First

A teacher walked into her classroom with a clear jar, a bag of rocks, a bucket of sand, and a glass of water. She placed all the large rocks carefully into the jar.

“Who thinks this jar is full?” she asked. Almost half of her students raised their hands. Next, she began to pour sand from the bucket into the jar full of large rocks emptying the entire bucket into the jar.

“Who thinks this jar is full now?” she asked again. Almost all of her students now had their hands up. To her student’s surprise, she emptied the glass of water into the seemingly full jar of rocks and sand.

“What do you think I’m trying to show you?” She inquired.

One eager student answered: “That things may appear full, but there is always room left to put more stuff in.”

The teacher smiled and shook her head.

“Good try, but the point of this illustration is that if I didn’t put in the large rocks first, I would not be able to fit them in afterwards.”

This concept can be applied to the idea of a constant struggle between priorities that are urgent versus those that are important. When you have limited resources, priorities must be in place since there isn’t enough to go around. Take your money, for example. Unless you have an unlimited amount of funds (we’re still trying to find that source), you can’t have an unlimited amount of important financial goals.

Back to the teacher’s illustration. Let’s say the big rocks are your important goals. Things like buying a home, helping your children pay for college, retirement at 60, etc. They’re all important –but not urgent. These things may happen 10, 20, or 30 years from now.

Urgent things are the sand and water. A monthly payment like your mortgage payment or your monthly utility and internet bills. The urgent things must be paid and paid on time. If you don’t pay your mortgage on time… Well, you might end up retiring homeless.

Even though these monthly obligations might be in mind more often than your retirement or your toddler’s freshman year in college, if all you focus on are urgent things, then the important goals fall by the wayside. And in some cases, they stay there long after they can realistically be rescued. Saving up for a down payment for a home, funding a college education, or having enough to retire on is nearly impossible to come up with overnight (still looking for that source of unlimited funds!). In most cases, it takes time and discipline to save up and plan well to achieve these important goals.

What are the big rocks in your life? If you’ve never considered them, spend some time thinking about it. When you have a few in mind, place them in the priority queue of your life. Otherwise, if those important goals are ignored for too long, they might become one of the urgent goals - and perhaps ultimately unrealized if they weren’t put in your plan early on.

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August 28, 2019

Why You Should Care About Insurable Interest

Why You Should Care About Insurable Interest

First of all, what is insurable interest?

It’s simply the stake you have in something that is being insured – and that the amount of insurance coverage for whatever is being insured is not more than your potential loss.

To say things could become a bit awkward might be an understatement if your insurable interest isn’t considered before you’re deep into the planning phase of a project or before you’ve signed some papers, like a title or a loan.

It’s better for your sanity to understand insurable interest beforehand. Where the issue of insurable interest often arises is in auto insurance. Let’s look at an example.

Let’s say you have a car that’s worth $5,000. $5,000 is the maximum amount of money you would lose if the car is stolen or damaged – and $5,000 would be the most you could insure the car for. $5,000 is your insurable interest.

In the above example, you own the car, so you have an insurable interest in it. By the same token, you can’t insure your neighbor’s car. If your neighbor’s car was stolen or damaged, you wouldn’t suffer any financial loss because it wasn’t your car.

Here’s where it might get a little tricky and why it’s important to understand insurable interest. Let’s say you have a young driver in the house, a teenager, and it’s time for him to get mobile. He’s been saving up his lawn-mowing money for two years and finally bought the (used) car of his dreams.

You might have considered adding your son’s car to your auto policy to save money – you’ve heard how much it can cost for a teen driver to buy their own policy. Sounds like a good plan, right? However, the problem with this strategy is that you don’t have an insurable interest in your son’s car. He bought it, and it’s registered to him.

You might find an insurance sales rep who will write the policy. But there’s a risk the policy won’t make it through underwriting and – more importantly – if there’s a claim with that car, the claim might not be covered because you didn’t have an insurable interest in it. If you want to put that car on your auto insurance policy, the car needs to be registered to the named insured on the policy – you.

Insurable Interest And Lenders
If you have a mortgage or an auto loan, your lender is probably listed on your policy. Both you and the lender have an insurable interest in the house or the car. Over time, as the loan is paid down, you’ll have a greater insurable interest and the lender’s insurable interest will become smaller. (Hint: When your loan is paid off, ask your agent to remove the lender from the policy to avoid any confusion or delays if you have a claim someday.)

