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6 Ways To Spend Your Paycheck… If You Want to Get Ahead

For millions of Americans, payday is the day when they can finally catch their breath. They’re able to pay off late bills. They deposit just enough money into their checking accounts to avoid going into the red. They pay their electric bill days after the electricity has already been shut off.

Being financially fragile, a term used to describe people who live paycheck-to-paycheck, is something that affects people of all backgrounds. From engineers and nurses to small business owners and retail workers, the group of financially strapped adults is wide and diverse.

According to a 2015 report by Bankrate, only 38 percent of Americans can afford a $500 car repair or $1000 medical bill with money they have saved.1

Not only are people cash poor, but they have a diminishing net worth, as well.

The Russell Sage Foundation reported that in 2003 the net worth of the typical household, adjusting for inflation, was $87,992.

By 2013, the net worth plummeted 38 percent to just $54,500 for each household. That is a severe drop.2

One immediate thing you can do to change the flow of money coming in versus going out is to downsize. From your house to your cable bill, take a magnifying glass to every one of your expenses.

Here Are 6 Ways To Divvy Up Your Paycheck That Will Put You Ahead Of The Game

  • 1. 35% FOR HOUSING

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    Back To Slide Show

    Your housing portion includes bills associated with housing – so your electric and water bills would have to fit into this piece of the paycheck pie. Of course, the smaller your house the lower your electric bill. If you have energy efficient appliances and additions, like solar panels and electric heaters, you will reduce your utility bill even further. So, if your monthly paycheck is $4000 you don’t want to spend any more than $1400 per month on rent, electric, and water.

  • 2. 15% FOR FOOD

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    Food can go a long way – as long as you buy the right kind. Pasta, rice, beans and frozen veggies are all examples of inexpensive but nutritious, energy-rich foods. Again, assuming you bring in $4000 per month, you’re looking at a monthly food bill limit of $600. If you eat out a lot, you’ll definitely rip through this amount more quickly than if you prepare meals at home.

  • 3. 15% FOR TRANSPORTATION

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    Combine your car payment, auto insurance and gas and it should not exceed $600 per month. If you have an expensive car or a gas burner, then you might want to trade it in for something cheaper and more efficient.

  • 4. 15% FOR SAVINGS

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    For many people, savings is something they will do tomorrow. But tomorrow can easily turn into 10 years if you’re not careful. It’s much wiser to sacrifice a luxury now and save money, then indulge today and pay for it later.

  • 5. 10% FOR DEBT REPAYMENT

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    Get rid of all of those high-interest loans first then work on the low-interest ones. The goal is to be debt-free and credit rich.

  • 6. 10% FOR DISCRETIONARY EXPENSES

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    This is your fun money! Here’s where you pay for your Netflix, cell phone, new shoes and concert tickets. Of course, you can always borrow from your food, transportation or housing allotments – but don’t skimp on savings or debt reductions.

  • YOU CAN DO IT!

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    If you can follow this paycheck formula, then you will move out of that financially fragile group in not time. Don’t despair – there are many people in your shoes. Managing money is like dieting or studying for an exam. It takes a big goal and a little discipline but, after a few weeks, it will feel like second nature – and you will feel like the weight of the world has been lifted off your shoulders.

1http://www.theatlantic.com/magazine/archive/2016/05/my-secret-shame/476415/
2http://www.theatlantic.com/magazine/archive/2016/05/my-secret-shame/476415/

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How to Save and Plan in Your 20s, 30s, 40s and 50s

Your Quick Guide to Getting Money Wise At Every Age

Each period in life comes with its own, unique set of priorities, challenges and benefits. When you’re young, you don’t have much money to save – but you do have time. The reverse is true as you get older: you’re making more money, but you have fewer years to build up your nest egg.

The key is to balance your needs, throughout your life, with healthy savings habits. Let’s take a look at the common issues we face in each decade and how we can handle those things, while still strategically saving for our future.

