How Retirement Spending Changes With Time

New retirees sometimes worry that they are spending too much, too soon. Should they scale back? Are they at risk of outliving their money? This concern may be legitimate. Some households “live it up” and spend more than they anticipate as retirement starts to unfold. In 10 or 20 years, though, they may not spend nearly as much.

By The Numbers

The initial stage of retirement can be expensive. The Bureau of Labor Statistics figures show average spending of $60,076 per year for households headed by pre-retirees, Americans age 55-64. That figure drops to $45,221 for households headed by people age 65 and older.1

When retirees are well into their 70s, spending often decreases. The Government Accountability Office data shows that people age 75-79 spend 41% less on average than people in their peak spending years (which usually occur in the late 40s).

Spending Pattern

Some suggest that retirement spending is best depicted by a U-shaped graph — It rises, then falls, then increases quickly due to medical expenses.

But in a 2017 study, the investment firm BlackRock found that retiree spending declined very slightly over time. Also, medical expenses only spiked for a small percentage of retirees in the last two years of their lives.2

What’s the best course for you? Your spending pattern will depend on your personal choices as you enter retirement. A carefully designed strategy can help you be prepared and enjoy your retirement years.

 

 

 

 

1. Bureau of Labor Statistics, 2019

2. CBSnews December 26, 2017

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

Retirement Realities

Expectations vs. Reality

Predicting exactly what your retirement will be like is about as possible as a meteorologist predicting the weather correctly every single time. In fact, few retirees find their financial futures playing out precisely as they assumed. But, understanding some of the more common assumptions about retirement may help you get closer to your goal than most.

Do Retirees Actually “Outlive” Their Money?

Generations ago, as people retired, many did live in dire straits, sometimes “down to their last dime,” which lead to the creation of Social Security. Today, Social Security is still around and a common supplement to one’s retirement strategy. True, health crises can sometimes impoverish retirees, but working with a financial professional may even help you prepare for this hard-to-anticipate cost.

Retiring on 70-80% of Your End Salary May Not Be Feasible

A quick internet search reveals all sorts of sources instructing new retirees should strive to retire on 70-80% of their end salary, but it can be a tough one to achieve.

Most new retirees often want to travel, explore new pursuits, learn some hobbies, and finally get around to those things they had put off when they were too busy with work. So, in the first few years, some may spend roughly as much as they did before retirement.

For many retirees, median household spending increases on the way to a retirement transition. But, with a smart financial strategy, the annual median household spending in retirement tends to decline gradually after age 60 and begins to plateau when people reach their early eighties.1

Practice Makes Perfect, Even in Retirement

On average, households headed by those older than 65 spend 25% less annually than younger households (a difference of more than $15,000). While health care spending increases in retirement, other household costs decline, particularly transportation and housing expenses.2

Retirement May Arrive Earlier Than Expected

Most people retire closer to age 60 than age 70. Believe it or not, the average retirement age in this country is 61. That means you could find yourself claiming Social Security earlier than you planned, if only to avert drawing down your retirement savings too quickly.3

Living the Life You Want

In general, American retirees seem to have it pretty good. A recent survey found that 47% of American retirees feel that the time they put in before retirement allowed them to enjoy the same standard of living they had while working.4

Remain Flexible in Retirement

Your retirement may differ slightly or even greatly from the retirement you have imagined. Fortunately, it may be possible to create a flexible retirement strategy with the help of a financial professional. It’s never too late to start!

 

 

1. JP Morgan, 2019

2.Yahoo Finance, 2018

3. Gallup, 2018

4. Forbes, 2019

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

What Will Your Mortgage Look Like in Retirement?

Anyone who has gone through the process of mapping out their retirement knows there can be a lot to keep in mind. Saving, investing, anticipating medical costs, and making sure you have enough tucked away for years to come is just the start. One question many people overlook is: “Should I pay off my mortgage before I retire?” The answer is more complicated than you may think.

Maintaining a Mortgage in Retirement

Imagine you have $300,000 set aside to pay off your mortgage. But rather than using those funds to pay off your mortgage, you instead invest that money. Sure it’s tempting to stop making a monthly payment, but what if that $300,000 earned a hypothetical 6% for the next five years. You would have a little more than $400,000. Yes, your house may appreciate in value over the same period of time, but you should consider all your choices for that lump-sum of money.

Eradicate (Other) Debt

Before you pay down your mortgage, any extra cash might be better suited to paying off other kinds of debt that carry higher interest rates, especially non-deductible debt, such as credit card balances.