Does Ownership Create Insurable Interest?
Good question. It might seem like ownership and insurable interest are equivalent – they often occur simultaneously. But there are times when you can have an insurable interest in something without being an owner.

Life insurance is a great example of having an insurable interest without ownership. You can’t own a person – but if a person dies, you may experience a financial loss. However, just as you can’t insure your neighbor’s car, you can’t purchase a life insurance policy on your neighbor, either. You’d have to be able to demonstrate your potential loss if your neighbor passed away. And no it doesn’t count if they never returned those hedge clippers they borrowed from you last spring.

So now you know all about insurable interest. While insurable interest requirements may seem inconvenient at times, the rules are there to protect you and to help keep rates lower for everyone. Without insurable interest requirements, the door is open to fraud, speculation, or even malicious behavior. A little inconvenience seems like a much better option.

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August 26, 2019

What Does “Pay Yourself First” Mean?

What Does “Pay Yourself First” Mean?

Do you dread grabbing the mail every day?

Bills, bills, mortgage payment, another bill, maybe some coupons for things you never buy, and of course, more bills. There seems to be an endless stream of envelopes from companies all demanding payment for their products and services. It feels like you have a choice of what you want to do with your money ONLY after all the bills have been paid – if there’s anything left over, that is.

More times than not it might seem like there’s more ‘month’ than ‘dollar.’ Not to rub salt in the wound, but may I ask how much you’re saving each month? $100? $50? Nothing? You may have made a plan and come up with a rock-solid budget in the past, but let’s get real. One month’s expenditures can be very different than another’s. Birthdays, holidays, last-minute things the kids need for school, a spontaneous weekend getaway, replacing that 12-year-old dishwasher that doesn’t sound exactly right, etc., can make saving a fixed amount each month a challenge. Some months you may actually be able to save something, and some months you can’t. The result is that setting funds aside each month becomes an uncertainty.

Although this situation might appear at first benign (i.e., it’s just the way things are), the impact of this uncertainty can have far-reaching negative consequences.

Here’s why: If you don’t know how much you can save each month, then you don’t know how much you can save each year. If you don’t know how much you can save each year, then you don’t know how much you’ll have put away 2, 5, 10, or 20 years from now. Will you have enough saved for retirement?

If you have a goal in mind like buying a home in 10 years or retiring at 65, then you also need a realistic plan that will help you get there. Truth is, most of us don’t have a wealthy relative who might unexpectedly leave us an inheritance we never knew existed!

The good news is that the average American could potentially save over $500 per month! That’s great, and you might want to do that… but how do you do that?

The secret is to “pay yourself first.” The first “bill” you pay each month is to yourself. Shifting your focus each month to a “pay yourself first” mentality is subtle, but it can potentially be life changing. Let’s say for example you make $3,000 per month after taxes. You would put aside $300 (10%) right off the bat, leaving you $2,700 for the rest of your bills. This tactic makes saving $300 per month a certainty. The answer to how much you would be saving each month would always be: “At least $300.” If you stash this in an interest-bearing account, imagine how high this can grow over time if you continue to contribute that $300.

That’s exciting! But at this point you might be thinking, “I can’t afford to save 10% of my income every month because the leftovers aren’t enough for me to live my lifestyle”. If that’s the case, rather than reducing the amount you save, it might be worthwhile to consider if it’s the lifestyle you can’t afford.

Ultimately, paying yourself first means you’re making your future financial goals a priority, and that’s a bill worth paying.

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August 19, 2019

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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August 14, 2019

The Black Hole of Checking (Part 3)

The Black Hole of Checking (Part 3)

Are you feeling the gravity of this checking account situation yet?

All of the money lessons from Parts 1 and 2 dealt heavily with the importance of helping you make sure that all of your money isn’t just sitting in your checking account where it’s neither growing nor working for your future. However, there are a couple of important money-saving details to consider before emptying your checking account.