20s

As you transition from high school and college into the workforce, the top-of-mind worries tend to be finding an apartment, a reliable car and a fun place to meet people on the weekends. It’s usually not retirement. Thinking of retiring – just as you start working – is like planning your summer wardrobe in the dead of winter… it’s not going to happen.

But, there are two compelling words that might inspire you to start saving now: compound interest. If you’re not familiar with this concept, then get ready to be impressed.

Here’s how it works: If you save $3000 in 2017 and earn 3 percent interest, you’ll have $3090.00. If that money continues to earn interest at that rate, in 2018, you will earn interest on your original investment — $3000 – plus on your extra $90. This keeps happening over and over, year after year. You are earning interest on interest on interest.
If you add $3000 to this account each year – with a steady rate of 3 percent, you will have $235,989.89 in 40 years. That’s almost $116,000 in interest.
GET A HEAD-START ON SAVING!

So, if you haven’t begun saving yet, start now. For people early in their careers and not making much money, you can start small. There are two benefits of this:

  1. You’re still saving – and every little bit counts!
  2. By committing to saving and your financial future, you’re creating a very valuable habit.

30s

By the time many people reach their 30s, their big priority is buying a house. According to Zillow, the average age of first-time homebuyers is 33.1

Because houses require large down payments and come with a ton of smaller – but multiple – little expenses (fix the leaky sink, buy homeowner’s insurance, replace the roof), most people at this age are not putting retirement at the top of their list of stuff to spend money on.

Couple this with having a family, paying for child care and health insurance – and saving for retirement suddenly sounds like a luxury expense.

Hope is not lost. You can pay your bills and still think about the future. It just might take a little discipline and planning. Here are three things you should do in your 30s.

  1. First, take advantage of employer-sponsored retirement plans, like 401ks. When you use pre-tax money to fund your account, you get to make interest off that money – so it’s kind of like turbo-charging your savings. Sure, you’ll have to pay taxes on your 401k when you withdraw money from it (after you turn 59 ½), but you don’t have to pay back the money you made off of those taxes.
  1. Second, now’s the time to pay off debt. Get rid of high-interest loans and credit card bills first. Next, pay off student loans and any low-interest loans. By getting rid of debt, you’ll free up money you can use to invest in your 401k or IRA.
  1. Finally, pay yourself first. Before you fund your kids’ college accounts, splurge on a vacation or buy a new car – set aside money for retirement. Your future self will thank you.

40s

With about two decades of work experience – and hopefully some retirement savings in the bank, you are probably making more money now than ever before. This is a great time to set some retirement goals. You might want to create an age target and set up a strategy to make sure you’re on course to meet that goal.

If you’re lucky enough to have disposable income, now’s the time to dispose of it in a 401k or IRA account.

If you make enough money to max out your 401k for the year – which is $18,0002, you can invest additional money in a tax deductible or Roth IRA.

  • Set up a time to talk with a professional. Make sure you choose one who is certified, a fiduciary and comes with high recommendations.

Explain your goals and make sure he or she is willing to take an active role in achieving those goals. What that means is you probably don’t want someone who forgets about you until you call them five years later.

50s

Hoorah! You are at the home stretch. This can be an exciting – or very scary – time, depending on how you have managed your finances. If you haven’t done a great job so far, don’t worry – you still have time to avert disaster.

If you have paid off your house, try not to accrue any more debt. Don’t be tempted by a second mortgage to help you finance a kitchen remodel. Your house should be sacred as you near retirement. A paid-off house is doubly blessed as you don’t have to worry about big monthly mortgage payments – or where you’re going to live should you run low on money.

Clearly, you want to sock away as much as you can – so keep your eye on the prize, and cut out any unnecessary spending.

For those who have done a good job saving, be sure to meet with a professional at least once a year. If you need help or are looking for a second opinion, we can help with that. Why? We believe that as you near retirement, you should adjust your savings to decrease your exposure to the market.

When you’re in your 20s you can afford taking risks because you have time to recover. In your 50s, however, we believe that you should protect your principal and be more conservative with your money.

