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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.

Start Saving into Whole Life Insurance (And Stop Saving into a 401k)…

At the end of my last post called “Stop Saving Into a 401(k),” I promised to share options to save for retirement that could trump a 401(k) to provide, tax-free, vibrant funds. Here’s how to do it…

Create a savings account using a “High Early Cash Value” whole life insurance policy from Mass Mutual Life Insurance Company. This will yield incredible results.  Please feel free to challenge me on this. Here’s how:

Send any and all investment opportunities to me at peter@moneymastery.com and I will answer you with details, diagrams and numbers that will contend with what you suggest.  If your investment option is better than mine, I will send you a $25 Visa gift card. I admit it will be hard to balance all the benefits to analyze which is best, because there are so many wonderful features and benefits to consider when looking at a life insurance savings program that builds cash value.  But I am willing to do the work to add to anyone’s perspective. Please include the following:

  1. Your date of birth.
  2. The amount of money you want to save each year.
  3. Whether you are male or female.
  4. Include your financial goals, ever so briefly
  5. Contact information

Now the structure I am referring to is a high early cash value design.  The extra cash created in the first few years causes a larger dividend.  This bigger dividend allows you to purchase much more paid-up-additional life insurance, which creates a bigger dividend and compares very well to any other standard investment being sold in the market.

Remember that your investment option must beat my structured policy in these ways:

  • Keeps ahead of inflation.
  • Cannot have any market risk.
  • Can never create a tax liability of any kind.
  • Creditors cannot have access to the cash.
  • The money must be liquid, meaning available to you within one week.
  • The net rate-of-return, after all the costs that may be associated with your investment option, must be better than a bank or credit union’s 5 year Certificate of Deposit.
  • After being able to use this money to pay down debts, help with college education and invest in new businesses, the balance has to triple in value upon your death without any taxes.

Those are the parameters.  Best of luck!

Are You a True “Investor” or Just a Simple “Saver”?

As people apply a systematic, principled-approach to their finances, such as the one I teach my clients in the Money Mastery program, their thinking begins to change, fundamentally. They no longer feel out of control financially and begin to see each financial decision as it relates to a spending plan, savings plan, debt elimination plan, and tax reduction plan. Because they have an overall Master Plan with a big picture view of how each area of their finances must work together, they are personally and intimately connected to the details that make following those plans possible. They can avoid costly financial mistakes and begin to see highly lucrative opportunities for wealth expansion in the future. With time, they move from being simply a “saver” — someone who gives his or her money over to others to handle in hopes of making more — and instead begins to manipulate and handle that money personally as a dynamic investor.

What’s the difference between a “saver” and an “investor?” A saver lets someone else handle their money, thus eliminating opportunities to learn for themselves what will and will not make them more money. Examples of these types of savers are 401(k) participants, individuals invested in mutual funds and thus forced to use managers who control what happens to their money, and so forth. Often these types of people are referred to as “investors” because they are turning a portion of their money over to be “invested” in mutual funds and stock equities in hopes of gaining a nice return. But even though they may be referred to as “investors” that doesn’t make them such.

Unfortunately this group of people cannot be considered true investors because they are not personally controlling what happens to their money, nor learning how to put that money in motion to generate even more money. The whole idea behind using an integrated system of principles to manager your money, such as the Money Mastery system, is to learn to think like an investor. Doing so helps prevent you from getting into a “herd” mentality. Savers have their heads down, following the person in front of them, hoping for the best. If the rest of the herd is on a good path, then all is well. But unfortunately, as we have seen time and again with the stock market, what goes up must also come down. If the herd is following someone who is headed over the cliff, everyone else is going over with them.

I use this chart on the left to help people understand how little control the average “investor” has over their money when they turn it over to other people to manage in the market.

By contrast, a true investor has his head up, seeking to take action, observing his surroundings, expanding his perceptions, and making a plan by which he will put his money in motion to create more. Investing goes far beyond simply dumping money into a particular investment vehicle, such as a 401(k), or participating in a certain type of investment procedure. Remember, investing should be seen as a plan, not a product or procedure.