To avoid becoming too starry-eyed and moving all of your money without considering potentially pricey consequences, ask yourself these 2 questions:

1. Does your personal bank have any kind of fee attached to the minimum amount of money in your checking account? Staying on course to your financial goals can be tough enough, but when you’re hit with a surprise fee from your bank, can that feel like losing vital g-force in the right direction? Americans paid an average of $53 per person below with your bank’s unique rules to avoid those course-altering fees via your checking account:

  • Have the minimum balance requirement
  • Enroll in direct deposit
  • Open multiple accounts at the same banks
  • Find free checking elsewhere

2. Do you have enough in your checking account to avoid overdraft fees? $15 Billion. That’s how much Americans paid in overdraft fees last year alone. You could probably build your own space station for that kind of money! (A really small one, at least.) Remember the advice in Part 2 to have accounts for differing money occasions like an Emergency Fund or Fun Fund? These separate, deliberate accounts have the potential to help shield against many unexpected and/or large withdrawals from your checking account. Additional ways to protect yourself from overdraft fees are Overdraft Protection through your bank (but watch out for a fee for the service) or having a small cushion in your checking account, just in case.

Moving your money away from the Black Hole of Checking is important. But ignoring the asteroids of unexpected banking fees headed your way could strip away any potential forward momentum you have to make with saving and getting your money to work for you.

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August 12, 2019

The Black Hole of Checking (Part 2)

The Black Hole of Checking (Part 2)

Previously on “The Black Hole of Checking”…

In Part 1, we learned that any object pulled into a black hole will be stretched into the shape of spaghetti through a process called – wait for it – spaghettification. If you threw your shoe into it, the black hole’s gravity would stretch and compress your footwear into an unimaginably thin leather noodle as it was pulled deeper and deeper into the hole. Your shoe would be unrecognizable by the time gravity had its way.

The same thing can happen to the money in your checking account. Having a child, replacing an old automobile with something newer and more reliable, or taking a last-minute trip to see the grandparents in Florida over the holidays, can put a strain on your finances and stretch your reserves farther than you might have anticipated. As new bills create a bigger and bigger hole in your budget, your financial strategy may become something you don’t recognize.

Here in Part 2, let’s talk about how assigning an identity to your money can keep your financial goals on track, and help reduce the stretching of finite resources.

For example, say you keep all of your money in your checking account. Simple is better, right? If you want to go on a family vacation, you’ll just withdraw the funds from your account. Paying in cash to secure a “great” package deal up front? You’re all over that. But what happens if you pick up some souvenirs for Uncle Bob and Aunt Alice? Hmmm…if you get something for them you’ll have to get something for Greg and Susan too. (You’ll never make that mistake again.) And you just have to try that chic little cafe that you read about – you may never pass this way again. (But how can they get away with charging that much for a mimosa?!) Buy One, Get One all day pass at “The Biggest Miniature Museum in the World”? Let’s do it!

When you’re on vacation – having fun and enjoying yourself – it might be hard to resist taking advantage of unique experiences or grabbing those unusual gifts you didn’t account for. On the other hand, you may have no problem being thrifty when travelling, but what if someone gets sick or injured and needs hospital care on the road, or the car breaks down, or there is unexpected bad weather and you have to stay an extra day or two at the hotel?

After it’s all said and done, when you return home from your fun-filled trip, you may find a gaping hole where you had a pile of cash at the beginning of the month. If you had given your money a specific role before you planned your vacation, you may not have had such a shock when you got home – and you can enjoy your memories knowing you stayed on track with your financial goals.

Give your money identity, purpose, and the potential to grow by separating it into designated accounts. Try these 3 for starters:

1. Emergency Fund. Leaky roof? Flat tire? Trip to the emergency room? Maybe you’re great at resisting impulse buys (like those fabulous shoes you spied the other day), but sometimes things happen that are out of your control. Your emergency fund is for situations like these. Unexpected, unplanned-for expenses can derail a financial strategy very quickly if you’re not prepared.

The most important thing to keep in mind about this account? Do. Not. Touch. It. Unless there’s an emergency, of course. Then replace the money in the account as quickly as possible until it’s fully funded again.

How much should you keep in your emergency fund? A good rule of thumb is to shoot for at least $1,000, then build it to 3-6 months of your annual income. However much you decide suits your financial goals, just make sure you aren’t dipping into it when you don’t have an emergency. (Note: Grabbing a great pair of heels on sale is not an emergency.)