Now that you have a guide for handling your money at every age, pass it on. Share this information with your friends, children, parents and spouses. Getting money confident begins with knowledge and ends with good habits that put ideas into action.

 

1http://zillow.mediaroom.com/2015-08-17-Todays-First-Time-Homebuyers-Older-More-Often-Single
2https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits

 

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Tax Season Starts This Week: Don’t Forget These 5 Tax Deductions

5 Essential Money-Saving Tips for Your Tax Returns

Monday, January 23rd, marked the official start of tax season. It was the first day tax returns could be filed. For millions of Americans, this can be a stressful time because A) either they’re unsure of how to fill out the often complicated forms or B) they have a hunch they’ll be writing Uncle Sam a big check when that tax bill comes.

For other people, this could be a nice windfall. A 2016 report by Turbo Tax states that 45 million taxpayers claimed $1.2 trillion in itemized deductions on their 1040s, while those who just claimed the standard deductions accounted for about $747 billion.1

A standard deduction is basically whether you file as head of household, married filing jointly, married filing separately and single. You can also claim extra standard deductions for age (65 or older) and blindness.2

If you qualify for a piece of that 1.2 trillion-deduction pie, it can make a big difference on how much you end up owing. So before you sit down to do your taxes or hand them over to your accountant cousin, be sure to review these deductions!

PRO TIP: Remember the money you save now, can be invested into a great pre-tax retirement fund for later.

 

1.) Dependents (Other than Children)

Depending on a few qualifying factors, the following people can be claimed as dependents: parents, grandparents, stepchildren, in laws, foster children, cousins and boyfriends or girlfriends.3

2.) Moving for a New Job

If you relocated more than 50 miles from your home because of work, you can deduct this from your taxes. You are allowed to deduct “reasonable moving expenses,” but not food. This mean you are 100% responsible for all of those road-trip diner meals.4

3.) Charitable Contributions

Did you clean out your closet last year and donate shoes, electronics and other items? If so, don’t forget to deduct it! Every bit counts – even the ingredients in a soup or dessert you made for a shelter or other such charitable organizations.5

4.) Mortgage Interest Payments

Homeowners get to write off their interest – so if you paid interest on a mortgage in 2016, you can claim that as a deduction.6

5.) Energy Efficient Improvements

This is your last chance to cash in on being Earth-friendly, as 2016 is the cutoff for claiming energy-saving home improvements on your returns. The max amount you can claim – in total, over the course of all your returns, is $500 based on 10 percent of the purchase price.7

This is just the tip of the iceberg when it comes to itemized deductions. For example, if you work from home and use a room exclusively for your work, you can take a home office deduction for that “work” room.

You still have a few months to submit your taxes, so be sure to take your time to understand all of the itemized deductions available to you. While it might seem like a chore now, you will definitely be glad you got it right when Uncle Sam sends you his bill.

 

 

1https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Deductions-and-Credits/The-10-Most-Overlooked-Tax-Deductions/INF12062.html
2https://www.irs.com/articles/understanding-standard-deduction
3https://www.irs.gov/publications/p17/ch03.html#en_US_2016_publink1000170962
4https://www.irs.gov/taxtopics/tc455.html
5ttps://turbotax.intuit.com/tax-tools/tax-tips/Tax-Deductions-and-Credits/The-10-Most-Overlooked-Tax-Deductions/INF12062.html
6https://www.irs.gov/publications/p936/ar02.html
7http://www.kiplinger.com/slideshow/taxes/T054-S001-overlooked-tax-deductions/index.html

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What’s Lattes Got to Do With It? Easy Budgeting for Your Future

When you envision your retirement, do you see yourself:

A.) Enjoying your free time pursuing new and old interests, such as traveling, learning piano or spending more time with your friends and family

B.) Working part-time while also collecting Social Security, to keep up with bills

C.) I don’t envision my retirement.

If you answered B or C, then it’s high time to start thinking about your future – whether it’s 10 or 40 years away. The most surprising thing about retirement planning is that it doesn’t have to be scary. Actually, it can even be quite fun – once you get the hang of it.

