Category Archives: Budgeting

Posted on

Budgeting Smudgeting, Why Do I Need a Budget?

by

I know, I know. Just the thought of having to put a budget together reminds a lot of people of going to the dentist when they haven’t been for a few years. It’s that fear of, “What am I going to find out? And, “Whatever it is, it’s going to be painful.” Before you run off to another blog site let’s try to come to terms with both the fear of budgeting and the reasons why you absolutely have to go through this process. And…it might actually be fun! Yes, I really did use the word fun in the same paragraph as “dentist” and “budgeting”. Hear me out on this.

Why is budgeting so painful?

I believe it’s because many of us know we have “leaky” behavior so it’s a matter of “the truth hurts”. Leaky behavior is what I call those expenses that may not seem like a big deal but over time they add up to thousands of dollars. Money that could help you reach your retirement savings goal; things like daily Starbuck’s coffee runs, eating out every weekend, weekly shoe shines, having a yard guy (or gal). You get the idea. At the risk of being called the “fun police” let me state that you don’t have to automatically cut out all of those enjoyable expenses but when it comes to finding extra dollars to invest for your retirement those are areas we want to look at first. That’s why it’s important to know what they are in the first place. And that is where the pain comes into play. Many people upon learning of the amount they spend on these various behaviors often bring their hand to their forehead and cringe. There’s the pain. We are often resolved to our income and know it well but we “hope” there is enough money at the end of the month instead of vice versa.

How Can a Budget Help?

First, you start form a position of strength. You take control of the monthly expenses instead of the expenses taking control of you. In other words you have a game plan. Imagine if your favorite sports team started the game with no real plan, just a vague idea of how they hoped the game would go. They know they want to score more point than the other team and they have a pretty good feel for how they have done it in the past so off they go. What do you think the chances of victory would be? Well, that’s how many people treat their personal finances. They hope their income will cover their expenses. Your budget is the foundation of your game plan.

How Does the Budgeting Process Work?

It begins with gathering the data that makes up your financial history. Next, you use this information to do a cash flow analysis. That’s taking a look at your income versus your outgo. You will calculate what’s called your net cash flow. That will tell you whether cash is coming in faster than it’s going out…or vice versa. Then we need to know your net worth. In simple terms, your net worth is the sum of everything you currently own minus the sum of everything you currently owe. Why is this important? It gives us a snapshot of where you are today…financially. This is the foundation of our game plan. It tells us form where we are starting. Just like a team at the beginning of the season. They need to know what they have to work with and go from there.

Once we have the snapshot of you financial situation, then we start looking at your money goals including retirement, college funding, social security, healthcare just to name a few. Of course not all of these may be on your list of goals depending where you are in life…at least not yet. We have to set priorities and timelines.

Budgeting is not a one-time deal or a once a year deal like paying taxes. Yes, we have to revisit that bad boy on a regular basis. So like anything else that can be a chore to do we have to make it as enjoyable as possible. Thanks to technology even budgeting can be fun. Yes, I used that “fun” word again. Well, even if it isn’t fun it can become bearable.

Check out my Budgeting That Makes $ense course. Click here to Learn More and check it out!

Check out our Budget Tracker tool here. I know that you will find it helpful. You can also get a FREE copy of our Net Worth Calculator here.

Question: How do you feel about the idea of building a personal budget? You can leave a comment by clicking here

Posted on

5 Ways That You Can Retire on Your Terms Even If You Are Getting Started Late

by

Being a CERTIFIED FINANCIAL PLANNER®, I am naturally more in tune with the truthfulness or, should I say, the intentions of retirement advertising. It’s all about hitting the pain points. Not much fun, right? At least buying a new car or a house is fun. Yet sometimes the important things in life are not “fun”. Retirement planning is one of those things.

When you need a new car, you check out the rates at the credit union. If you need a mortgage you also check rates. In other words, you shop for the best rate before you shop for your car or your new home. When was the last time you said, “Hey Honey, we haven’t saved enough for retirement. Let’s go down to the credit union and meet with a financial advisor.”? Probably never. I wish people were as in tune with their retirement planning as they are with getting a new car or a new house.

To compound matters, the big financial companies, that can afford to advertise on TV like to make you succumb to what I call the Lump Sum Scare. You know, they tell you that you need a lump sum of several million dollars or you won’t be able to retire – ever! I know better. If you haven’t saved “enough” and that is a relative term. It’s as personal as your fingerprints, you can still retire, be they different terms than maybe you are thinking about right now.

Let’s look at 5 ways you can retire on your terms, even if you are starting late.