How “Giving Back” Affects Your Money

There is a law that all the great money makers are well aware of, it’s called the law of “giving back” and is an important one in your efforts to get in control of your finances. This law, which is lived by all the great financial gurus and by those who have learned how to manage their money successfully, teaches that you attract, rather than repel money the more generous you are with it. Being willing to give money to a church, charity, to those in need, or to any cause you deem worthy, even when you feel least able to do so, will automatically attract more money to youGiving money back to others causes money to naturally flow toward you.

When you live this law (also known in religious circles as the law of tithing), coupling it with a realistic definition of Giving Money Back to Others Causes money to Naturally Flow Around Youyour own needs and desires, and learn how to meet those needs appropriately, you can then create surplus to help others. That surplus is the absolute emotional thrill — ultimately more meaningful than the brief excitement that comes from impulse spending, and certainly more joyful than terrible feelings of fear and guilt that come from spending more than you have.

When was the last time you “gave back?” What financial stability might you bring into your life by embracing this time-proven and ancient principle? It just might be worth a shot this week. Think about it…

The 4 Pieces of the Financial Puzzle and How They Must Work Together

“Yes, I know the way to financial security is to get out of debt, and save money, but when will someone finally show me exactly HOW to do it all?”

This is the complaint I hear very often from many of my clients who come to me looking for help. They realize that proper spending, borrowing and saving are the way to get in financial control, and they have most of the pieces of their financial puzzle in hand, but sadly they don’t know how to put them together in an integrated way that makes sense.

What most financial gurus give people are bits and pieces of a larger puzzle that when placed on the “table of life” make absolutely no sense because there’s been no instruction on how to properly sort through the pieces, how to assess exactly what those pieces mean, and how they must fit together in a logical and orderly fashion.

I have also noticed that authors of financial books and programs are very skilled at telling people they need to get out of debt so they can invest in the stock market, for instance, but they don’t show people how. They spend much of their time on subject matter that has little relevance for the average consumer, giving advice about how to play complex financial games on the stock market, for instance, before helping people understand exactly how to control their spending, or pay down debt.

It is not enough then, to know that you need to make sense of the financial pieces you hold in your hand. Until you are shown how to make sense of them, those pieces will not fit together. You must have a systematic way to integrate spending, borrowing, saving, and taxation (a piece of the puzzle no one else will address in relation to the other three, but which has a powerful effect on all areas of personal finance) so you can get in COMPLETE control now and stay that way, forever.

An abundance of time, money, and resources are not just for the slick financial wheelers and dealers on Wall Street. Anybody can learn the secrets of true money mastery if they will apply principle-based financial management.

The Secret to Making the Pieces Fit

Getting out of a pattern of knowing what you should do and actually doing it, requires that you understand how to make sense of the “Four Big Financial Puzzle Pieces” (as I like to call spending, borrowing, taxation, and savings) before you begin trying to fit them together. When you understand what to do with each of these four pieces, then it becomes much easier to get them to work together as one integrated whole.

The “Spending Piece”
Most people think that the rich arMoney Puzzel Spending Piecee wealthy because they make a lot of money. Actually they are wealthy because they have learned to deal with the emotions behind money so they can make the most of that which they already have. Dealing with your emotions is best done by adopting a systematic approach to spending and applying unique tracking tools by which you can determine what’s going to be left over after you have spent money each month. The Money Mastery principle of tracking I teach my clients helps them find money they are wasting (an average of $312 per month) and reveals their true spending priorities. This in turn helps them make different choices about the way they will spend money going forward, and helps them find money they can apply toward paying off debt without requiring any additional money out of pocket.

Money Puzzle:Speanding PieceThe “Borrowing” Piece
Life-long debt is not normal, despite what Americans have been taught. And contrary to popular belief, mortgage debt is not a good tax write-off. If you are living in a mortgaged home, this is not a money-making asset — it’s a liability because it’s costing you money. Getting out of all “bad” debt like this is how the rich get richer and it can be done in nine years or less by applying the Money Mastery principles of spending control and debt power down. When bad debt is paid off quickly, it opens so many new doors – doors leading towards increased self esteem, increased cash flow, increased retirement savings, and increased long-term financial security. When individuals labor under credit card debt, consumer loans, and 30-year mortgages, they miss the opportunity to put their money to work for them to make compound interest. Under this debt load, they end up paying three times as much as they borrow and miss the chance to pay that compound interest to themselves. The Money Mastery Principles help people eliminate that debt, while at the same time keeping their spending under control so they don’t get in further debt.