Make Your Mortgage Work

Many homeowners benefit from a mortgage interest deduction on their taxes. Here’s how it works: the amount you pay in mortgage interest is deducted from your gross income, which reduces your federal income tax burden. But remember, the further along you are toward paying off your mortgage, the less interest you’re paying. If you’re unsure if you’ll be able to take advantage of this mortgage benefit, it’s best to consult your financial professional.

Retire Your Mortgage

Your monthly mortgage payment may be a large part of your available capital, especially in retirement. Eliminating unnecessary subsidies can significantly reduce the amount of cash you need to meet monthly expenses.

Uninteresting Interest

Depending on the length of your mortgage term and the size of your debt, you may be paying a substantial amount in interest. Paying off your mortgage early can free up money for other uses. True, you may lose the mortgage interest tax deduction, but remember as you get closer to paying off your loan: more of each monthly payment goes to principal and less to interest. In other words, the amount you can deduct from taxes decreases.

Home Is Where the Heart Is

There’s a value to your home beyond money. It’s where you raised your children, made fond memories, and you may want it to remain in the family. Paying off the mortgage may help make your home part of your legacy. After all, some things you just can’t put a price on.

 

 

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

Essentials for Your Year-End Financial Checklist

The year-end deadline for many key financial decisions is approaching. Check your finances now to avoid unpleasant surprises.

December 31 marks the deadline for decisions that can significantly affect your wealth. Taking action now might enable you to reduce your taxes and increase your retirement savings. It’s also a great time to review your entire wealth plan with a professional financial advisor.

Take tax losses on your positions. Your investment portfolio probably has one or more poor performers. You may wish to sell losing positions to realize the losses and offset them against your capital gains. You can deduct up to $3,000 of excess capital losses against your ordinary income. Reevaluate and rebalance your holdings to achieve your desired asset allocations.

Fund your retirement accounts. Although you have until April 15 of next year to fund your retirement accounts, now is the time to determine your remaining contributions to your 401(k) plan and Individual Retirement Accounts (IRA). If your income exceeds Roth IRA limits, consider a partial conversion of traditional IRA assets to a Roth IRA*. Also, don’t forget to take any required minimum distributions if you’ve reached age 701/2.

Review your flexible spending accounts. It’s a good time to review your health insurance coverage with your financial advisor and insurance agent. Make sure you don’t let your flexible spending account (FSA) balance exceed $500, the maximum amount you can carry forward into the next year. Some employers offer a grace period until March 15 to use last year’s funds. However, you can only use one of these options. You should check with your employer to see what their policy is.1

Review your beneficiary designations. Circumstances might have changed during the year, prompting changes to the designated beneficiaries in your will, trusts, retirement plans, insurance policies, and charitable gift plans. Review your estate plan to evaluate moving assets to new or existing trusts. Finalize your gifting to family and friends based on the latest gift tax limits. Review your insurance policies to determine if the coverage is still appropriate.

Year-end financial reviews are essential. Contact me today to schedule a review session that will help you find opportunities to manage your tax burden, control your bequests, and start planning your financial goals for the new year.

* Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regards to executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation.



1 irs.gov, “Plan now to Use Health Flexible Spending Arrangements in 2018; Contribute up to $2,650; $500 Carryover Option Available to Many” 11/15/17

Money Management 101 for Single Parents Going it Alone

1. Determine What You Owe

As the head of the household, it’s up to you to make sure that your entire family’s needs are being met. In order to do that, you need to be extremely diligent when it comes to money management basics. This is not something that will happen by accident. Instead, you must plan for it and work toward it.

The first step is to set up your “office.” Gather all of your bills, a calculator, a pencil, and your checkbook.

I would also recommend that you grab an old binder that you can use to keep track of your financial data and a shoebox for storing paid bills.

Now you’re ready to begin:

  • Go through all of your bills, and pay anything that is due within the next week.
  • If you have bills coming due that you cannot pay, notify the company and ask them to set up a payment plan with you.
  • Print a copy of the chart “Paying Down My Debts” or make your own.
  • On the chart, list all of your debts, including any car loans, student loans, and credit card debt.
  • In addition, list the total balance left to be paid on all of these debts, and the percentage rate you are paying.
  • For now, leave the fourth column of the chart blank, and store it in your “Financial Data” binder.

