September 3rd, 2013
Unexpected financial expenses seem to crop up at the least opportune time. The car needs a new transmission, you lose your job, or a parent or child becomes ill and you need to reduce your hours at work in order to care for them, taking an unexpected reduction in income. All of these expenses, and others, can drain savings quickly.
Why have an emergency fund?
You can resort to using credit cards to pay for emergency expenses however, worrying about paying down your growing credit card balance can lead to further stress during an already difficult period. You will experience “one step forward and two steps back” where it’s hard to see any progress.
How to create an emergency fund.
The better choice is to establish an emergency fund now. Determine how much money you want to set aside in the emergency fund and set up an automatic deposit into that account once a month for a small amount, so that you establish the habit of adding to the emergency fund. If you have finished paying off a monthly loan of some kind, consider immediately setting that money aside for the emergency fund so you don’t use it for daily expenses. Set up an account with your bank that is not easily accessible so there is less temptation to use the money.
Remember a large screen TV or a vacation is not an emergency. If large items such as these, are on your wish list, start saving for them separately and only use your emergency fund for true emergencies.
How much should you have in an emergency fund?
The rule of thumb is to keep six to twelve months of living expenses in savings for emergency funds.
Whereas a dual income family could get away with six months of income in savings, if you are a single income household, you would want twelve months of income saved.
If you and your spouse work for the same company, there is a greater risk of you both losing your jobs at the same time, therefore it would make sense to keep twelve months.
Having an emergency fund will reduce your stress during periods of difficulty because you can tackle the situation and not worry about the financial aspect.
August 19th, 2013
Planning for retirement is not a subject you dwell on every day until you realize it’s closer than you think. However, there are various components for you to consider when planning for your “golden years.” An important piece of this planning requires you to calculate your current spending so you can make wise financial decisions for your retirement years.
How much do you spend?
Some families track their spending using software, online tools, a homemade spreadsheet, or simple paper and pencil. If you have been tracking your spending, congratulations! You have some solid spending history to use when estimating how much you will need to spend each year to pay your bills and do the things you want to do to enjoy your retirement.
What if you do not track your spending?
Many families that are easily able to pay their bills and accumulate healthy balances in their savings and investment accounts have never felt the need to track their spending. However, as they get within a few years of retirement they realize they do not have any spending history to use for projecting whether they can afford to retire soon. They do not know if their investments will provide enough income to support them with the same lifestyle they have always enjoyed. Fortunately there is a solution.
How to calculate your current spending?
Before you decide to turn off your income from employment, you want to be confident that you know how much money you need for retirement. What you don’t want to do is not have enough income at the time of retirement to provide for you and your loved one. Therefore, it is best to use pure facts when calculating your current spending.
- You make A.
- You give B to the government for taxes.
- You save C.
The rest is what you spend.
A – B – C = what you spend
It’s that simple. Don’t let the fact that you have not been tracking your spending delay your retirement planning. You can use this simple calculation to estimate how much you spend currently. And track your spending going forward so that you can more accurately estimate your spending needs in retirement.
Tracking your monthly spending today is important to do in the last few years before retirement. If you haven’t started, it’s okay. Start now. When you have an accurate picture of your expenses today, you’ll be better off in your future.
October 26th, 2012
An excellent way to save
What is my favorite feature of investing in your retirement plan at work? No, it’s not the employer match, well alright it is the match, but a very close second is the fact that it is automatic!
Because companies are doing away with pension plans, saving for retirement can seem like an impossibly huge task. But as the old saying goes “How do you eat an elephant? One bite at a time.” Having a little money taken out of each paycheck and deposited automatically into an employer sponsored retirement account is taking that one bite at a time. Eventually you will get that Retirement Elephant eaten.
Change in contribution limits
Each year the IRS announces if there are changes in the maximum contribution limits to employer plans due to cost-of-living increases. Why is that important to you? Because you can take bigger bites; and get that Retirement Elephant eaten sooner. The catch is, depending on the instructions you set up for 2012, you may need to take action and contact your Human Resources department to let them know that you want to increase the amount you are investing in your retirement plan. This is the month that HR usually wants to hear from you about these decisions, so the timing is right.
401(k), 403(b), 457, and SARSEPs
The 2013 maximum contribution limit is $17,500, an increase of $500 over 2012. Be sure to contact your company to take advantage of the opportunity to put more money into your plan next year! If you are 50 or turning 50 in 2013 you have the opportunity to add additional money to your employer sponsored retirement plan each year in the form of a Catch-up Contribution, the amount for 2013 is $5,500 the same amount as last year. However, please check to make sure you are taking advantage of this opportunity; it is common for me to find that new clients are not doing this, and have often never even heard of a Catch-up Contribution. But now you have, and you can take full advantage of it!
The maximum contribution limit also went up for the SIMPLE, it will be $12,000 in 2013 whereas it was $11,500 in 2012. If you are 50 or turning 50 in 2013 the Catch-up Contribution for SIMPLEs in 2013 will be unchanged at $2,500.
What to do
Check to see what you are contributing to your employer sponsored retirement plan, if you want to “put the max in” as I so often hear, make sure that you do that by adjusting the numbers for the new 2013 increases.
If you are over 50 or will turn 50 in 2013, make sure that you take advantage of the Catch-up Contribution which allows you to put additional money in the account.
