What are you willing to give up?

I know many people that cannot function at all without their premium coffee first thing in the morning. There are many other little things that we buy regularly that we can make ourselves at a much lower expense but don’t. So I ask; what are you willing to give up so you can have a more secure future? Let’s take the coffee as an example.
If you buy a premium coffee each day you are probably spending close to $4 per drink. If we just look a 5 day work week, that’s $20.
If you were to save and invest that $20/week and earned 4% on that savings, at the end of 15 years you would have $19,752.86. That’s a lot of coffee!

I challenge you to do two things:
First, just for two weeks pay cash for everything and get a receipt for every thing you buy. You will be surprised at how much money you spend per week without a thought about it.
Second, pick one item you are willing to give up for the sake of your future. It will hurt for about six weeks, and then you will not even miss that item as you watch your nest egg grow.

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What is your ceiling and floor?

We have all heard about the 4% rule, that is, when you begin your retirement you withdraw 4% of your account value annually to maintain your lifestyle and adjust the withdrawal amount up annually to match inflation. There have been many arguments as to why this rule is obsolete. Another way to prepare for paying yourself from your retirement nest egg is to establish your ceiling and floor.
Here is how this concept works:
You begin with an initial level of spending and then, depending on how much your nest egg’s value increases or decreases, adjust withdrawals up or down within bounds you set, say, reducing the current year’s withdrawal by no more than 2.5% from the previous year’s withdrawal and increasing it by no more than 5%.

I like this method of withdrawal better than the 4% rule because it forces you to review your portfolio annually and readjust your withdrawals.

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Is it just 35 years or the best 35 years?

Q: I have heard conflicting information on what the Social Security Administration looks at to calculate my benefit. Is it 35 years of working or is it my 35 highest earning years that is used for the calculation?
A: Your Social Security benefit will be based on your best 35 years of earnings. If you do not have 35 years of earnings, the Social Security Administration will use zero earnings for those gaps.

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Common IRA Snafus you don’t want to make.

IRA’s have been around for a long time and are widely used for retirement savings. Here are three common snafus that a lot of people make:
1. Having too many accounts. I had a client that established a completely new IRA each year he made him contribution. When we met and he asked me to take over management of his massive number of IRA accounts, they had numbered 20. I transferred all of the small IRA’s into IRA’s have been around for a long time and are widely used for retirement savings. Here are three once manageable account.
2. Using the wrong investment mix. Recently, I have been meeting a number of 20 somethings that want to start investing; they are a bit gun-shy and are very concerned about preserving principal. They are at the age where a portfolio that is weighted more towards equities vs. income is prefect. The greatest asset they have is time. Generally, with a long time horizon to invest, equities prevail.
3. Waiting too late to start your IRA. I am not referencing age; I am referencing the calendar year. If you make your deposits to your IRA in the beginning of the year, you take advantage of the great assets I just mentioned – time. Make your contributions in January vs. April, over the years the extra 3 months of tax-deferred compounding will make a difference to your retirement.

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I had to reprimand a client, and then she thanked me.

I have a client that is in her late 50’s and a widow. Recently, she gave me a check made out to an investment company to add to her account and I noticed that the names on the account were hers and her 28 year old son. I told her that her next stop from my office needed to be at her bank. She has to remove his name as a co-owner of the account right away. I told her she could add him as a signer on her account, and she should add the “Payable on death” designation to the account.
Here is the reason you do not want to be joint owners on any financial accounts with your kids:
If her son had caused an accident and was sued, her assets may be subject to the suit and taken for a settlement.
If her son were to walk from a debt, she may be held liable.
If her son suffers a catastrophic illness and racks up huge medical bills, she could be on the hook for those bills.
I know my client just wanted someone to have access to her account in an emergency and she now knows there is a better way to accomplish that.

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Wacky but real – can you take these deductions also?

We always hear of wacky things that people try to deduct from their taxable income – these happen to be deductions that, surprisingly so, worked.
When I was in high school, I was trying to decide between art school and business school. I decided I did not want to be a starving artist – who knew that if I went down that path, I could have this deduction:
If you are a “performing artist,” you may be able to deduct your business expenses if you have at least two employers. If each has paid you at least $200, and your expenses are 10% of what you make, you can take a deduction if your AGI is less than $16,000.
Are you a cat lover? This may work for you;
A couple bought cat food for feral cats that congregated at their junk yard. The cats help keep the rat and snake population down, making the junk yard safer for customers. The couples argued this before the IRS and were allowed to keep the deduction.

In this case, beer and gasoline do go together:
A gas station owner offered free beer with a fill-up. The owner’s sales increased a lot and in Tax Court the owner argued successfully that the cost of the beer was a business expense.

You can get creative, to a point with your deductions, but make sure you consult a tax professional if you will be pushing the envelope with your own wacky deduction.

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We are better than you! At least when it comes to investing.

According to Fidelity Investments, female investors have outperformed male investors in the past decade. We are not selfish, so I will share with you some of the reasons why we invest better than our male counterparts.
We tend to be more patient than male investors. When investing, we tend to take a longer view of the goals. We will buy and hold a stock or mutual fund longer with the attitude of investment + saving for our families.
Because some of us are getting married later in life, getting divorced, or finding ourselves widowed at a young age, we can’t rely on guys to handle our finances. We will talk to people, seek out professional help, and read to learn what we need to know about investing.

We don’t outperform you by a lot year over year, but a win is a win!

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Suddenly single – what to tackle first.

Whether you find yourself suddenly single due to death or divorce, the weight of becoming solely in charge of all financial decisions can be overwhelming. Here are a few key places to start:

Establish an emergency fund. Look at your immediate expenses and then the gap between those expenses and your monthly income. This will give you a guideline amount to start stashing away until your emergency fund is about 3 times that figure.
Update all of your beneficiary designations. Make sure you change the beneficiary on your retirement plans, life insurance, and bank accounts. Make sure you change the primary and contingent beneficiary.

Look at your tax picture to determine how to file your taxes. Will you deem yourself as “married filing separate”, “Single filer”, or “Head of household.” Find the filing designation that will benefit you most.

Take care of your legal designation such as; who has your power of attorney? Who can make medical decisions on your behalf? Who would handle your estate?

Most important – do not forget to take care of yourself. If you do not, you will not be any good to those you love.

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