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2. Eliminate Joint Debt

Before we create a plan for paying down your debt, it’s important to consider some special circumstances that may apply to you as a single parent. I asked LaToya Irby, Credit/Debt Management Expert, to share her expertise on handling joint debt:

Wolf: Let’s say a single mom still shares a credit card with her ex. What should she do?

Irby: Ideally, she would want her ex to transfer his portion of any joint balances onto his own credit card. That way, everyone is paying for their own debt.

Wolf: What about leaving both names on the account, and agreeing to pay part of the amount due? Is that ever advisable?

Irby: No. If you’ve made an agreement with your ex to split the debt payments on accounts that include your name, and your ex-misses a payment, it’s going to hurt your credit. If the ex-fails to pay altogether, the creditors and collectors will come after you. Not even a divorce decree can change the terms of a joint credit card agreement. In the credit card issuer’s eyes, you’re just as much responsible for post-divorce accounts as before.

Wolf: What about situations when a couple’s divorce decree mandates that one individual must pay off the joint credit card debt, but that person fails to do it?

Irby: You can always file contempt of court papers against him/her, but in the meantime, your credit score suffers. So I suggest paying off the debt to save your credit. If you can’t afford to pay the debt, at least make minimum payments to keep a positive payment history on your credit report.

Wolf: What about other accounts, such as utilities and cell phones?

Irby: The safest thing to do, if you have a service in your ex’s name, is to turn off the account and reestablish service in your name.

 

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3. Find Money to Pay Down Debt

Another thing we have to do before creating a plan to pay down your existing debt is to find money in your budget each month. To assist in this step, I contacted Erin Huffstetler, Frugal Living Expert.

Wolf: How much money do you think the average person can uncover just by being more intentional about spending and budgeting?

Huffstetler: The average person could easily uncover an extra $250 a month—and probably much more.

Wolf: What are the top 5 areas that you think people should look to first when they’re trying to cut their expenses?

Huffstetler:

  • Food spending (both groceries and eating out)
  • TV-related expenses (cable/satellite services, certainly; but also movie subscriptions and rentals)
  • Phone services (particularly extras like call waiting, caller id, long distance, and cell phones)
  • Insurance premiums
  • Miscellaneous spending (all those small amounts spent on coffee, vending machine snacks, and other indulgences)

Wolf: How can single parents, specifically, stretch their child support dollars and reduce child-related expenses?

Huffstetler: For single parents looking to stretch their child support dollars, creativity is the key. Look to children’s consignment shops and thrift stores to buy your kids’ clothes instead of department stores; sign them up for Parks and Rec-run activities instead of privately-run activities (which will always cost more); and don’t feel like you have to make up for being a single parent by buying them extra things—it’s you they need, not stuff.

 

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4. Pay Off Your Debt

The next step is creating a schedule for paying down your debt:

  1. Pay off the debts that charge you the highest interest first.Bob Hammond, author of Life Without Debt, recommends that you pay off the debts that are charging you the highest interest first since borrowing from those creditors is costing you the most money. “Concentrate on paying off the high-cost debts as soon as possible,” Hammond advises. LaToya Irby, Credit/Debt Management Expert, agrees. “Highest interest rate debts cost the most money, especially when those debts have high balances. So you’ll save money on interest charges when you pay off those high-interest rate debts first.”However, there are exceptions to this general rule. Irby notes, “If you’re likely to get discouraged because it’s taking a long time to pay off that high-interest rate debt, you can start with the lowest balance debt. Getting some small debts paid off will motivate you to keep going.”
  2. Pay more than the minimum payment. Aim for paying more than the suggested minimum payment, in order to pay off your debts as quickly as possible.Miriam Caldwell, Money in Your 20’s Expert, shares this advice:
    • Choose one debt to focus on.
    • Increase your payment on that debt by as much as you can.
    • Once you have paid off that debt, move all that you are paying on it to the next debt you want to pay off.
    • You’ll be surprised at how quickly you can get out of debt with this plan!
  3. Meanwhile, continue to pay the minimum balance due on all of your other debts.Record what you intend to pay toward each debt on the debt chart you made in Step 1.

 

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5. Budget Your Monthly Expenses

Now that you know where you stand financially, and you’ve created a plan for paying down your debts, it’s time to make sure that you’re making any other necessary adjustments so that you can keep up with your plan. And this means creating a budget.

