Know Your Plan Before You Die…

Most employees do not know what their Social Security benefits will be.  They don’t know what their 401(k) will provide for them at retirement, nor when they will be out of debt.  Few employers provide disability insurance if you get hurt or sick, so what will happen if you become sick or hurt?  And health insurance is a “can of worms.”  If you are self-employed, and/or running a small company, many more questions exist than there are answers.  What will you do when you die or your spouse does?

Everyone should know what benefits they are going to enjoy, and communicate with a spouse about them at least annually.  Things change so fast that if you think you have benefits and don’t, you can go broke in a single week!  It is not hard to gather all your financial information together and review it.  When you have a question, make the effort to call and get answers. 

To see how this works in the real world, I want to share one of my client’s stories:

The husband passed away suddenly at age 64 and his wife had never worked outside the home.  He had $20,000 of group term life insurance and they had $52,000 savings in a 401(k) account.  Their home was worth $230,000, but they still had $189,000 mortgage.  The wife is in good health and expected to live beyond the average life expectancy for women of 87.  The husband’s funeral cost $15,000.  The wife has the option of accessing Social Security benefits of $1,245 a month, or to wait another three years and get $1,570 a month.

What would you do in this situation?  Their monthly living expenses before the husband passed away had been $4,000 per month. Now there’s no money to live like that. Will the wife have to sell the house since the Social Security income she could take now will basically pay the monthly mortgage and that’s it?  If she does sell, where will she live and what will she live on?

This couple had not talked about early death or how one or the other would live once one of them passed away — there was never this kind of detail discussed, ever. They just went along thinking nothing would change.  But it did change and the woman in this situation is in a really bad place financially.  And it will change for you too.  It is only a matter of time before big changes come to your world.  Get prepared.  Review all your benefits and make decisions today as if one of you has passed away.  Play this game over and over until you feel comfortable that you have your financial situation right.

In my experience, most people die with nothing more than a simple will. Their assets have to be probated in court until they are cleared for distribution.  This can take two years.  The expense of having a judge decide how to divide up assets can drain another $30,000 off your assets.  And in many cases, the surviving spouse still needs an income to live on.  What if health problems arise?  

The best way to start preparing for coming changes is to stop spending any more money until you have a Spending Plan in place and have learned how to track that plan so you can see where you are wasting money. Once you do so you will find a surplus that you can begin saving. Fund your future with this real money, that comes from getting your spending and debt under control. Then make sure you create a living trust. Transfer your assets into the trust and make sure nothing goes to the court to decide. Go to www.easylegalplanning.com and see how simple it is to get organized and match assets with a real plan document.  Don’t delay and become part of the majority that leaves your family out in the cold, unable to help themselves.  The memory of you that will be left will not be good.  To learn more go to www.moneymastery.com or contact me: peter@moneymastery.com.

The Real Cost of Funding Your Retirement Entirely with a 401(k)

You work hard to save money on a tax-deferred basis so you will have more money after tax.  Then you go to retire and have to pay tax on 100 percent of the money you take out of the 401(k).  So if you thought paying taxes on your annual income was horrible, wait until retirement if all you’ve planned to retire on is a 401(k) or IRA!  Just because the amount you take out as income during retirement is smaller, doesn’t mean you will be in a lower tax bracket.

This illustration sums up the frustration of a tax-deferred retirement account. As you save money into a 401(k), the annual fees are large and loads for early withdrawals will cost even more money. In addition, the market risks cause losses 4 out of 7 years on average.  How is it possible to have enough money for retirement?    

Now, let’s assume that even with all the leaks that are possible with a tax-deferred account such as the fees, market risks, and penalties, you have been able to accumulate a good sum of money for retirement.  When you start taking income, this large sum is wholly taxed, 100 percent! Since you deferred your taxes, now you have a much larger number to pay taxes on. I ask: why would anyone fund their entire retirement using a 401(k) or IRA? It makes no sense. Of course, if your employer is willing to offer matching contributions, then a 401(k) can be one way to help build a retirement, but to rely solely on this kind of investment is foolish in my opinion.

Take a look at the above illustration one more time and ask yourself, “Does it make sense to defer my income taxes?” By deferring your income taxes, you subject all your money to fees, load, market risks and penalties over 40 years.  This cost can eat up all tax savings.  And when you turn on income, now you pay much more in taxes than ever before.  With few tax deductions, you might struggle to have enough retirement income to live on.  Please consider other options than the 401(k) or an IRA. I have loads of information to share with you on all the grand possibilities for retirement you should consider. Contact me today: peter@moneymastery.com  

Beware of “Financial Plaque”… It Can Kill All Your Best Laid Plans

This illustration of plaque buildup in the arteries makes me sick.  Millions of people have plaque that has the potential to cause huge health problems.  The same can be said about the “financial plaque” that so many people carry around with them. They have allowed their spending to overcome their income and use credit almost exclusively to live on. When you consider the interest expense that accompanies this widespread use of credit, the damage can be just as detrimental as plaque in the arteries.

