The Retirement Crisis and How to Avoid It

There is a retirement crisis currently underway.  Why is this?  Because people don’t save during their working years to fund their golden years.  The Economic Policy Institute recently released are startling report about American’s retirement savings.

The Retirement Revolution That Failed: Why the 401(k) Isn’t Working

The graph above shows the median account values of retirement savings for a given age group.  The overall median among all age groups is a meager $5,000 while the median value for those closest to retirement, 56-61 age group, have only $17,000 saved up.

To put this in perspective, I am 26 years old, and have been employed full time for less than 4 years.  In my retirement accounts, which include a company 401k, a rollover IRA and a Roth IRA, I have $47,589 saved.

Retirees are relying on Social Security by larger percentages these days.  Nearly 2 out of every 3 retirees relies on Social Security for at least 90% of their retirement income.  No matter your current age, there are ways to insure that you are setting yourself up for success in your later years.  Here are the steps I followed to have my current retirement savings:

  1. Fund a Company 401k and get full employer match.  This should be a no brainer.  Fund your company’s 401k plan at least to the amount that will maximize your employer’s match.  It’s FREE MONEY.
  2. Start an IRA.  I prefer a Roth IRA because it is money you will never be taxed on again, and is a good complement to a 401k (which you will pay income tax on in the future).  Go to Vanguard’s website and get one started in a matter of minutes.
  3. Maximize out your 401k.  If you are under 50, you can contribute up to $18,000 of your pre-tax pay to a 401k.  If you are over 50, you can contribute an additional $6,000.  See if you can contribute an additional 1 or 2 percent each year until you reach the maximum.

Planning for retirement is now more important than ever.  Many don’t have pensions to rely on anymore, so the responsibility is now on YOU to determine your retirement destiny.

Budget Smart, Invest Wise

The Benefits of a Budget

Image result for budget

Budgeting is an essential part to taking control of one’s financial life.  You would be surprised to know that nearly two out of every three Americans do not budget their income.

With today’s technology, it is now easier than ever to track your income and spending.  Personally, I use Google Sheets to budget.  I have the ability to access my budget on any computer with internet access along with my smartphone.  Another great way to budget is through Mint.com.  Signing up is free, and they have an app so you can update your budget on the go.

Now that you can see just how easy it is to start your budget, I will quickly lay out why you want to budget and the benefits.

  1. You know how much you make:  Ask someone how much take home income they have in a given month, you would be surprised the number of people who can’t give you a specific dollar amount.  Knowing how much you make is vital to determining how much you can save and spend.
  2. Plan Purchases:  Saving up for a vacation?  By budgeting you will be able to determine how much you need to set aside each month so you and your family can enjoy a getaway.
  3. Eliminating Debt:  This can have a two fold benefit.  Firstly, if you know how much you make, then you know how much you are able to spend, thus you can avoid spending more than you make.  Secondly, budgeting can help you set aside income every month to tackle debt, be it student loans, a car note, etc.
  4. Enjoying your money:  Budgeting allows you to feel confident about your spending habits.  It allows you to plan for purchases and should limit financial stress on your life by worry about how you are going to pay for something.

This is not a comprehensive list of the benefits, but a few of the major ones.  If you are curious of the benefits you can receive from budgeting then give it a shot if you haven’t already.

 

Budget Smart, Invest Wise

Tax Time

It’s that time of year when we begin collecting our W-2’s, 1099’s and other documents to prepare our tax returns.  For some of us there is reason to get excited about tax time.  Why?  A tax refund!

A couple years ago a car salesman told me that the car industry loves tax season.  Why exactly?  Because many people end up using their tax refunds to help with a down payment of a new automobile.

If you get a tax refund, you might view it as a “bonus”.  Unexpected money just fell into our lap.  We get the urge to spend this money on a luxury that we might otherwise have not been able to afford.  It’s YOUR money, do with it as you please, but I will offer some advice on how to spend your tax refund wisely:

Pay down Debt:  Instead of buying a new car with your refund, use it to pay down an existing car loan if you have one.  Make an extra payment or two to a student loan you might have.  Debt is an obligation you will  have to pay down eventually, so why not use the extra money to give you an extra step to being debt free.

Go on a Vacation:  Maybe you feel like you have worked hard, and you probably have.  Use the money, or part of the money, to treat yourself to a vacation.  The enjoyment and peace of mind you can get out of an experience far outweighs any “thing” you might want to purchase.  You will have created lasting memories.  Plus, more than likely, you will be more focused upon your return.