I know this can be intimidating, but I’m going to make a suggestion for you: Sign up for Mint.com. It’s a free financial software program available on the Internet, and it will basically do your budgeting for you. It will create a visual pie chart showing how much you’re spending each month on housing, gas, food, entertainment, and more. This way, if it turns out that you’re spending a lot more on food than you really should, you can begin to make the necessary adjustments to get your spending under control.

If you would prefer to create your budget the traditional way, allotting a certain amount of money to each spending category, I’ve created an online budget calculator you can use, which includes categories for child support and other details specific to your life as a single parent.

Finally, in taking a look at where your money really goes each month, it’s important to know approximately how much money you “should” be spending in each category. Generally speaking, your net spendable income (after taxes) should be allocated as follows*:

  • Housing: 30%
  • Food: 12%
  • Auto: 14%
  • Insurance: 5%
  • Debt: 5%
  • Entertainment: 7%
  • Clothing: 6%
  • Savings: 5%
  • Medical/Dental: 4%
  • Miscellaneous: 7%
  • Child Care: 5%
  • Investments: 5%

 

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6. Set Financial Goals

Now that you’ve worked out a plan to pay down your debt, and you’ve created a budget, it’s time to determine your needs moving forward.

Specifically, as a single parent, you need to ask yourself some questions, such as:

  • Do you need to file for child support?
  • Do you need to get a higher-paying job?
  • Is it time to think about going back to school?
  • Do you need to consider moving into a home/rental that would reduce your overall monthly payments?
  • Are there alternatives, such as taking on another job or splitting expenses with another single parent family, that you need to consider at this point?

One of the things that I want you to know is that the ball is in your court. You determine where this goes from here on out. But unfortunately, you can’t do that if you’re ignoring your financial health, right?

So the fact that you’ve come this far in the process of getting a handle on your finances tells me that you’re determined to make the changes you need to make in order to provide for your family’s future.

So go ahead and ask yourself these questions. So much of single parenting is learning to roll with the punches and be creative in the face of adversity. If, indeed, you need to make some pretty major changes, now is the time to do it. Don’t incur any more debt where you are. Be resourceful, follow through, and do what you need to do to turn your financial situation around.

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7. Increase Your Net Worth

The next step is to determine your net worth and begin adding to it.

Determine Your Net Worth:

Your net worth is what you own minus what you owe. Programs such as Mint.com, Quicken, and Microsoft Money will calculate your net worth for you, automatically.

You can also determine your net worth simply by adding up all that you own, including all of your investments, the equity you may have paid into your home, the value of your car, and any other assets you possess; and subtracting what you owe in remaining debts.

Set Up a Savings Account:

Once you know where you stand, you’ll be ready to set up a savings account. You can do this through your regular bank, or begin investing in a mutual fund that pays interest.

Even if you can only afford to set aside $25 or $50 per month, it will begin to add up.

Before you know it, you’ll have an emergency savings plan in place, to protect you in the event that your car breaks down, or your home needs a major repair.

In addition, this regular savings will help you increase your net worth over time.

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8. Become Even More Frugal

Unfortunately, all of the work you’ve already done in steps 1-7 will have little lasting value if you don’t change your attitude toward money. Now is the time to become even more frugal and learn to live within your means.

Practice Discipline:

Stop imagining that more money is going to pour in tomorrow—through finally collecting on unpaid child support, winning the lottery, or getting a promotion. If those things happen, great! You’ll be even better off. But living as if they’re going to happen is causing you to spend money you don’t have.

Instead, force yourself to make purchases with cash only. Do not continue to pay outrageous interest payments toward credit cards for purchases you don’t absolutely need. You can get by without that new furniture, right? What else could you skip, in the interest of spending only what you have right now in the bank?

Try These Ideas:

  • Check Freecycle before you make another major purchase. Someone else may be giving away the very thing you’d like to buy!
  • When you’re getting ready to buy something specific, look for it on eBay first. I buy a lot of my clothes, new-with-tags, through online auctions!
  • Forget trying to keep up with “The Jones’s.” You already know your value; don’t get caught up trying to “prove” your worth to others by having “just the right” house, car, or appearance.
  • Do not use shopping, ever, to appease your emotions.
  • Finally, when you do go to make a big purchase, step back and give yourself a few days–or even a week–to think about it. There’s no reason to suffer through buyer’s remorse and try to justify to yourself purchases that you really can’t afford. Think it over carefully and make those purchases, when necessary, with cash.