What kind of damage is debt doing to people?

  • No money set aside for emergencies, which are bound to occur.
  • No money set aside for emotional impulse spending, which is also bound to occur.
  • No hope of retiring, ever.
  • Lost opportunities to create wealth that puts money to work rather than working for money.
  • Lost opportunities to help those in need, to create jobs for others, to form philanthropic organizations.
  • Almost certainly guaranteeing problems paying for healthcare in old age.

The remedy for plaque and heart disease is to eat properly, exercise, and get plenty of rest. Financially, the remedy is to build a Spending Plan and track expenses according to that plan in order to create a cash surplus.  Saving that surplus is the same as getting plenty of rest for the body. 

Learn to put work clothes on your savings and send it out the door to work instead of working your entire life to pay off debt. This will bring not only financial health, but physical health and happiness as well. 

To find out what’s building up in your “financial arteries” visit www.moneymastery.com. today.

Habits Can Both Help and Hurt…

Habits help us do things more easily, with less effort.  They cause us to automatically slam on the brakes of our car when we see a ball and small child run out into the street just ahead.  Habits have helped us become right- or left-handed and do things efficiently because of better coordination.

But at the same time, habits can also hurt us. They keep us doing the same thing in the same manner we have always done, sometimes to our great detriment.  Hard to change bad habits such as smoking cigarettes, or constantly complaining about everything, or driving over the speed limit, or not eating healthy can really cause problems. And what about all the bad habits we form when it comes to the way we handle money?

Let’s apply this habit-forming-process to money management.  What is your habit of saving money?  How much and how often do you save?  If you are like 91% of all workers, you save very little and this is why 91% of all retirees are totally dependent upon the Social Security check they receive each month to provide basic living expenses.  This 91% number has been steady for over eight decades.  Anything lasting this long would be classified as a habit, right?  

If you want to change a bad habit, experts say you must consistently do something different for at least 21 days in a row. I think with money habits, it takes at least six months or longer.

Here are some suggestions getting started with better money-saving habits:

  • Start by putting all you loose change in a jar at the end of the day.  With wide-spread use of credit cards, you may not have any loose change.  But try it and see.
  • Each month  add to savings at least 1% of your income.  Anyone, and I mean anyone, can find extra money to do that through tracking every soda you buy and other small expenses. And if you commit to saving 1% for two months, then make it 2% for the next two months after that. Keep this going until you are able to save 10% of your income and then see how different you feel. A habit of saving 10% of your income will add to your retirement income, and give you more options at retirement than what Social Security will provide.

You can do this!  Start today. For more help contact me: peter@moneymastery.com, or visit www.moneymastery.com.

The Power of Emotional Savings…

A friend of mine loves to golf.  But the expense of it is concerning to his wife so my friend won’t tell his wife when he goes and even leaves his golf clubs with his friend permanently, just so his wife doesn’t see them missing for a day.

I use this example of golfing because it is so common.  It isn’t just the expense, but the time away from work.  It takes me four hours to play a round of golf.  Since my friend is in sales, when he golfs he loses four hours he could have been earning money he can bring home to the family to help get their financial situation under control.

What about a client of mine who loves to get her nails done? She pays to have her nails decorated to match the seasons of the year and will spend as much as $35 for “themed” nails for Halloween and Christmas. And of course she lies to her husband about the cost by saying her friend paints her nails so there’s no cost.  

But is golfing bad or going to the salon such a terrible thing? Of course not! We all need to relax at times and to pay for items that make us feel good about ourselves. The problem is when we have not planned for such expenses. By building a spending plan that includes Emotional Savings you can have the things you want as well as the money you need for necessary expenses. On top of that, you won’t have to lie about these things to your partner!

Along with long-term savings for retirement and emergency savings, build into your spending plan extra “mad money” if you will.  It is inevitable that you will spend this kind of money sometimes, so why not have a plan for it? And be sure to build in this mad money for your spouse as well, not just yourself, even consider doing it for children. In my experience we all need some fun money, regardless of age. We need to know that after all the hard work we do, there will be some kind of reward waiting for us. When you build this kind of money into your spending plan, you will be less likely to go into debt for such items, and will stay on track to save for the future more successfully.

Best of all, this kind of planning makes it possible to have open, honest relationships with the ones you love. You can hold a weekly “Money Huddle” where you discuss finances with your partner without fear or embarrassment and this helps build relationships and brings you closer together. In such meetings you can talk about how the golf game went, for example, or what kind of colors you want to put on your next nail painting. Can you see how this eliminates all the drama?  Emotional spending and weekly money huddles can go a long way to solving financial problems. For help in creating a spending plan with emotional savings built into it visit www.moneymastery.com today.   