  1. Work longer, retire later. Don’t forget, each year that you continue to work increases not only your Social Security benefit, if you have a pension it could increase that benefit as well. It will also allow your retirement investments to continue to grow (401(k), IRA accounts, and taxable investments)
  2. Work a second job or part-time after retirement. The first step is to figure out what your income shortfall will be and then you can start considering the type of part-time work you will need to supplement your other sources of income in retirement
  3. Reduce monthly expenses. Yes, this can be a painful process but in many cases, it will be necessary. This is why the budgeting step is so crucial. You don’t know what needs to be reduced if you don’t know what you are spending. Check out my “Budgeting That Makes $ense” course for a great way to develop your own successful budget. You can also get a free copy of my  Budget Tracker tool to get started. Most retirees don’t need to live on their pre-retirement standard of living. It will probably be somewhere between 70-80% of what you are spending now. Once you have your budget you can figure out what can be reduced or eliminated.
  4. Increase the contributions to retirement accounts. Use the power of compounding and time to work in you favor. Even a small increase of $50 to $100 a month can have a dramatic effect on your retirement savings depending on how long you have until retirement.
  5. Sell an asset. Again, probably a tough decision. Maybe not, if that vacation home is going unused now that the kids have grown and are not as interested in using it as they were once upon a time. Or maybe you want to downsize and get a smaller, less expensive home or move to a part of the country that is less expensive than where you live now.

Don’t be brow-beaten by TV and social media. Meet with a financial advisor or check out my coaching offer and decide what your retirement terms look like, even if you don’t have a big lump sum saved. You can still retire on your terms. Even if you are starting late. Get my free guide to retirement when you are starting late here.

Posted on

Conquering Debt at Age 60

by

U.S. Consumers who are 60 or older owed over $600 billion in credit cards, auto loans, personal loans and student loans last year. That is an increase of 84% since 2010 which is the largest increase of any age group. This information comes from TransUnion data, one of the biggest credit bureaus in the country. $86 billion of that debt is from student loans.

Many older Americans took out loans to help pay for their children’s college education and are still paying them off. Others took out student loans after the financial crisis in 2008 to retool their skills after losing jobs during the economic downturn.

This information presents a dichotomy or sorts. We hear about how the Baby Boomers are the wealthiest generation, yet we struggle to fund a retirement, so we end up working the rest of our lives in many cases. Compounding matters is the crushing debt that many Boomers face in what are supposed to be the stress-free years of retirement.

With this reality in mind, what are some ways to attack the debt problem when we are 60 or older? Here are five strategies to conquer debt when you are 60:

  1. Face the music – this may seem trivial, yet the reality is that many people resign themselves to being in debt for the rest of their lives. That doesn’t have to be the case. First you must come to terms that you have debt and have a desire to eliminate it or pay it down significantly and that you are willing to change the habits that created the debt in the first place.
  2. Target high interest debt first – look at the interest rates on the debts that you have and commit to tackling the highest interest debt first while keeping up with the minimum payments on the other debt as well. It can take years to pay off debt by just making the minimum payment. That is why it makes sense to target the highest interest debt first. Once you pay off the highest interest debt then tackle the next highest and so on. By being more strategic in attacking your debt you will pay it off faster and save more interest as well.
  3. Look at refinancing options – if you have reasonably good credit you can find a lender that will consolidate your debt at a lower interest rate. That can mean a lower monthly payment and a shorter time frame to pay of your debt. Do your homework to compare interest rates being charged. Also, if you are refinancing student debt keep in mind you will give up some of the perks for federal loans such as repayment plans based on income as well as debt forgiveness programs. Consider this option as a great option to save money over time on interest costs.
  4. Pay down your balance as soon as possible – you can do this by making more than the minimum monthly payment each month. Check with your lender and see if your extra payments will go toward interest or principle. Some will apply your extra payment to interest which doesn’t help pay down the debt. You want to have that extra payment pay down the principle. So, call your credit card company or lender and ask them how you can apply extra payments to the principle. Be sure to check that you are not being charged for making extra principle payments. You may be able to avoid the fees by tacking the extra payment onto your monthly payment.
  5. Develop a budget – If your debt is due to a lack of a monthly budget then consider starting one. It takes discipline to live within your means. We live in a world of get it now and pay later. That doesn’t work and it wreaks havoc on family life and retirement. Check out my Budgeting That Makes Sense course. It’s free and will give you a guideline to stick to a budget.

Everyone has a reason for accumulating debt. Sometimes it is due to poor budgeting habits while others can’t avoid it due to employment or other family circumstances. Regardless of the reason it doesn’t have to wreck your retirement. Be intentional, have a plan and work your plan each month. Before you know it, you will have made a big dent in your debt and then it will be gone. Once you are debt free you can enjoy your retirement savings and live your retirement on your terms.