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9. Schedule Your Own Weekly Financial Check-In

Grab your calendar and schedule a weekly financial update meeting with yourself. This is an extremely important step in managing your personal finances, and it’s one that you need to continue each and every week. During your “meeting” time:

  • Pay any bills that are due.
  • If your bank statement has arrived, take the time to balance your checkbook.
  • Check the balances of your checking and savings accounts.
  • Update your debt list to incorporate any recent payments.
  • This is also a good time to write out your grocery shopping list and check what’s on sale at your local grocery store this week (either using the store’s Web site or the sales circular that comes in the newspaper).
  • Finally, also make note of any upcoming expenses you need to anticipate and plan for.

An attitude of gratitude and finances.

 

 

References:
Irby, LaToya. Email interview. 24 Oct. 2008, 
Huffstetler, Erin. Email interview. 24 Oct. 2008. 
Sources:
Caldwell, Miriam. Email interview. 27 Oct. 2008, Hammond, Bob. “Debt Free Key: 10 Steps for Coping With Credit Problems.” Life Without Debt. Franklin Lakes, NJ: Career Press, 1995. 31-32, Irby, LaToya. Email interview. 24 Oct. 2008. 
“Spending Plan Online Calculator.” Crown Financial Ministries. 11 Oct. 2008.

Written By: Jennifer Wolf

Source: thebalance

 

 

 

Your Money: Sharing Family Getaways Without Any Cottage Conflicts

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Picture it: 40 picturesque acres nestled in Wisconsin lake country.

That is the ideal getaway the grandfather of Chicago financial planner Tim Obendorf’s wife built around 50 years ago. Then the property passed to the next generation, with ownership shared by four people.

Now they are thinking about the next generation: 11 potential owners.

Without the right planning, that paradise could turn into hell.

As brothers, sisters, parents, aunts, uncles, cousins and grandparents gather this summer at family homes to go hiking, canoeing or swimming, there will also be arguments over schedules, property taxes or mortgage costs, and upkeep duties, along with the thousand other matters that come with shared homeownership.

“Whenever a number of families are under the same roof, conflicts are going to arise,” said Jill Shipley, managing director of family dynamics for Abbot Downing, a division of Wells Fargo that handles high-net-worth families and foundations.

That is why Obendorf’s family has already logged a couple of family meetings. “It’s never going to be perfect, but you have to decide you value the place, more than the hassles of working through family issues,” said Obendorf.

It is not surprising that vacation homes have become a point of contention. Many vacation homeowners are baby boomers: They possess the bulk of the nation’s assets and are projected to hold over 50 percent by 2020, according to a study by the Deloitte Center for Financial Services. They are now beginning to retire as they hit their 60s and 70s.

The potential problems are plentiful: Is the place big enough for everybody? Who gets it on July 4th weekend? Do they split costs equally? Who cleans up, handles repairs, or stocks the fridge?

And the big one: When the owners eventually pass on – who gets the place?

How can families get the most out of shared vacation properties this summer, without either going broke or killing each other? Some tips from the experts:

Draw Up a Calendar

Just like season tickets for a sports team, some dates will be in high demand. So if the property is not big enough to handle multiple families at once – or, let’s face it, you just do not get along – pick your spots. “Establish a rotating lottery each year, and allow each family member to pick their respective dates,” suggests Kevin Reardon, a financial planner in Pewaukee, Wisconsin.

Write Down a Policy

Everyone has different opinions of what a getaway should be, so hash it out and put it all down on paper. One key item: Whether ongoing costs like property taxes, homeowner’s association dues and repairs are split equally, or allocated based on usage.

Create an Opt-out

A sure way to guarantee family resentment: One member being forced into an arrangement they do not want. If a family cottage is being passed to the next generation, allow an escape hatch that permits one member’s share to be bought out by their siblings. After all, not everyone might be able to use the property to the same extent, especially if they have moved far away.

Bring in a Pro

Siblings, of course, do not always get along. In fact, 15 percent of adult siblings report arguing over money, according to a new survey from Ameriprise Financial. To make sure everyone is heard, bringing in a trained facilitator is probably your best bet, advises Shipley.

Have the Discussion Now

“I have been in many family meetings where the kids ask, ‘I wonder what mom and dad would have wanted?'” says Shipley. So if you are fortunate enough that the family matriarch and patriarch are still around, arrange a family meeting and find out what they envision for the property in the decades to come.

