Five Savings Secrets

How to increase your savings without significantly lowering your quality of life.

What’s the problem? In general, when it comes to a lack of savings, it is often not a question of low income, but a matter of high spending. While it’s very true that often we’re put into situations where we must spend money (due to loss of employment, health care bills, home repairs, etc.), for many of us our excessive spending is merely a habit we must learn to break … or at least control.

But … where do we begin? Many people would like to reduce their spending and increase their savings, but it seems like such a monumental task that they simply don’t take any steps in the right direction. Sound familiar? If so, don’t shrug it off any longer. Saving money can begin right now, and you can start in small ways. Here are several easy ways to increase your savings …

Secret #1: “Put it on the mantle”
My grandmother used to use that phrase when I was making a major decision, generally related to a purchase. She would say “put it on the mantle”, meaning that I should set it aside and think on it. That’s great advice, Gram! When you’re considering a large purchase (like a car) or even small (like a pair of designer shoes), try putting it aside, even for just a week or two. Allow yourself time to think it through. If, after that time, you still feel it’s a good idea, proceed … knowing it’s not just an impulse buy. If not, don’t. Most of us have made at least one (and probably more) purchases of this nature that we have later regretted. What if you had the money back for every such purchase? What if that money was collecting interest in your savings account? It could really add up.

Secret #2: Pay yourself first
When you get a paycheck, you likely pay your rent first, your car payment second, your insurance third, and so on and so on. Somewhere at the VERY BOTTOM of your list is YOU. Why are you at the bottom? Probably because you know YOU won’t penalize YOU if YOU don’t make a payment to YOU. My point is this … hold yourself accountable. Start by putting money into your savings account FIRST. Take care of YOU before anyone else, so there are no excuses at the end of the month. Unless your monthly bills are higher than your monthly income, you should be able to determine a set, comfortable amount that goes into savings every month … no ifs, ands, or buts. Stick to it!

Secret #3: Shop smarter
We’re all in a hurry, so it’s easy to grab items like snacks or coffee when convenient. But think about it … if you stop at a convenience store for a 12 oz. coffee every morning, that’s probably about $1.75 you’re spending every day … that adds up to over $600 every year! What if, instead, you bought a $10 coffee maker for your office and bought your coffee grounds in bulk? How much money could you save? And how could interest affect what you’re saving? If you saved just $600 per year in a basic savings account with a 5% rate of return, after 30 years you could potentially have more than $30,000 … and that’s after taxes! Start paying more attention to those “little” expenditures. They can really add up!

Secret #4: See your destination
They say that hindsight is 20/20. Think about this: if 10 years ago you began saving just $200 per month in a shoe box under your bed, then today that shoe box would have $24,000 in it! Unfortunately, you can’t go back in time. But you CAN look ahead. Use a financial calculator (there are free calculators available online) and start plugging in numbers … calculate where you could be in 20-30 years depending on how much you’re willing to save today. Once you know what you COULD achieve, saving money could become your favorite pastime. A competition (with yourself) to see how much you can increase your future net worth. Have fun with it!

Secret #5: Ditch the shoebox
Speaking of that hypothetical shoebox under your bed … the money in that box might collect dust, but it won’t collect interest. And while I seriously doubt that you keep money in a shoebox, take a moment to consider WHERE and HOW you save your money. While a traditional savings account can earn you interest, there are other options available to you that could potentially earn you more. Perhaps you’ve heard people speak about money market accounts or CDs, but you’re not sure what they are or if they’re right for you. It’s a good idea to learn all you can and make informed decisions about your money.

While saving money is important, where and how you choose retain and grow that money can have a significant impact on your net worth in the years to come. If I can help you in any way, please contact me at 1-866-786-2521 or at bill@myretirementsuccess.com

Automatic Rebalancing – What It Is, Why It Matters

Why automatic asset reallocation may help your portfolio.

If you participate in a 401(k) plan, or if you have a variable annuity, an ETF, or an IRA mutual fund, you may have an option to automatically and periodically have your assets “rebalanced.” In fact, a 2007 survey by Hewitt & Associates found that 42% of large employers offered this option. Why might this be important?