The “Taxation Piece” 
Taxes comprise the largest expense for Americans exceeding what they pay for housing, transportMoney Puzzle: Taxation Pieceation, food, and clothing combined! But few understand what an important piece of the financial puzzle taxation is, and how it controls and affects all the other pieces. Without reducing their tax burden, the extra money people find when they control their spending and pay down debt is eaten away by excessive taxation. The Money Mastery Principles help educate you about what the law actually requires of tax payers, and helps you to see that you are paying far more in taxes than even Uncle Sam requires, simply due to your own ignorance. These principles motivate you to learn the rules about taxation and how to reduce it so you can put saved tax money to work for you to make more money.

The “Savings” PieceMoney Puzzle: Saving Piece
Saving money seems unfathomable when debt is looming, a mortgage must be paid, and taxes are due. But what if at least 1 percent of net income is being wasted due to poor spending habits? The Money Mastery Principles teach you how to systematically “find” that wasted money and invest it in you own future, taking better advantage of compounding interest, even while you are paying off debt. Those who have mastered their money always pay themselves first by saving money every month, not only for their future, but for their immediate emotional wants and needs as well. Knowing how to spend money so that you can actually have it at a future date, and also for current needs and wants as well, is a powerful concept that can double — even triple — retirement savings.

The principles and tools that will help you make sense of each of these four puzzle pieces are within reach through the Money Mastery® system of personal financial management.  Contact me for more information, alan@moneymastery.com.

Why Saving Is Not Just for the Rich…

Although the arguments are sound for saving for emergencies, emotional needs, and long-term security, many individuals resist saving into these categories because they labor under the idea that the only people who can save are those with lots of extra cash lying around. They often think, “I can’t possibly put any money away when I struggle just to pay the bills!”

Are you one of these people? If so, think about changing yothe-richest-man-in-babylon-reviewur way of thinking. In The Richest Man in Babylon, George Clason teaches a wonderful way to begin that change by making the following a part of your thought process:

A part of all you earn is yours to keep.

It is false to assume that just because you have a lot of financial obligations that banks, credit card companies, and other lenders are entitled to every penny of your income. If you feel like you can’t find even one additional penny to “spend” on yourself by putting it in savings, don’t give up.

There is hope!

When you create a Spending Plan and track that plan, you WILL find extra money that you have not been using efficiently. Money Mastery coaches find consistently that anyone who tracks their money in a spending plan will find at least 1% of their income that they can begin saving. Many clients when they begin tracking find at least $100 every month that they have been wasting on unneeded or unplanned items. By keeping track of your spending you will easily find an extra 1% per month that you can put aside for emergencies, emotional spending, and long-term savings.

Begin looking for that money today if you haven’t already found it. For more help in identifying all the ways you are using your money inefficiently, contact the experts at Money Mastery today.

The 401(k) Test is a Failure…

The 401(k) was started in the early 70’s as a test, against the long-standing insurance industry’s pension funds management system. With pension plans getting harder and harder to pay out, employees were being advised that they would need to start funding their own retirement accounts — of course Wall Street wanted a piece of the action and thus the 401(k) was born.  Allow me to make some observations based on my 45 years of retirement planning experience about how well that 401(k) test has done.

Observation #1: Human resources counted on to help employees with retirement planning using new programs but this never happened. In the 1970s as pensions became harder and harder to fund, employers were forced to cut costs and hoped HR people would council with employees about their retirement options. Unfortunately this guidance has never really hapFundingpened.

Observation #2: Employees are only taking advantage of the employer’s match 24 percent of the time.  Statistics show that $24 billion in matching funds for 401(k)s is going unclaimed every year.  This is a huge amount of money that could help the average worker have a better retirement but the opportunities of the 401(k) program have obviously not caught on in the workplace as much as had been hoped with the program was put in place.