Maybe they want it to stay in the family, as a legacy for the grandkids. Or maybe, because of family circumstances like far-flung siblings, it would be wiser to just sell the property and split the proceeds.

Set up a Trust

One way to take future financial squabbles out of the equation altogether: If families have the resources, they should create a trust to “fund the maintenance and ongoing use of the property in perpetuity,” says Shipley. “That is one solution to reduce conflict, and keep the property in the family for generations.”

 

 

 

Written By: Chris Taylor
Source: Reuters

Raising Kids to Be Smart About Money

Young minds are programmed to absorb and copy the behaviors around them, which means the sooner you instill proper money management skills, the more prone your kids are to become mature and responsible stewards of their own cash-flow in the future.
“Becoming financially literate early in life is fundamentally important to your financial well-being as an adult,” says Micah Fraim, award-winning CPA and best-selling author.

“I was pinching pennies at five years old, calculating the cost of grocery items per ounce, refusing to buy expensive clothes unless they were on-sale and foregoing scoops of ice cream from the ice cream shop, so I could buy multiple gallons at the grocery store,” Fraim says. “Now as an adult, I still have that same mindset and live well below my means.”

The following kid-approved strategies help you teach the core tenets of being financially savvy; in terms they’ll understand and appreciate. Consider how you can use them to teach your little ones to be smart about money.

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Find Opportunities for Lessons

At some point, your child will inevitably deplete their allowance on impulse purchases, rather than holding out for the more expensive item they’ve been asking for. Instead of giving them more money, or buying it for them, use this as an opportunity to demonstrate that money is a finite resource, which must be allocated over an extended period. Once you spend, it’s gone until you can make more.

Have a conversation about what else they could have done with that money, or how much longer they would have needed to save to get the big-ticket item they wanted. Perhaps give an example of when you spent foolishly, or better yet, saved enough money to buy something important, like your house or car.

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Demonstrate that Income Is Earned

Chores are an easy way to teach children that money must be earned. This tangible incentive for contributing to your household shows them that have to work for what they want, and even do things they may not want to do—i.e. vacuuming and doing the dishes.

The concept of having to earn your money is a positive outcome of rewarding children financially for completing chores. However, some parents find that this method doesn’t necessarily teach money management, making it a bad way to teach children how to be smart about money. The key to avoiding the latter is the set-up.

Susan Borowski, mother and author for Money Crashers, shares how she set this up with her teenage son:

“As a contributing member of the family, my 13-year-old son is expected to do certain chores around the house for free. He can earn money for tackling larger tasks, many of which he can choose, some of which he cannot; the amount he earns depends on the difficulty of the task or how long it takes. This forces us to discuss money each time he takes on a larger task.”

This shows them that they have control over how much they earn, rather than it being a given.

Secondly, keep chores focused on money management with an app like Chore Monster so children can track what they’ve done and earned. This is an easy way to establish a record-keeping system, for both chores and allowance, seeing increases or decreases in money earned over time.

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Establish a Record-Keeping System

When your child is consistently earning allowance or money for chores, it’s important that they’re able to account for what happens with that money. The more emphasis you put on this piece of the earning, the more they’ll see the value of managing their funds. They’ll start to notice wasteful spending habits and identify which pitfalls to avoid during their next allowance payout.

Designate a folder where they can stockpile receipts and a notebook where they can track all purchases. This simple method of financial reporting is an ideal precursor to balancing a checkbook, analyzing bank statements, or creating a monthly budget.

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Use Visual Aids to Your Advantage

Although the “piggy bank” is a time-honored childhood favorite, this approach to money management doesn’t allow your child to see the positive outcome of their coin stashing. For a more functional alternative, use a transparent mason jar or clear plastic Tupperware container, both of which gives them an unobstructed view of the progressive financial increase that comes from diligent and habitual saving. This tool makes the abstract concept of saving easy to see and understand.

You can also open a bank account for older children. This gives them a chance to become familiar with bank statements, which act as a visual aid. Each time a new statement comes in, they can sit down and look at how much money was put into the bank account and how that’s changed month-over-month. Many banks now offer online portals, as well, where your children can see progress represented in bar and pie graphs; these may be easier to understand and digest.

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Encourage Them to Set a Savings Goal

There’s a sense of accomplishment and empowerment in reaching a goal with no shortcuts taken or assistance received. Channel this mindset when encouraging your child to practice economical behaviors. Next time they express interest in the latest gadget, suggest they purchase it themselves and develop a step-by-step plan together, so they feel equipped for the undertaking. This process of setting aside money with a specific goal in mind reinforces the gratification gained from being smart about money and purchasing the item without any help.