An automatic check-up for your portfolio. Here’s why. When you first contributed to that retirement plan, ETF, IRA or variable annuity, there was a specific asset allocation in mind. Your assets were fractionally allocated across different investments – a certain percentage in this class, a certain percentage in that class, and so on. You did this in a way that suited your tolerance for risk.

But over time, those percentages subtly change. Some investments outperform others, and as a result, the asset allocation may stray from the targets you once set.

Automatic rebalancing may remedy this.

A way to keep you on track. How does it work? Well, just as an example, let’s say you have assets initially allocated in a typical 60/40 ratio: 60% in stocks, 40% in non-stock market investments. If stocks do poorly and, say, bonds do well, that 60/40 balance may approach 50/50. You now have a greater percentage of your invested assets than you initially wanted in a certain investment sector.

Now you may be thinking, “If that investment sector is doing well, what’s the problem?” The problem is that you are drifting away from the guideposts you started investing with. If more and more of your assets end up in one investment class, your portfolio becomes less and less diverse and more heavily weighted in one category. So your risk exposure may increase, or conversely, your portfolio assets may not be poised to earn a large enough return to meet your goals.

The age-old idea behind automatic reallocation. Five words really sum it up: “buy low and sell high.” In the rebalancing process, some of the assets within an overachieving investment category are sold off and a bit more of the assets in an underachieving investment category are bought in order to regain the original asset allocation. This is the other important effect of automatic rebalancing.

Should you opt for automatic rebalancing? If you want a better understanding of the potential benefits of automatic asset reallocation, or if you just have questions about your retirement plan or investments, give me a call at 1-866-786-2521. I'll be happy to talk with you.

The Rules To Get Your Rebate

Don’t miss out on the money the government wants to give to you.

This year, most married taxpayers (filing a joint return) are poised to receive a rebate of $600 or more as a result of the economic stimulus plan that President Bush signed into law. But getting this great rebate isn’t automatic. There are procedures to follow before you can find that check in your mailbox or those added funds in your bank account.

You must file a return. The key thing to remember is: you must file a 2007 federal income tax return to get a rebate.

If you are retired and your taxable income is very low, you may not have filed a federal tax return for years. Do it this year, or wave goodbye to your rebate.

If you are a low-income retiree … you may think your earned income is too low to qualify for a rebate. But if you received at least $3,000 in earned income, SSI or certain veterans' benefits in 2007, you qualify for the minimum rebates of $300 for singles and $600 for married couples – even if you aren’t projected to owe taxes for 2007.

Retirees with 2007 earned income of at least $3,000 in wages, Social Security benefits, certain veterans' benefit payments and railroad retirement benefits should report this amount on Line 20a on Form 1040 or Line 14a of Form 1040A. Aside from that, on your 2007 1040 or 1040A Form provide your name, address and Social Security number, and write the words "Stimulus Payment" at the top of the form. Follow these steps, mail it in, and you are eligible for a rebate. (If you’ve already filed a federal return stating that you earned less than $3,000 in 2007 but have since discovered that you qualify for a rebate, you can file an amended return using Form 1040X. )

If you are a middle-income retiree or a high-income retiree … file your federal tax return as usual. If you have earned more than $3,000 in qualifying income, the IRS will simply process your 1040 Form and issue a rebate. If your adjusted gross income is more than the caps of $75,000 for single filers and $150,000 for joint filers, you may get only a partial rebate or no rebate at all.

Make sure you file on time. The IRS will begin issuing these rebates in May, but if you file after April 15, your rebate check may arrive weeks or months later. If you owe back taxes or child support, the IRS may garnish part of your rebate as it sees fit.

In the coming weeks, the IRS will send you two notifications. The first will explain the rebate program, and the second will confirm the amount of your rebate. (The second mailing will probably arrive 7-10 days before you get your rebate check, or at about the same time a direct deposit rebate is made.)