Just save it:  Suppose you are 25 years old and receive a tax refund of $1000.  If you used that money to open a Roth IRA or put it in a taxable brokerage account, you will be well on your way to creating future financial freedom for yourself.  Let’s use the following example: You take the $1000 and open a Roth IRA.  If you put in just $100 a month into that Roth IRA, then assuming an 8% return annually, you will have an account balance of well over $300,000 in 40 years.  Granted 40 years is a way off, but that money can help supplement your retirement.  You can also use the refund to build up an emergency fund or to contribute to a taxable brokerage account.

A tax refund is welcomed by everybody who receives one.  You worked hard last year, you paid a little more in taxes then you should have, now it’s the government’s turn to give a little back to you.  Treat yourself to that vacation you’ve been craving, or use it to help put yourself in a better financial situation at the beginning of the year.

Budget Smart, Invest Wise

How To Win The Lottery

As you are probably aware, the drawing for the Powerball tonight has reached a staggering $1.5 BILLION.  Many are rushing to the nearest supermarket or gas station to take part in this epic event.  A single-winner jackpot has NEVER been this high, and one person, or multiple people could have their lives completely changed by tomorrow morning.

No, this post is not about winning tonight’s Powerball jackpot.  No, I am not going to tell you how to win the lottery in this post because there is no way anyone can tell you how to win.  Your chances of winning the biggest jackpot ever are 1 in 292 million, the more tickets you buy, the better your odds, but I’ll break it to you.  You’re not going to win.  Sorry.

Despite the fact that you won’t win the lottery, you do control your own destiny to create a great amount of financial wealth for yourself.  Take the following example.  By opening a Vanguard or Fidelity account with just $1000 and contributing $500 per month to the account every month, you can have well over a million dollars to your name after 40 years.

AccountWinning the lottery and creating wealth are both results of math.  The math tells you your odds of winning the lottery are near impossible.  Math also tells you that following a simple plan can make you a millionaire.  Choose what math you want to follow.

 

Budget Smart, Invest Wise

 

Take 5 (Minutes)

I’m going to need you to Take 5.

And no, not the candy bar.  We all have 5 minutes a day that we can spare.  This 5 minutes revolves around budgeting and monitoring your spending habits.

Budgeting is a simple process when you have the right tools.  That is why I give you my free Excel spreadsheet so you can create your own budget.

I am now beginning my third year of budgeting, and I have found great enjoyment in knowing where all of my income goes on a monthly basis.  It could be because I like number a lot, but mainly because I know I’m setting myself up for financial success.

Kathleen discusses in her article how a simple 5 minute action every day keep hers on her budgeting towards her goals.  Honestly, I don’t even think it takes the full five minutes, but they don’t make a candy bar called Take 2.  Check out her article and see just how simple it is to get your money habits off to a great start in the new year.

http://finance.yahoo.com/news/habit-takes-less-5-minutes-160000540.html

 

Budget Smart, Invest Wise

 

 

Gobbling Up with Thanksgiving Savings

Tis’ the season!

Of deals that is.

Now is the time where we are bombarded with fantastic deals for the holiday season.  Black Friday, Cyber Monday, we have already been getting emails about these fantastic prices to be for over a month now. Amazon, Wal-Mart, and Best Buy are just a few of the companies vying for your holiday shopping business.

Whether it’s a good deal on a new TV or the latest gadget, companies want you to think that it is now or never when it comes to getting the best deal on a product for the gift-giving season.  While this may or may not be true, creating a budget for these seasonal expenses is critical to keeping credit card debt to a minimum.

It isn’t only the season for savings, but people feel the need to spend more than they can afford and charge it to their credit cards.  This equates to not being able to afford the full payment when your cycle comes around, thus leading to the high interest rates that credit cards charge.  Avoid the high interest rate and keep your holiday spending in check with these 3 tips.

  1. Pay Cash: Don’t be so quick to put every purchase on a credit card.  If you can pay in cash then do it.  This will prevent you from mindless spending.
  2. Create Gift Allowances: Put a limit on the amount you will spend on someone for the holiday season.  This will allow you to appropriately budget out your funds for all of the individuals you need to buy for.
  3. Time Over Money: Remember that the holiday season isn’t truly about who gets the best gifts, it is about spending time with the people you care most about.  Objects and money can be easily replaced, but moments spent with loved ones will have a greater lifetime value.

Budget Smart, Invest Wise

 

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How Much Should I Save?

The short answer?  As much as you can afford.

Various articles will try to tell you what you need to save for retirement based on your age.  The conclusion of each chart though?  The earlier you can start off saving, the better.

Forbes has the following chart:

What this chart tells us is that the earlier you start saving, the less percentage of your income will be required to save in order to have a healthy retirement.  For someone who is 25 years old, saving roughly 15% of one’s income all the way up to retirement will produce the same level of retirement living as someone who starts saving when they are 40, but has to save 43% of his or her income.  In a nutshell, the earlier you start saving, the better.