Retirement Can be Like a Rose, Depending on How You Hold It

A rose is beautiful and we all enjoy them to celebrate special occasions.  But roses have thorns — sometimes we can prick ourselves if we aren’t careful.  Retirement is just the same.  We can enjoy retirement if we hold it just right, but if we refuse to prepare, the thorns we will experience in retirement can cause some real pain.

Here are some of those thorns to consider:

  • Of all people who filed bankruptcy in 1991, 21% were older than age 65. Today that number has grown to 28%.  This destroys credit and prevents ability to borrow money for needed items. If debt levels are really high before retirement age, this can be a real thorn to manage after age 65.
  • Some parents try to help their children with student loans by co-signing on federally insured loans. Later, if the child doesn’t get employment that earns enough money, the parents end up paying on the loan.  This can be a real thorn when it comes to retirement.
  • Another potential thorn in retirement is higher taxes. No doubt you have been taught to save money in a 401(k) or other tax-deferred savings program throughout your working years. Supposedly you will be in a lower tax bracket in retirement years so paying all those deferred taxes in retirement will be cheaper than paying them during working years. But it has been my experience working with thousands of clients that this simply isn’t the case. People in retirement usually pay much  higher income tax than when working because they don’t have any deductions!
  • Another thorn that can cause real pain in retirement is waiting too long to start saving for it.  If you started working at age 25 but did not form a habit of saving until age 55, this could potentially pain you every day of your life in retirement.
  • Having to work until age 80, because you don’t have enough money to retire, can be another real problem.  Maybe you like to work and you don’t mind it. But that’s different from being forced to work. And what if you don’t have the health to do so?
  • What about the fear of running out of money in retirement, which oddly enough, is a much greater fear than dying? I’m sure the reason is that it’s hard to cut spending down at a time we have more free time to spend.  Statistics show we spend more when we first retire than when working.  Apparently it takes a few years to adjust to the new income.
  • The thorn of inflation is real.  It has hurt so many retirement-aged people as their fixed expenses increase while their income does not.
  • The final thorn that can turn a beautiful retirement into a thorny nightmare is the need for dental, vision, hearing and for long-term or hospice care.  The huge prick here is that the costs can exceed your entire savings for retirement, and this might leave a surviving spouse destitute and on welfare.  A HealthView Services study in 2016 shows that the cost for all these elderly care service for a couple age 65+ will be $377,000 during their retirement.

To create a beautiful retirement with minimal thorns, get in touch with a financial coach who can teach you how to deal with each of the things I have discussed above. Contact me today: peter@moneymastery.com.

Are You Financially Playing More Offense or More Defense?

Take any sport and consider playing strategies and defense always seems to win in the end. Let’s take the NBA Playoffs for example. The highest scoring player of a game is held in high esteem, even paid the most money on the team. Crowds cheer when points are posted on the scoreboard. The high scorer gets to do the team interview at the end of game. But nobody posts defensive plays, no system keeps track of how many STOPS a player makes so the opponent cannot score, so why not? I believe the answer is the player that puts up big points is what sells tickets!

Now reference your 401(k) funds: are you on the offense, trying to score the best rate-of-return? Or, maybe you are playing defense and trying not to lose any money? A simple way to find out is to ask yourself, “Am I going for the best return I can get?” If so, you are on the offense. But history of all sports and all battles in war shows that a good defense wins most of the time, so why aren’t we all playing defense? I believe that defensive savings and investing isn’t as exciting as trying to get a higher rate of return, and doesn’t “sell tickets” so to speak.

So think of your mutual fund manager: Doesn’t he or she emphasize investments that have posted larger rates-of- returns to get you attention? If that is what you want, the best return, you buy into this, meaning you become the “sale.”

Defense definitely wins more games than offense. With a strong defense you shut down a hot offense, that is why you win most often. So when you invest your money, why not switch away from the mentality of always trying  to get the highest returns and play defense? Try playing defense with a small portion of your investment money. Go for the solid, never-lose investments so you don’t lose big and have to gain back better-than-average returns, especially if you have no time left in the “game” to recoup such losses.

Can you imagine how much more money you would have if you just had the money back that has been lost? I’m guessing it’s a huge number! Please consider going on defense with your investments and keep track of what happens. You may find that defense wins most often, just like in any sport. For more help on this subject email me:  peter@moneymastery.com.

What Happens When You Earn 75 Cents and Spend $1

Did you know that for every 75 cents the U.S. government is taking in, it spends $1?  Further, if this continues, within ten years the 75 cents will be used to pay just the interest on the debt.  Shame on the government — but wait, shame on all of us as this is exactly what we are doing with our personal finances. That’s why the average person reaching age 65 still has a mortgage, still has credit card debt, and is still worried about retirement.