Observation #3: Only 10 percent of all employees have stayed on top of any portion of investment choices in the last eight years.  During this time the run-up in the market should have given people a reason to re-balance their funds. When 2008 hit hard, uneducated employees chased the market all the way down selling at the bottom.  Many got so discouraged as to never again be a part of a 401(k) plan again.

Observation #4: Mutual fund companies enjoyed large fees with no accountability.  Plan administrators rebated costs back to fund managers in terms of “soft dollars” (or in other words, paying for travel and entertainment expenses supposedly related to placing investments). These were never reported to anyone for any reason.  If a mutual fund employer can get travel expenses paid for travel needs of his staff members, they are delighted.

Observation #5: The value of the 401(k) approach is in question.  Results speak volumes! Years later, few employees have adequate retirement accounts, and they are living longer that ever before.  Our recent 2010 census report shows the average person reaching retirement age has less that $60,000 of total assets and this is after a lifetime of work and making an average of $52,000 a year.  So $2 million goes through our hands and we have kept only $60,000 to use for the next 20+ years of retirement?  To me this says the 401(k) experiment has failed.

Contrast all this to what workers experienced prior to 1970.  No market risk ever,  because insurance companies guaranteed all the funds.  Of course this meant employees received a boring rate of return, but they also received a retirement income they could not outlive based on a formula, like the number of years worked and a percent of salary.  The employee never had to study investment options and funds were guaranteed so the pension administrator didn’t need to be an investment professional.

 

Balancing Statistics

Here are some balancing statistics to compare.

  • The average worker pre-1970 did not have a college education.  They worked for one company their entire working life, receiving a gold watch after 40 years of service. Those were the good old days.
  • The average worker today will have six careers during their working life…six careers, not six employers. The number of people who employ them may be double that! As a result, the 401(k)  experiment came along and each and every employee now had to become their own investment adviser (even though they didn’t know that’s what they would have to do).
  • Workers have never have realized, even up to and including today, that they must be totally in charge of their retirement income.  But as I have mentioned in previous posts, even though they are expected to handle all this playing of the stock market, they don’t actually get to do this. It is done by a fund manager, who will often mismanage funds and tack on hidden fees.
  • The knowledge that they were supposed to be playing the market and managing their money all these years has come as a big shock to many Baby Boomers as they have begun to reach retirement age and as they realize they haven’t made much in the 401(k)/IRA game. The Census report for 2015 proves this point as an average 65-year-old has less than $60,000 of total assets to show after a lifetime of work.

In future posts I will discuss HOW to change this dreadful situation by learning alternative methods for building retirement.

What Makes Credit Unions a Great Choice for Personal Finance?

One of the most common questions people have when it comes to personal financial planning is whether they should have their primary accounts with a bank or a credit union. Credit unions are more likely to have lower fees and higher interest rates, yet fewer than a third of all Americans currently use credit unions, despite there being such national distrust in big banks.

The biggest way in which banks have an advantage over credit unions is accessibility, simply because major banks are all over the place with regular hours and great mobile and online tools. Credit unions typically are meant to serve local areas, which means they might not even exist outside of that specific area and would not have branded ATMs. However, most credit unions do offer to reimburse your fees for ATMs if you withdraw cash out of your network. But in all other ways, credit unions offer the clear advantage.

Here’s how:

  1. Low fees. Unlike big banks, which are somewhat notorious for charging major fees to customers for over drafts or monthly maintenance, credit unions are smaller operations, which means customers take advantage of overhead savings. More than 70 percent of the nation’s largest credit unions offer free checking versus just 39 percent of banks.
  2. Higher interest rates. Credit unions do offer better interest rates but if you’re working on building long-term savings from compounding interest you’re better off using other investment tools. Many banks do not offer interest at all on basic savings account these days, while credit unions that offer interest rates provide an average of 0.12% rates.
  3. Customer service. The biggest difference between banks and credit unions is in customer service. Simply put, the bigger you get, the harder it is to maintain outstanding customer service. With the vast majority of Americans being customers of big banks, it should come as no surprise that many of the largest banks in the nation do not score well in the American Consumer Satisfaction Index.  Credit unions, being smaller and more localized, are more likely to be able to provide personal customer care.

While there are certain inconveniences in terms of accessibility, credit unions tend to at least have a slight edge over banks in most other areas. However, it all comes down to personal preference. For more tips about how to store your money and plan your spending, contact us today at Money Mastery.