2. Retirement Fund. If you want to retire at some point (and most of us do), this one is a no-brainer. Odds are you’ve already begun to set aside a little something for the day you can trade in your suit and tie for a Hawaiian shirt and a pair of flip-flops, but is your retirement fund in the right place now? Unlike a day-to-day checking account with a very low or non-existent interest rate, your retirement fund should be in a separate account that has some power behind it. You’re taking the initiative to put away money for your future – get it working for you! Your goal should be to grow your retirement fund in an account with as high of an interest rate as you can find.

3. Fun Fund. This category may seem frivolous if you’re trying to stick to a well-structured financial plan, but it’s actually an important piece that can help make your budget “work”! Depending on your priorities, you might contribute a little or a lot to this account, but making some room for fun might make it more palatable to save long-term.

You might try setting aside 10% of your paycheck for fun and entertainment and see how that works – is that too much or not enough? Bonus: this is easy to calculate each month. If you’re bringing in $2,000 per month, put no more than $200 in your Fun Fund.

What you do with your Fun Fund is your choice. Will it be more of a vacation fund or a concert fund? A wardrobe fund or a theme park fund? It’s all up to you. And when the rest of your money has a purpose and is growing for your future, you might feel less guilty about snagging those hot shoes you’ve had your eye on when they finally do get marked down.

Don’t let your goals and your money get lost in a black hole of coulda, woulda, shoulda. What kind of purpose do you want to give your money? I can help!

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August 7, 2019

The Black Hole of Checking (Part 1)

The Black Hole of Checking (Part 1)

What’s the difference between a black hole and a checking account?

One is a massive void with a force so strong that anything that enters it is stretched and stretched, then disappears with a finality that not even NASA scientists fully understand.

… And the other is a black hole.

Joking aside, did you know that a black hole and your checking account actually have a lot in common? Spaghettification is the technical term for what would happen to an object in space if it happens to find itself too close to a black hole. The intense gravity would stretch the object into a thin noodle, past the point of no return.

If you don’t have a solid financial strategy, the money in your checking account may be stretched past the point of no return, too. Why? If your money is sitting in “The Black Hole of Checking” for years on end, you may find that as you get closer to retirement, each dollar is spread thinner and thinner (until it disappears).

Where are you storing your retirement fund? If you’re keeping it in your checking account, instead of growing your money, you might just be stretching it impossibly, uncomfortably thin.

Say you already have $10,000 saved for your retirement. A checking account comes with a 0% interest rate. That means a $0 rate of return. Even if you managed to not touch that money for 10 years, you’d still only have your starting amount of $10,000. With inflation, you’d really have less value at the end of the 10 years than you had to start with.

But if you took that $10,000 and put it into an account with a 3% compounding interest rate, after 10 years, your money will have grown to $13,439. And that’s without adding another penny! Can you imagine what kind of growth is possible if you start saving now and contribute regularly to an account with a compounding interest rate?

This is the power of compounding interest – interest paid on interest plus the initial amount. (This is also a huge reason why getting as high of an interest rate as you can is important!)

So what are you waiting for? If all of your money is disappearing into that Black Hole of Checking, maybe this is the exploding star “sign” you’ve been looking for! Don’t “spaghettify” your money. Do the opposite and give it the chance to grow with the power of compound interest.

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August 5, 2019

Worry Once. Suffer Twice.

Worry Once. Suffer Twice.

If you Google “how to be financially independent,” over 4 million search results come back.

And for a good reason: People are really worried about their finances. Last year, 76% of Americans experienced some kind of financial worry.

Do any of these top 5 concerns feel true for you?

1. Health Care Expenses/Bills – 35%
2. Lack of Emergency Savings – 35%
3. Lack of Retirement Savings – 28%
4. Credit Card Debt – 27%
5. Mortgage/Rent Payments – 19%

If worrying means that you suffer twice, millions of people are suffering twice over their finances.

What kind of double-suffering are you experiencing – and are you ready for a way out?

The best way to learn and achieve financial independence is with someone who already knows – an ally to walk the road with you. Someone who has been where you are. Someone with the tools to help you. Contact me today, and together we can get you moving towards financial independence – and some peace of mind.