Choose direct deposit. If you want your rebate faster, this may be the way to go. You’re probably aware that the IRS will be bogged down this spring trying to process returns and conventional tax refunds, a delay stemming from the well-publicized, last-minute “patch” of the Alternative Minimum Tax in December. The IRS estimates the direct deposit option will bring your rebate to you a week faster.

As always, if I can help you in anyway, please call me at 1-866-786-2521.

The Top 10 Reasons Not To Plan For Retirement

A different kind of Top Ten list.

You probably read or hear about some “Top Ten” list nearly every day. But take a moment to read this one. This list is different, and probably not the kind of list you’d expect a Financial Advisor to write.

Reason #10: “I’m too busy”
I can’t tell you how often I hear this excuse. So many people want to plan for a better retirement, but they don’t have time. They think they’ll take care of it tomorrow, or the day after that … and before they know it, several years have gone by. The best advice I can give you is to stop procrastinating and start planning today.

Reason #9: “It’s too soon”
I don’t know how this happened, but many people have adopted the notion that you don’t have to start planning for your retirement until you’re almost there. This is totally incorrect. The truth is, the sooner you start planning, the better chance you stand of having the kind of retirement you want. It’s never too soon. Many people start planning in their early twenties!

Reason #8: “It’s too late”
If you’re already near or past your retirement eligibility date, you may think that whatever you’ve got is what you’re stuck with and it’s too late to do anything about it. Think again. If you’re unsure of what your options are, speak to a professional. Even if you’ve already retired, it’s important to consider how you’re receiving income and how long it will last. It’s never too late to revise your income distribution strategy.

Reason #7: “I don’t need to”
I’ve heard this excuse many times and it always baffles me. Many people think that because they’ve been diligent about contributing to a savings account, they’re all set. While saving for retirement is good, you also need a plan for income distribution once you enter retirement. Are you certain that what you’re saving will be enough? Have you considered your distribution plan? What about taxes? What about inflation? And are you sure your money will be properly invested? There may be other, better options for you and it may prove worthwhile to look into them.

Reason #6: “I don’t have enough money to get started”
This excuse seems marginal at first glance, but there is some truth behind it. You need to have money to save or invest money. However, unless your bills are exactly equal to or greater than your net income, you DO have enough to get started. Starting small is better than not starting at all, and if you plan well, you’ll eventually have more to work with.

Reason #5: “My finances are a mess”
This is all the more reason to seek out an advisor who can help you sort through and understand your assets. Perhaps you have a 401(k) from a former employer that has not been rolled over, a couple of savings accounts, a trust from a deceased relative, some stocks that your parents bought in your name when you were younger … a circumstance like this can be confusing, but leaving it as it is won’t improve the situation. Consider speaking with an advisor who can look at your complete financial picture, help you to understand it, and help you to develop a plan to make your “financial mess” work for you.

Reason #4: “The Government will take care of me”
The bottom line is this … there’s a chance Social Security may not be available when you retire, and even presuming it is, it may not be enough to provide your ideal retirement income. If you’re planning to retire on Social Security alone, I would advise you to create a back-up plan at the very least.

Reason #3: “Between my savings and my 401(k), I’ll be fine”
Saving for retirement without an income distribution plan can be a mistake. How will you use that money once you have it? And while you may think you’ll have everything you’re going to need, have you considered inflation? Taxes? And furthermore, some people are living past 90. Will your assets last that long? If you outlive your income, what then? It’s a good idea to look ahead and plan lifelong income.

Reason #2: “I don’t want to think about it”
Many people procrastinate simply because the thought of discussing financial matters (or growing old) is unappealing. I can certainly understand that. But consider this … if you bite the bullet now and put a firm plan in motion, you may not have to think about it again for quite some time.

Reason #1: “I don’t know how”
If you knew everything there was to know about financial planning, you’d probably be a financial advisor yourself. While it is possible to do everything on your own, that generally involves a great deal of research and a huge time commitment. If you’re putting off retirement planning because you don’t know how, consider speaking to a professional who does.

These are just some of the reasons why people don’t plan for retirement … but these are reasons, and not excuses. If you have retirement goals you want to reach, I can help. Call me at 1-866-786-2521. The sooner the better.