It’s never too early to start teaching your kids about how to be financially savvy. Too many people don’t learn about personal finance until it’s too late — like when they’re buried in student loans — so teaching these skills early on is important for setting your children up for success later in life.

 

 

 

Written By: Jessica Thiefels
Source: PBS

7 Personal Finance Tips From Warren Buffett

Warren Buffett is generally considered to be the best long-term investor of all time, so it’s no wonder many people like to listen closely to Buffett’s words of wisdom, in order to apply them to their own lives. With that in mind, here are seven of the best personal finance lessons I’ve learned from Warren Buffett over the years.

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1. “Someone’s sitting in the shade today because someone planted a tree a long time ago”

The lesson here is to be a forward thinker when it comes to personal finance, whether you’re talking about investing, saving, or spending. When you’re deciding whether to put some more money aside for emergencies, think of a financial emergency actually happening and how much easier your life will be if you have enough money set aside.

Similarly, few people get rich quick by investing, and most people who try end up going broke. The most certain path to wealth (and the one Buffett took) is to build your portfolio one step at a time, and keep your focus on the long run.

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2. “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years”

In addition to this, one of my all-time favorite Warren Buffett quotes is “our favorite holding period is forever,” which is also one of the most misunderstood things he says. The point isn’t that Buffett only invests in stocks he’s going to buy and forget about — after all, Buffett’s company Berkshire Hathaway sells stocks regularly, and for a variety of reasons. Rather, what Buffett is saying is to invest in stable, established businesses that have durable competitive advantages. That is, approach your investments with the long term in mind, but keep an eye on them to make sure your original reasons for buying still apply.

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3. “Price is what you pay; value is what you get”

When you’re buying an investment (or anything else for that matter), the price you pay and the value you receive are often two very different things. In other words, you should buy a stock if you believe its share price is less than the intrinsic value of the business — not simply because you think the price is low.

For example, if a market correction hit tomorrow and a certain stock were to fall by 10% along with the overall market, would the business inherently be worth 10% less than it is today? Probably not. Similarly, if a stock rose rapidly, it wouldn’t necessarily mean that the value of the underlying business had risen as well. Be sure you consider value and price separately when making investing decisions.

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4. “Cash … is to a business as oxygen is to an individual: never thought about when it is present, the only thing in mind when it is absent”

One of the reasons Berkshire Hathaway not only survives recessions and crashes, but tends to come out of them even better than it went in, is that Warren Buffett understands the value of keeping an “emergency fund.” In fact, when the market was crashing in 2008, Berkshire had enough cash on hand to make several lucrative investments, such as its purchase of Goldman Sachs warrants.

Granted, Berkshire Hathaway’s rainy-day fund is probably a bit bigger than yours; Buffett insists on keeping a minimum of $20 billion in cash at all times, and the current total is around $85 billion. However, the same applies to your own financial health. If you have a decent stockpile of cash on the sidelines, you’ll be much better equipped to deal with whatever financial challenges and opportunities life throws at you.

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5. “Risk comes from not knowing what you’re doing”

In Buffett’s mind, one of the best investments you can make is in yourself and the knowledge you have. This is why Buffett spends hours of every day reading, and has done so for most of his life. The better educated you are on a topic, whether it’s investing or anything else, the better equipped you’ll be to make wise decisions and avoid unnecessary risks. As Buffett’s partner Charlie Munger has advised: “Go to bed smarter than when you woke up.”

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6. Most people should avoid individual stocks

This may seem like strange advice coming from Warren Buffett, since he’s widely regarded as one of the best stock-pickers of all time.

However, Buffett has said on several occasions that the best investment for most people is a basic, low-cost S&P 500 index fund, like the one he is using in a bet to outperform a basket of hedge funds. The idea is that investing in the S&P 500 is simply a bet on American business as a whole, which is almost certain to be a winner over time.

To be clear, Buffett isn’t against buying individual stocks if you have the time, knowledge, and desire to do it right. He’s said that if you have six to eight hours per week to dedicate to investing, individual stocks can be a smart idea. If not, you should probably stick with low-cost index funds.

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7. Remember to give back

Warren Buffett is a co-founder of and participant in The Giving Pledge, which encourages billionaires to give their fortunes away. Buffett plans to give virtually all of his money to charity, and since he signed the pledge, he has given away billions of dollars’ worth of his Berkshire shares to benefit various charitable organizations.

