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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 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.

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.

Take Caution: Read Disclosure Notices on Investment Projections Before You Sit Back on Your Retirement Laurels

Following is a typical disclosure notice you might see at the end of an investment report. Take the time to read this disclosure,  you might be surprised what you find:

If a numerical analysis is shown, the results are neither guarantees nor projections, and actual results may differ significantly.  Any assumptions as to the interest rates, rates of return, inflation, or other values are hypothetical and for illustrative purposes only.  Rates of return shown are not indicative of any particular investment, and will vary over time.  Any reference to past performance is not indicative of future results and should not be taken as a guaranteed projection of actual returns from any recommended investment.

If you reviewed a report that said your retirement is going to be adequate but then get to the small print at the bottom of the report and it says, “Any assumptions as to the interest rates, rates of return, inflation, or other values are hypothetical and for illustrative purposes only,” how should you feel? How much credence can you place in the numbers from such a report when planning your future?  For example, if an assumed interest rate went from 5% to 3% in real time as you are saving for retirement, you might run out of money with 12 years left to live!

Or let’s say you use the past 40-year average market gains to forecast your future income and then read, “Any reference to past performance is not indicative of the future results.” You probably aren’t going to feel super confident about what your direction is going to be.

Of course we need to plan and project, using the best tools available, but how can you do any of those projections given all the unknowns?

In my experience, the best way to use forecasting projections is to keep track of each year’s projections and review from year to year.  As the years go by you can watch out for adjustments that will surely force some changes.  This way when something isn’t quite working out like you forecasted, you adjust. It’s the simple principle of tracking and you should be applying it when it comes to retirement funds, but what I have found is very few people do, only about 3 percent of us actually track and adjust each year.

Think of you being the navigator on an airplane.  As you fly from San Francisco to Dallas, you are seldom going straight to your destination because of wind and weather.  A navigator must keep adjusting and changing the course according to what affects the plane.  This is the same for each of us financially.  The forecasting is so important, but the adjusting to changes is critical.  So for the 97% of those who don’t forecast, they will not end up in Dallas, financially speaking, but probably Minneapolis.  I hope they like the colder north country. For information on how to create a more predictable retirement that you cannot outlive, contact me for a no cost consultation: peter@moneymastery.com.

Earn a $1,000 Credit for Saving…

The following information is taken directly from the IRS’s Web site on the Retirement Savings Contribution Credit (Saver’s Credit) program:

————————————————–

You may be able to take a tax credit for making eligible contributions to your IRA or employer-sponsored retirement plan.

You’re eligible for the credit if you’re:

  • Age 18 or older;
  • Not a full-time student; and
  • Not claimed as a dependent on another person’s return.

See the instructions for Form 8880, Credit for Qualified Retirement Savings Contributions, for the definition of a full-time student.

Amount of the credit

The amount of the credit is 50%, 20% or 10% of your retirement plan or IRA contributions up to $2,000 ($4,000 if married filing jointly), depending on your adjusted gross income (reported on your Form 1040 or 1040A). Use the chart below to calculate your credit.

*Single, married filing separately, or qualifying widow(er)

2017 Saver’s Credit

Credit Rate

Married Filing Jointly

Head of Household

All Other Filers*

50% of your contribution

AGI not more than $37,000

AGI not more than $27,750

AGI not more than $18,500

20% of your contribution

$37,001 – $40,000

$27,751 – $30,000

$18,501 – $20,000

10% of your contribution

$40,001 – $62,000

$30,001 – $46,500

$20,001 – $31,000

0% of your contribution

more than $62,000

more than $46,500

more than $31,000

The Saver’s Credit can be taken for your contributions to a traditional or Roth IRA; your 401(k), SIMPLE IRA, SARSEP, 403(b), 501(c)(18) or governmental 457(b) plan; and your voluntary after-tax employee contributions to your qualified retirement and 403(b) plans.

Rollover contributions (money that you moved from another retirement plan or IRA) aren’t eligible for the Saver’s Credit. Also, your eligible contributions may be reduced by any recent distributions you received from a retirement plan or IRA.

Example: Jill, who works at a retail store, is married and earned $37,000 in 2016. Jill’s husband was unemployed in 2016 and didn’t have any earnings. Jill contributed $1,000 to her IRA in 2016. After deducting her IRA contribution, the adjusted gross income shown on her joint return is $36,000. Jill may claim a 50% credit, $500, for her $1,000 IRA contribution.

In my experience, anytime you can get “free” money, go for it.  There are many people making less than $36,000 a year and to receive a $1,000 credit for saving $2,000 can make a big difference over 10 and 20 years.  In the above example for Jill, she is trying to save 10 percent of her annual income every year, so in her case that’s $3,600. When she adds this $1,000 credit to that annual 10 percent savings and keeps this money safe over 30 years it will grow to $265,000.  That’s a little over a quarter of a million dollars and an average annual growth rate of 8 percent! 