According to a recent poll by Bankrate, 23 percent of Americans said their biggest retirement fear was running out of savings.1 Don’t be one of these people! If you plan wisely, then you can enjoy a comfortable retirement.

A Latte A Day Keeps Savings at Bay

The first step is to figure out a budget.

Think of a budget as a steering wheel attached to all of your hard-earned money. If you don’t grab that wheel and take control, then your money will fly all over the place.

A good budget looks at your net monthly income and identifies three types of expenses:

  1. Fixed expenses: Monthly bills that don’t change – like your car payment, rent and electric bill
  2. Flexible expenses: These change – but are still necessary, like gas and food bills
  3. Discretionary expenses: This includes stuff you don’t need – like shoes, movie tickets and that daily latte.
FAST FACT: Before you scoff at the price of a latte, consider this: Millennials spend more on coffee than they do on retirement.

Women were worse than men when it came to coffee over-spending, according to a survey by Acorns. Forty four percent of women between ages 18 and 25 reported spending more on their daily coffee than on their retirement savings.2

The discretionary expenses are the ones you want to cut back on if you don’t have enough money to put into savings. It’s hard to imagine what you can eliminate, especially if you don’t go shopping regularly or splurge on Amazon.

But you might be amazed at how much the small, daily purchases add up. If a regular latte costs $5, over the course of a week, you’ve spent $35. In just one year, you’re looking at more than $1800 in coffee spending! Instead, why not invest in a coffee machine you love and a to-go container?

You’ll have saved over $1000 just by making that one adjustment.

And that’s just one daily purchase. You could probably cut back on other small things, too – like subscription services or gym memberships you don’t use.

A great tool in helping you get a clear picture of your spending is a Money Diary. We’re not suggesting you live like a monk, just keep an eye on what you’re buying – which is what this diary will help you do.

Whether you choose an app diary or an old-fashioned paper and pen, the main thing is to pick a tool that will work for you. If updating an app seems like a chore, then maybe a simple notebook is a better option.

In your diary, keep track of everything you spend – down to that cute little choker necklace or collectible toy. Whatever it is, it goes into the diary. After 30 days, you should have a pretty clear idea on where you can save.

Find a good life-savings balance. Maybe you can splurge on movie tickets, but skip the pricey popcorn. For jetsetters, wait for good airfare sales instead of buying during peak seasons.

After a few months of conscientious spending, it will become habit. When once you didn’t flinch at a $6 coffee drink, now you’ll think about all of the ways you can save that money or invest it for later.

If you want to get in on the conversation, be sure to check out the Money Confidence Podcast! We talk about getting your nest egg in shape through the amazing Money Diet. It’s so much easier than it sounds.

 

1http://www.bankrate.com/finance/retirement/survey-americans-racked-by-retirement-fears.aspx
2https://401kspecialistmag.com/millennials-spend-more-on-coffee-than-401k-saving/

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Money Confidence for Nurses: Take Control in 5 Easy Steps

When it comes to being tough, smart and capable, female nurses (and women, in general) have proven they can be all three–and then some. Women are more likely than men to have a college degree1, women outlive men2  and women bring less credit card debt into relationships3.

But despite these powerful tendencies, women get tripped up when it comes to retirement planning.

Nurses Can Tackle Medical Emergencies, So Why Not Finances?

According to a recent survey “Money FIT Nurses Study” by Fidelity Investments, more than half of nurses lack the confidence to make financial decisions4. Given that about 90 percent of nurses are women5, it’s safe to assume that the people without financial grit are mostly female.

Women aren’t scared of money – in fact, 80 percent of household-buying decisions are made by women.6

Women are savvy with getting deals, they price compare, clip coupons and frequent discount websites to save a few dollars. So why do so many women – and nurses, in particular, have a hard time dealing with their financial future?

A Big Problem, With Even Bigger Consequences

The bottom line: there’s no one-size-fits-all answer. For some women, financial decisions might be left to their husbands, while others blindly trust their financial advisers – often too scared to ask questions or be proactive with their money.