Do I practice what I preach?  ABSOLUTELY!

I save 15% of my pretax income towards my retirement.  I don’t stop there.  I also save an additional 40% of my after tax income towards my future.  This includes a company sponsored 401k, a Roth IRA, and a taxable brokerage account.  I am still able to enjoy the money I make now through entertainment, going out to eat and travelling, but I have placed a high emphasis on making sure I have an excellent post-work life.

Don’t feel like you have to save every extra penny.  Find ways where you can maximize your savings and have a wonderful quality of life.

Make sure you are taking advantage of a company 401k plan if you have the opportunity.

Open a Roth IRA if you haven’t already.  I’m serious about this one!!!

Save first, spend later.

Budget Smart, Invest Wise

 

Student Loans: Grace Period, Waste Period

I spoke with my sister who just recently graduated with student loan debt.  She asked me, “How do I start paying back my loans?”  I told her, I don’t know.

If you have recently graduated from college then chance are you have student loans to pay back.  There is student loan exiting counselling you must go through and then it seems like you’re all finished.

This is exactly what I did.  After I graduated I went through loan counselling sometime during the late summer of 2012.  And then… Nothing.  I don’t even believe I received an email until almost six months later when it was time to start paying back my loans.  My grace period was coming to an end.

If you take out a student loan through your college or university you will most likely have a grace period of six months.  This is so you can have time to “Get your finances in order”.  I assume these loan company figure if you were this easy to get into debt it was the least they could do.

The bad part about this “Grace Period” is that interest is accruing during the six months you aren’t paying back your loans.  The loan companies try their best to hide this from you and make it as difficult as possible to figure out how to pay back your loans before the period is over.

Step 1: Log on to https://studentaid.ed.gov/sa/?login=true and find out who your student loan provider is.

Step 2: Create an online account with your provider(s) and set up your account information.

Step 3: Begin paying back your loans before the grace period ends to limit the amount of interest you will pay over the life of the loan.

 

Budget Smart, Invest Wise

Student Loans No More

 

It took me a total of 30 months, two and a half years to pay off over $30,000 in student loans, but it has been done.

My student loans were financed out for 10 years, which is typical for these loans.  However, I paid them off in just 2.5 years.  How did I do this?  Dedication, commitment.

It is never easy seeing the majority of your after-tax income go towards something that has already been purchased (tuition) and you don’t see the financial rewards until many years down the road.  Bonuses I would receive were also mostly put towards paying down this debt.

My loans carried a 6.8% interest rate.  It was because of this that I was so adamant on paying them off as soon as possible.  That and the opportunity to put that money into additional investments for my future.

Student loans among recent graduates are at all time highs, and so is the price of college tuition.  I’m glad I got out when I did and don’t have plans to paying for education again.  I can breath a sigh of relief, because I know there are others out there with much more debt they have to repay.

I remember a criminal justice class I took back in college where the professor said that the only two for sure ways to get turned down for the FBI were if you had a felony or if you defaulted on a student loan.  I’m not sure if that is 100% true, but I do still preach that fact to others today as if it is.

Debt is a big burden no matter what kind of debt it is.  Most young people and college students don’t understand what they are getting themselves into when they enter college.  They don’t realize that the thousands and hundreds of thousands of dollars they borrowed for their education will have to be eventually re-payed with their salaries.

However, with all that being said, I am glad I went to college.  I wouldn’t have had the career opportunities or money had I decided not to go, but that was never an option.  Student loans are a fact that you have to accept if you are already entrenched in the college life.  For those of you graduating, there are steps you can take to help get yourself off to the best financial start possible.  If you are interested in getting your financial life off to the right start then email me for a Financial Foundation Consultation.  I will go over anything you need me to: budgeting, debt burden, buying a house, where to invest, etc.  Consultations can be done over the phone or via webcam.  If interested email me at johnwsteinert@gmail.com

Budget Smart, Invest Wise

Video: 401k Millionaire

ONE MILLION DOLLARS.  It has a nice ring to it.  For some of us, we desire to be millionaires one day.  But how?  It can happen many ways.  It all starts with saving.  A 401k is a great way to build up $1,000,000 of net worth.  How is this?  Most of the time an employer will match your contribution up to a certain percentage.  This is FREE money.  Combine that with the fact that 35-40 years of employment and it is easy to see how the amount can add up.  At the end of the day it is all math.

Experts suggest saving various amounts of your income depending on one’s age; however, money saved is money not spent.  Save as much as you can while still enjoying life.  The following video discusses how one’s 401k can lead to millionaire status.

http://time.com/money/3947342/401k-millionaire/?xid=yahoo_money

Budget Smart, Invest Wise