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July 22, 2019

The Advantages of Paying with Cash

The Advantages of Paying with Cash

We’re using debit cards to pay for expenses more often now, a trend that seems unlikely to reverse soon.

Debit cards are convenient. Just swipe and go. Even more so for their mobile phone equivalents: Apple Pay, Android Pay, and Samsung Pay. We like fast, we like easy, and we like a good sale. But are we actually spending more by not using cash like we did in the good old days?

Studies say yes. We spend more when using plastic – and that’s true of both credit card spending and debit card spending. Money is more easily spent with cards because you don’t “feel” it immediately. An extra $2 here, another $10 there… It adds up.

The phenomenon of reduced spending when paying with cash is a psychological “pain of payment.” Opening up your wallet at the register for a $20.00 purchase but only seeing a $10 bill in there – ouch! Maybe you’ll put back a couple of those $5 DVDs you just had to have 5 minutes ago.

When using plastic, the reality of the expense doesn’t sink in until the statement arrives. And even then it may not carry the same weight. After all, you only need to make the minimum payment, right? With cash, we’re more cautious – and that’s not a bad thing.

Try an experiment for a week: pay only with cash. When you pay with cash, the expense feels real – even when it might be relatively small. Hopefully, you’ll get a sense that you’re parting with something of value in exchange for something else. You might start to ask yourself things like “Do I need this new comforter set that’s on sale – a really good sale – or, do I just want this new comforter set because it’s really cute (and it’s on sale)?” You might find yourself paying more attention to how much things cost when making purchases, and weighing that against your budget.

If you find that you have money left over at the end of the week (and you probably will because who likes to see nothing when they open their wallet), put the cash aside in an envelope and give it a label. You can call it anything you want, like “Movie Night,” for example.

As the weeks go on, you’re likely to amass a respectable amount of cash in your “rewards” fund. You might even be dreaming about what to do with that money now. You can buy something special. You can save it. The choice is yours. Well done on saving your hard-earned cash.

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July 15, 2019

Building a Bridge Over the Retirement Gap

Building a Bridge Over the Retirement Gap

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

Because here’s a doozy: US women are 80% more likely than US men to experience poverty during their retirement.

Part of this startling retirement savings gap could be due to the unique set of circumstances that women face while preparing for retirement.

One of the most obvious of these unique circumstances? Women live longer. In the US, a woman is expected to live about 81 years vs. a man’s expected 76 years. Women have years longer to live than men, but the troubling percentages above suggest that most women are not even financially prepared to live as long as men are expected to!

This retirement savings gap may look and feel massive, but it can be bridged. And it all starts with a solid life insurance strategy. A tailored strategy has the potential to be beneficial for women and men: Women can help themselves be more financially stable and prepared as they look toward retirement, and men have the potential to provide for the women their lives – even after they’re gone.

Your unique situation and goals all factor in to 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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July 10, 2019

You'll Still Need This After Retirement

You'll Still Need This After Retirement

Ask anyone who’s had a flat tire, a leaky roof, or an unexpected medical bill – having enough money tucked away in an emergency fund can prevent a lot of headaches.

It may seem obvious to create a cushion for unexpected expenses while you’re saving up for retirement, especially if you have kids that need to get to their soccer games on time, a new-to-you home that’s really a fixer-upper, or an injury that catches you off guard. But an emergency fund is still important to keep after you retire!

Does your current retirement plan include an emergency fund for unexpected expenses like car trouble, home or appliance repair, or illness? Only 41% of Americans surveyed said they could turn to their savings to cover the cost of the unexpected. That means nearly 60% of Americans may need to turn to other methods of coverage like taking loans from family or friends or accruing credit card debt.

After you retire and no longer have a steady stream of income, covering unexpected expenses in full (without interest or potentially burdening loved ones) can become more difficult. And when you’re older, it might be more challenging to deal with some of the minor problems yourself if you’re trying to save some money! You’re probably going to need to keep the phone number for a good handyman, handy.

Don’t let an unexpected expense after retirement cut into your savings. A solid financial strategy has the potential to make a huge difference for you – both now and during your retirement.

Contact me today, and together we can put together a strategy that’s tailored to you and your needs.

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