For nurses, taking care of financial business can be tricky. Many nurses report not having the time to devote to retirement planning. After all, who wants to sit down in front of a spreadsheet filled with numbers on a day off? Not many people.

But, if you devote some time to understanding your finances, you can change the outcome of your retirement drastically. In short, it’s worth the challenge, because the reward is huge.

Let’s take a look at how you can get a grip on your retirement investments in 5 easy steps.

STEP 1: SET A RETIREMENT AGE GOAL

The first step in retirement planning is knowing when you can retire. The operative word here is “can” because some people may need to work longer due to limited financial resources.

  • The earlier you begin saving for your retirement, the better off you’ll be.

As you get closer to retirement age, adjust your exposure to risk.

  • If you have more than 30 years until retirement, then you can afford to gamble with riskier retirement vehicles – since you have the time to grow your money.
  • Those who are nearing retirement want to focus on safer instruments so that they won’t have a disruptive impact on your savings. 

STEP 2: MAKE A BUDGET

A thoughtful budget is your spending blueprint for retirement. Here’s where you’ll figure out how much money you need for:

  • Fixed expenses (mortgage, health insurance, car payment, loans)
  • Variable expenses (food, gas, entertainment).

Your fixed expenses usually don’t fluctuate from month to month, whereas variable expenses can change.

TIP: Be practical with your budget – don’t underestimate your spending, otherwise you might find yourself in a pickle after you retire.

STEP 3: UNDERSTAND YOUR RATES OF RETURN

If you want to live off your retirement savings, then you have to understand rates of return. Seriously. Although the sound of “rates of return” is enough to put you in a deep sleep, it’s important to get a basic idea of what this means.

  • In today’s market, a reasonable rate of return for a 30-year Treasury bond is just 3 percent. This means if you have $1 million invested in bonds, your yield will be about $30,000 per year. 7

STEP 4: SEEK HELP FROM A RETIREMENT INCOME PROFESSIONAL

Now that you’re equipped with the building blocks of your retirement plan, it’s time to talk to a pro. A retirement income professional will help you come up with a sound strategy for executing your retirement plan. Like any other profession, not all are created equal. Some will be proactive and invested in your financial health, while others will operate on autopilot. You don’t want the latter.

What to watch out for in a financial advisor:
  • If an advisor promises sky-high returns, a red flag should raise.
  • Is your financial advisor a fiduciary? It means he or she has pledged to operate to the highest ethical standards. Much like the nurse’s “Nightingale Pledge,” fiduciaries have a “duty to care” about their clients’ investments, which includes monitoring their financial situation along with investments.
  • Finally, you can find out if your adviser has had any rulings against him or her through a simple SEC search. This will take just a few minutes and can save you a lot of time and headache down the road. 

STEP 5: DO A YEARLY CHECK-UP

Like your patients, you’ll want to make sure your investments are on track each year. As you get older, it’s smart to check on the following:

  • Asset allocations: Are they still on target for your retirement goals?
  • Risk analysis: As the seasons change, so does your risk tolerance level. It’s important to assess your risk tolerance yearly, and shape your retirement income strategy accordingly.
  • Ensure your beneficiaries are up to date

Keeping track of your retirement accounts is part of your financial health. Even if you have a great financial advisor, ultimately the responsibility is on you to make sure everything is running smoothly and heading toward your goal: a happy and healthy retirement!

 

 

1http://blogs.census.gov/2015/10/07/women-now-at-the-head-of-the-class-lead-men-in-college-attainment/?cid=RS23
2http://www.bbc.com/future/story/20151001-why-women-live-longer-than-men
3https://www.nerdwallet.com/blog/credit-cards/debt-and-relationships/
4https://www.fidelity.com/about-fidelity/individual-investing/more-than-half-of-nurses-lack-confidence-in-making-financial-decisions
5http://nurse.org/articles/161/Male-Nurses-And-The-Profession/
6https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/empowering-women.pdf
7http://money.cnn.com/data/bonds/