Posted on

Do You Need a Financial Coach?

by

Sally and Roger have been married for over 30 years. Roger is 60 and Sally is 58. They have never saved much of their paychecks, so Roger has a small amount, about $100,000 in his 401k. Like Roger, Sally had good intentions to set money aside for retirement, yet it seems something else always took precedence such as needing a new car, loaning money to the kids, or fixing something at the house.

The concept of retirement has always felt like it was “out there” on the horizon. Now, reality is hitting them like the proverbial “ton of bricks”. Sally wants to stop working and devote more time to the grandkids. Roger knows that the only way that can even be a remote reality is if he just keeps working. His health is ok so he and Sally decide that will be their retirement plan. Roger will keep working until he just can’t physically do it any longer. They have a $500,000 life insurance policy on Roger so that will help Sally should anything happen to Roger.

This scenario may sound far-fetched or it may resonate with many of you. It’s called the “Work Until I Die” retirement plan. Many Americans have embraced this plan because they don’t think they have an alternative. Most don’t think they are qualified to meet with a financial advisor because those people only deal with people who have “real money”, whatever that is. As a result, millions of Americans drift into the “retirement years” unaware that help is out there. Help can take the form of a traditional financial advisor or it can be a Financial Coach.

What is a financial coach? A financial coach works on your financial life instead of investing your money and/or selling you financial products. Some people work with both. Not all financial advisors are equipped to be financial coaches. For example, a financial coach can help you put a personal budget together, teach you about Medicare and Social Security and educate you about other financial topics that will impact your financial life.

A financial coach will help you develop good money habits that will last a lifetime. You don’t have to have a lot of money. In fact, many people come to a financial coach in debt to get help building good spending and budgeting habits.

Sally and Roger can benefit from a Financial Coach. They are at a point where they don’t know what they don’t know. Knowledge is power and they need to be educated about how they can retire on their own terms. They may find that Roger won’t have to work until he dies. With some belt tightening with their budget and a few other changes they will be surprised at how their retirement looks after working with a financial coach.

Financial Coaches like financial advisors are not miracle workers. They are trusted advisors who are vested in your financial health. Like a coach in sports, they can get you into shape financially and then help you stay there into your retirement years, whatever you envision those years to be.

Posted on

Should I Pay Off Debt Using Money From My IRA?

"Avoid These Costly Retirement Planning Mistakes" Series #1

by

So, you have been struggling to save for retirement.  You qualify to have an IRA account and you have been faithfully putting money into it each year. Great job! Life happens, as they say, and you find yourself with a credit card debt that just won’t go away. You figure that you have enough in your IRA to get rid of the debt. Then, you reason, you will have more to put in your IRA since you won’t have to make a credit card payment. Think long and hard before you make that withdrawal.

First, if you withdraw your funds from your IRA before you are 59 ½ you will get hit with a 10% tax penalty (there are a few exceptions). Don’t forget, you still must pay regular taxes on the money as well. If that regular tax puts you in a higher tax bracket that just compounds the problem.

You have a Roth IRA, you say? Yes, the Feds allow you to withdraw those funds without penalty or taxes. Just make sure you are nit withdrawing earnings on those Roth contributions or you will pay a penalty and taxes.

Another often overlooked downside to withdrawing money from an IRA early is that the funds cannot be replaced. That’s right, there is no catch-up provision. Remember you are restricted to a specific amount that you can contribute each year. So even if you withdraw a small amount, you will forego the benefit of compounded interest for those years until retirement. While it may seem like a small amount, it can have a significant impact on your retirement years.

So, what to do instead of withdrawing from your IRA? There are several choices depending on how dire your situation is. First, you are wise to be motivated to eliminate debt as you approach your retirement. The most difficult yet practical way is to pay down as much as you can each month. By this I mean more than your minimum payment. The first step is to know what you spend each month. My Budget Tracker can help you get started. Once you know how much you are spending then you can find where you can cut back on those expenses.

Once you have figured out where you can cut back i.e. dining out, entertainment, buying coffee out, eating lunch out instead of packing a lunch, etc., then you can use those funds to add to your existing credit card payment. You will be surprised at how quickly you can find $50 or $100 extra each month to pay down your debt quicker.

It’s always best to try to manage your debt “organically” i.e. from your current income and expenses, before you consider taking on debt such as with a home equity loan or borrowing against your 401(k).

Good luck! Please let me know in the comments or email me at mark@myrp.me if you have any questions or want to share your own experiences.