Are You Ready

The Most Common Retirement Planning Mistakes

It can be challenging for people who are planning their retirement to balance the life they want to live right now with the life they eventually want to live once they’re retired. The retirement planning process itself can be the source of a lot of anxiety, particularly for that reason.

With the right information, you can avoid some of these common retirement planning mistakes and take a lot of the stress out of the process:

Living too large too soon. Exactly how much monthly income do yoshutterstock_248620027u need to maintain your current lifestyle once you are retired? A high estimate might make your retirement seem like an unattainable goal, while a low estimate could lead to some significant financial problems later in life. Most experts say you should plan on 80 percent of your current annual income once you are retired, but it’s always better to overestimate how much you need.

Not taking future health care into account. People often fail to consider how much their health care needs will increase as they get older. You also can’t assume you’ll be covered by Medicare for your health expenses, as the costs for Medicare for retirees continue to go up every single year.

Not making plans for long-term care. According to information released by the United States Department of Health, approximately 70 percent of people over 65 will eventually require care. It’s important to plan for this in your retirement savings so you are prepared should you eventually count yourself among that 70 percent.

Not updating your plans regularly. You should revise your retirement plan every few years to take into account major life events, such as a marriage or the birth of a new child, as well as the state of the markets and your income level.

Waiting too long. The sooner you get started with your retirement planning, 013the better return on your investment you’ll get. Why wait?

You can avoid some of these mistakes by getting in touch with the team at Money Mastery today to begin talking about your retirement planning strategy. We look forward to working with you!

Retirement Ahead

In Retirement, Average Returns Don’t Matter Any More

Too many working people keep doing the same thing they have always done when it comes to retirement. They keep checking returns to see how much they can accumulate when it comes time to retire. They want to attain the best average rate of return possible.  But think about how long they keep this up — if they work the average number of years most people do, that’s 40 years! They have grown accustomed to checking returns, writing down year-to-date growth, and so forth.  If they can get a 3 percent return, they want 5 percent.  If they get 5 percent they want 7 percent.  But everything changes when a person actually enters  retirementshutterstock_261713222 and is taking money out of their funds to live on.

Consider a retirement fund of $300,000. Let’s say a person we’ll call Mary begins taking money out of this fund, something into which she has been saving for 25 years. If she takes $1,000 a month, she will withdraw $12,000 a year. But in the sixth year, while she still has a balance of $234,520 (which includes $6,520 in interest) the market drops by 5 percent each of three years in a row.  Mary continues to withdraw a level $12,000 each year for those three years, leaving only $171,766 in her fund.  If the market gets back to the average 5 percent growth rate she is used to, Mary will run out of money three years prior to her plan, at year 22, instead of year 25. The point is, when a person retires and is withdrawing a level amount each year, the “average” rate of return doesn’t apply any longer. This will force a retired person to take less, just so they don’t run out of money sooner than they planned.

Now let’s move our attention to the goal of having retirement money last for 25 years and even longer.  What if you live 30 years after retirement and along the way you need hospice or long-shutterstock_83839663term care?  This could drain your money at the same time the market is going against you.  To summarize, a working person cannot keep calculating the average rate of return they think they will have in retirement because unseen forces will change what ultimately will be available in retirement.

Rather than being fixated on checking returns, a wise person who wants to plan a secure, predictable retirement, will need to plan one that includes more than just simple 401(k) or standard market investment vehicles. Retirement gets more secure and more predictable when other options are added, including real estate, precious collectibles, property rental, annuities, permanent life insurance, and so forth.  Simply trusting what your employer is telling you about how to prepare for retirement is foolish. Retirement calculators that can help you see what you need to do so that you will not outlive your money are essential. We have these calculators and the means to help you plan for retirement using spending control, debt payoff, long-term savings, and tax reduction tools. Retirement planning is so much more than just checking returns. It involves getting spending under control NOW, eliminating ALL bad debt within 9 years or less, tripling your retirement savings, and learning how to legally and ethically reduce your tax burden so you can put that saved money to work for you.

Call me to discuss how real retirement planning needs to happen: (801) 292-1099, ext. 2.