This may not seem to be a big deal, but a “free” $1,000 a year for someone making $30-35,000 annually, is like getting a 33 percent bonus.  If you will prepare a Get Out of Debt report and a Spending Plan using the Money Mastery tools, you will find even more money.  The younger you start, the better it will be.  Contact me for more information: peter@moneymaster.com.

Spend All Your Money on Paper so You Can See How to Create a Cash Surplus

We all want more money, but how can you make that happen?

First make a list of why you want more money.  Be comprehensive and make sure you don’t leave anything out.  Dream big and write down as much detail as you can so when you refer back to your list, you will be reminded of all these wonderful things.  Do this now.

Second, write down all the income sources, assets and other resources you have available to spend on this list.  Remember one of your assets is time, time to work extra hours, and time to get a better education and improve your ability to make more money.

Third, subtract the money you have from the list of wants and see if you come up short. This is the amount of money you need to find, learn how to earn, or acquire by selling an asset.

Let’s solve this money shortage problem right now.  In the illustration above let the circle represent all the money you will ever have in your lifetime.  Now you don’t know how long you will live, but just let this circle be the total amount of money you will have.  Don’t be critical of yourself for past mistakes in investments, don’t deride yourself for not getting more education, and don’t get depressed, just stay focused on this activity to the end.  I promise you will soon have more money.

Since this circle represents ALL the money you will ever have, why not spend it?  Use your list of wants and spend your money.  Take a slice of the circle and spend it on food and housing.  Then do the same for medical and dental expenses.  Spend some for vacations and fun activities.  Don’t use a monetary figure, just a percetage, like 1.5% for example.  Slice up your total money supply pie until it is all spent.  Don’t forget transportation costs and travel.  Now sit back and examine the money picture you have just drawn.  Remember you can have anything you want, you just can’t have everything you want.  So if you are a physician and will make $9,000,000 over your working life, you will not be able to spend more than that much money.

Your action item now, something for you to do immediately, is to take your “pie of money,” totaling all the money you will ever have, and spend it is such a way as to have a surplus and accomplish the essential goals of your life.  Don’t just spend it all, spend it so as to have a surplus. Doing this little exercise will help you see where you are spending money foolishly or help you see what you may need scale back on so that you can have a small surplus each month.

 Here are three case histories to put your “pie of money” into perspective in terms of creating a surplus:  The first case study is about a schoolteacher who lives in the mountains of Missouri making $23,000 annually.  She has debt and saves $300 each month.  The second study comes from Florida where he is a plastic surgeon making $100,000 a month, but has over-committed on leasing his building, equipment, plane and automobiles, so when he was called out of military reserves to serve a one year commitment in Afghanistan (making $29,000 a year), this forced him to have to file bankruptcy.  The third case history is a retired 87-year-old woman who lives in Stockton, California successfully living on $1,022 a month. We can see from each of these stories that it matters not how much you make but what you do with your money that counts. The school teacher isn’t making much and has debt but she still manages to create a surplus every month so she can save $300. The doctor is living large and has now lost that massive income on foolish living. He could have amassed a huge surplus by now but has spent it all. The elderly woman on a fixed income is managing her money by being smart about the way she spends so she has money to live on. Donald Horban taught this essential concept:

“We don’t need to increase our goods nearly as much as we need to scale down our wants.  Not wanting something is as good as possessing it.” 

Our financial peace of mind is to learn that a rich person is not one who has the most, but one who needs the least.

Don’t be discouraged, even though in my experience spending all your money on paper so you can see where you lack a cash surplus will be the hardest thing you will ever do.   Don’t procrastinate, create a circle representing your entire income of money and spend it.  Money is not the most important thing, but if you don’t have a surplus of it when you need it, it becomes really important.  I wish you all the very best! peter@moneymastery.com.

Have We Become a Nation of Spoiled Brats?

In 1935 our nation was in the worst economic depression of all time.  Unemployment was at 40% and senior citizens did not have enough food to survive.  President Roosevelt created a welfare system called Social Security.  It was designed to help give the bare necessities of life to the very poor of the poorest. When this new welfare system went into place the average person was living to the age of 67.

Fast-forward to today and we see that the average person reaching age 65 will live to be age 84 for males and age 87 for females.  The average family will have made $2,500,000 over their lifetime of work, yet have less than $60,000 of total assets to show for it, including equity in their homes! To top this off, 91% of all people retired are totally dependent upon their monthly Social Security check.

What happened between 1935 and today?  My thought is we got spoiled with all the new growth of our nation’s population and technology. We took for granted our better education, incredible travel opportunities and medical improvements.  We assume all these improvements are just expected and natural and assume they will never stop!  In short, we have become spoiled.

If we went without the latest gadget, clothing fad, classy automobile, and foreign travel, surely as a nation we could have saved more by now.  We have not been willing to wait for things we want and have spent our future.

Don’t be one of our nation’s spoiled brats. Learn how to control spending and get out of debt!  This applies to me just as much as it does you. In a country where there is so much opportunity to spend, it can be hard to learn how to control it. But we can all do better and we should.  Let me just be the voice of warning to help encourage us to change our course of action and do better.  For help, please contact me: peter@moneymastery.com