Buffett once said, “If you’re in the luckiest one percent of humanity, you owe it to the rest of humanity to think about the other 99 percent.” And even if you’re not a member of the 1%, it’s still important to find ways to give back.

 

 

 

Written By: Matthew Frankel
Source: The Motley Fool

Let’s Go On A Money Adventure

It’s never too early to start teaching kids the value of money, so Ally created a children’s book to help kids learn about money skills as part of their Wallet Wise financial literacy program.

Planet Zeee and the Money Tree is a tool to help parents and educators teach children the fundamentals of learning, saving and growing money. Take your child on an intergalactic adventure with the kids from Planet Zeee as they learn important money lessons from their Earthling friends. It’s never too early to teach children financial responsibility and good money habits.

Download your free copy here!

 

 

 

The Truth About Present-Day Retirement

Times have changed and so has retirement! Nowadays, retirement is no longer what people once expected. If you’re preparing to retire, the way your parents did, you might be stuck in the past and need to face present-day reality. So, what has changed in the last 10 years? Well, the factors below will shift your perspective about how you should be preparing for retirement!

First, with all the advancements of medicine and technology that we’ve had in this last decade, it’s no surprise that people are living longer. In the past, living 30 years after retirement, was actually outside the norm of an adult’s lifespan. Therefore, the 4% safe withdrawal rate that many financial planners followed was a valid rule of thumb. This guideline told retirees that if they took out only 4% of their assets and adjusted to inflation in their retirement portfolio, the risk of running out of money 30 years after they retired was very low.

But it’s no longer the case! If you’re saving conservatively for an amount that would last you around 30 years, disregard the 4% rule. People are now living past the age of 95 and a good amount of them are even retiring early. The average portfolio return for the standard investor has also decreased and is subject to more risk from the impacts of market volatility. The chances of outliving your nest egg is a lot higher these days.

Not only are people starting to live longer, the divorce rate is also significantly higher. You can no longer assume that you’ll still be married once you retire! How is that an issue, you ask? Well, a divorce could be a serious stumbling block for your retirement plan since your income might be cut in half during your golden years. Not to mention, your retirement assets might be split among you and your ex-spouse. Because of a divorce, you’ll most likely have to change your retirement strategy and lifestyle.

Have you noticed that everything costs a lot more than it used to? Some of this increase can be a result of natural inflation in prices. But, according to our government, inflation is very tame and under control. Yet, the cost of everyday goods is a lot higher and will keep outpacing inflation throughout your retirement. And it is not just everyday expenses that you’ll need to factor into your budget, there’s the added healthcare costs as well. Given the fact that there’s a good chance you’ll live longer, there are more medical issues you’ll be susceptible to. Not to mention the fact that your chances of getting injured or breaking something will dramatically increase. This means a lot more medical bills and trips to the doctor’s office! On top of that, the fact that a third of us will require some sort of assistance or nursing care, and you can see how retirement costs can skyrocket! Basically, retirement is not as cheap as it used to be.

Finally, if you think about your assets, it’s safe to assume that your home is your most valuable one. You may be able to sell it at a profit, assuming that the value has increased over the years. However, that might be a misconception! In order to determine whether or not you’ll actually get a return on your investment, you’ll need to adjust for inflation and taxes. Also, if we experience any major volatility in the housing market like we did in the past, you might not be able to get as much money for your property as you expected. Like all markets, the real estate market can be unpredictable.

So, with all of these changes, how can one successfully save for retirement? Well, my biggest recommendation for every pre-retiree that I talk to is, BE PREPARED! It’s always better to set your retirement savings goal beyond your expected amount, than below it. With the unpredictability of divorce, age, and the financial markets, it’s better to be safe than sorry. If you aim higher and save more, then your risk of running out of money during retirement will be a lot lower. Part of being prepared is to work closely with a financial planner that can guide your through your Golden Years. This ‘financial coach’ should be able to point out pitfalls that you might not have even thought of. It’s their job to make sure that you’re on track and don’t fall victim to your own wrongdoings. As well as to create a retirement game plan and an investment road-map that takes taxes and your risk tolerance into consideration.

Being prepared for retirement can be a daunting task. Especially given all the unknowns out there. But with proper preparation and guidance from a financial professional, you can glide into retirement knowing full well that you’re ready for the challenge!