The solution to all this nonsense is to spend less than we make.  I challenge you to do this for one month and see how great you feel at the end of it! Then try to see if you can do it for two months and so on until you are saving 10 percent of your income each month.  To accomplish this you must build a plan to spend your money differently.  Go to www.moneymastery.com and sign up for the select program.  Use the online software to build three plans:  Spending, Debt and Retirement.  Then look at how all three can be worked on at the same time. For more information and help, please contact me: peter@moneymastery.com

How to Live a Long Life and Love It

One of the secrets to living a long and happy life is to save 10 percent of your income for the rest of your life.  If a person can save 10 percent of their income when they are a teenager, they are smart.  If a person can save 10 percent while going to college and not incur student loans, they are brilliant.  If a person can save 10 percent up and through their working years and into retirement, they are an absolute genius.  Which one are you?

Take the example of a person you work with who always comes to a scheduled meeting late.  That is just them.  They are late, late, late all the time!  Ask yourself why?  To me it is a habitual thing.  They just don’t plan to be early. 

So it is with money. Many people just don’t plan to save as much as they should. Why is it that most people don’t have money saved for an emergency? To me it is a habitual thing.  They just never got in the habit of doing it, so they have no plan to secure it. In addition, they don’t save money into the right categories. Not only should you be saving 10 percent of your income, but you should split that savings into three categories:

  • Emergencies
  • Emotional
  • Long-term (Retirement)   

Nothing will derail a long-term retirement plan quicker than putting all your eggs into a deferred investment program where you have no access to liquid funds. Break off some of your savings into a liquid passbook savings account that you can get at in case of an emergency, because they are guaranteed to happen. If you have nothing with which to replace the broken water heater, for example, you will put that expense on a credit card and incur further debt. Piled up debt will eat into all that long-term retirement money when it comes time to withdraw it. And on top of that, it’s not likely that the conservative funds you are invested in with your 401(k) or other IRA program are going to give you a rate of return greater than the rate of interest you are paying on your debt.

Another event that’s sure to happen will be emotional spending, where you spend money for nothing more than pleasure or impulse. There is nothing wrong with this, if you have planned for it, because this impulsive spending is bound to happen to all of us. The problem is when you don’t have any money saved for such events in an emotional savings account. You see a  new pair of shoes you really must have and purchase them on impulse with guess what — that’s right, your credit card. This kind of spending without a liquid savings plan to account for it will, just like emergencies, pile up debt to the point that your retirement income is in jeopardy.

Breaking old habits — like not putting any money away or worse yet, not putting that money into the right savings categories — is hard to do.  But it can become easier if you forecast yourself into retirement and envision what it will be like if you haven’t saved for emergencies, emotional needs, and long-term goals.

We all can learn new tricks, even if we are old dogs.  Don’t give up. Read the book, MONEY:  What Financial “Experts” Will Never Tell You” for some great info on how to start saving today, even if it’s only 1 percent, and working your way up to the magical 10 percent amount — a savings amount that truly will affect whether you live a long and happy life, or not.

The U.S. Budget vs. a Family Budget

Following are some numbers showing how the U.S. government spends money. These are big numbers, so it’s pretty hard to get any kind of perspective on what they really mean to you personally:  

U.S. Government Spending

  • U.S. Tax revenue: $2,170,000,000,000
  • Federal budget: $3,820,000,000,000
  • New debt: $ 1,650,000,000,000
  • National debt: $14,271,000,000,000
  • Recent [April] budget cut: $ 38,500,000,000

The Gainesville Tea Party has taken these very large numbers and given all of us a very simple way to wrap our heads around these complex figures by simply lopping off 8 zeros (i.e. divide by 100 million) to produce a “pretend” U.S. household budget correlated to the U.S. government’s budget:

Sample U.S. Household Spending (Correlated to Actual U.S. Government Figures):

  • Annual family income: $21,700
  • Money the family spent: $38,200
  • New debt on the credit card: $16,500
  • Outstanding balance on the credit card: $142,710
  • Budget cuts: $385 (You can see once you take off all those zeroes, that in comparison to the U.S. budget cut, this doesn’t amount to much of a cut.)

If you or I tried to pull off the kind of financial insanity you can see the U.S. government is attempting, we would be forced into bankruptcy!  My experience shows 90 percent of all Americans over-spend their income.  This is why so very few people have enough money saved for retirement.  Keeping  our nation’s spending in mind, as shown above, check how you are doing.  Place your numbers alongside the sample U.S. household numbers above and see if you’re acting just as irresponsibly as the federal government. Make changes as needed.

For help in making those change go to www.moneymastery.com or send me an email:  peter@moneymastery.com.