If you are not “putting in the max” make sure that you are getting at least the full amount of the match from your company. This needs to be balanced with having an emergency fund/savings account.
Once you have gotten to the point of getting all of the match, and establishing the appropriate emergency fund for your family, you need to evaluate all your goals and make sure that you deploy any extra cash among those goals in a way that fits with your priorities and values.
A hint for increasing your retirement savings – each time you get a raise, increase your retirement account contribution by one percent. You will not even feel the loss, because it is money you didn’t even have yet.
Take action today, and you will be that much closer to retirement!
September 14th, 2012
What is the A+ program?
The Missouri Department of Higher Education has an offering called the A+ Scholarship Program. If your High School participates in the program, a student can enroll, and by fulfilling certain requirements can earn reimbursement for tuition and general fees for a two year degree at a participating community college or vocational/technical school.
Sign up for the program even if you do not plan to go to community college!
Getting your two year degree and transferring the credits to a four year college is a terrific way to save money on college costs. However, if that isn’t in your plans, and you are going to go straight to a four year college, and you are a Missouri student, you should still enroll in the A+ program. Why? Because there are many four year colleges that are offering scholarships to A+ qualified students, but your high school transcript must indicate that you are an A+ qualified student. Also, in the summer after high school graduation and before college, some students use the A+ scholarship money take general studies courses, such as math or language arts, at the community college to get a jump start on college, and doing so in smaller more intimate classroom settings, for topics that may be more challenging for them.
What are the requirements to qualify while in High School?
According to the Missouri Department of Higher Education (MDHE) website:
- Have a written agreement/enrollment form with your school.
- Have a GPA of 2.5 on a 4.0 scale.
- Have an attendance record of at least 95%.
- Graduate with at least 50 hours of unpaid mentoring/tutoring of students, in our school district this is organized by the school.
- Beginning with the class of 2015, have achieved a score of proficient or advanced on the Algebra I end of course exam.
- Must apply for financial aid using the FAFSA form.
- Attend an A+ school for 3 years prior to graduation; exceptions are made, see the MDHE website.
- Maintain a good record of citizenship and avoid drugs and alcohol.
- Be a US citizen, permanent resident, or lawfully present in the US.
What is and is not covered
The scholarship covers tuition and general fees but does not pay for books, supplies or lab fees.
It is quite a good deal and an opportunity for families to save thousands of dollars if they use it exactly as it was set up and go to a community college or technical/vocational school. Or save hundreds if not thousands of dollars, depending on the type of scholarship you get, at the four year colleges that are offering A+ students money to skip the community college and come straight to them.
June 29th, 2012
“We have a lot of cash in our savings account. Should we pay off our mortgage or invest the money for retirement?”
When you give financial advice “by the hour” you get asked questions like these. And the answer is… it depends.
It depends on;
* your attitude about owing money
* how much of a nest egg you have accumulated for your retirement because you will need cash to pay bills after you stop working and therefore stop getting paychecks
* what other financial goals you have and if you are on track to achieve them
* what interest rate you will pay on the mortgage and the assumed rate on the investments, and other assorted mathematical inputs
“Should we pay off our mortgage?” is a question that is more than a math calculation. After the math is figured, take it a step further and think about how you will feel during retirement with and without a mortgage payment.
No mortgage in retirement
I have never heard anyone say they regret paying off their mortgage. And there are ways to tap into a portion of the home equity if needed. However, many retired folks have shared with me that they wished they had been wiser in their approach to mortgage debt so they didn’t have a mortgage while retired. I have sometimes noticed during an initial meeting when I meet with a couple who have a mortgage, they seem more concerned about market fluctuation than other couples who do not have a mortgage.
Mortgage in retirement
There are a few couples that I can remember meeting with that have a mortgage in retirement and they were comfortable with it. They outlined the math in a logical way and how it made sense for them. They liked that it left them with more available cash in retirement. I agreed with them, that it seemed to work for them.
When to pay it off?
If your last mortgage payment is due after the day you would like to retire, jump on one of the many financial calculator websites and figure out the extra payment you would need to send each month in order to time your last mortgage payment with your retirement date. You might be surprised to find how little additional money needs to be sent in order to pay the loan off by your retirement date. How great would that feel? Be sure to call your mortgage servicer to be certain that you do not have a pre-payment penalty, pretty unlikely, but just in case. Make sure that you can still afford to make enough of a contribution to retirement accounts so that you can retire on time! And that you are able to save for any other financial goals that are important to you.
What not to do
What I think is unfortunate, is to see a young couple that has heard that it is good to pay off your mortgage sending every available dollar to the mortgage company – with no emergency fund! And they have not been saving in the company retirement plan, no savings for vacations or other goals. A balance is needed. Get the emergency fund created first! Then create a prioritized list of goals and send money to each based on your priority.
The mortgage problem
The mortgage problem of having a large mortgage when retirement time rolls around isn’t usually created with the starter home, it usually happens when people move up into a series of bigger and bigger homes or take out cash to remodel. That is when it is especially important to check to see if you can afford to pay the mortgage off by your target retirement date.
Write down the approximate date that you would like to retire.
Write down the date that your mortgage payment will be done.
If the mortgage will be done after you retire, satisfy your curiosity and find out how much extra you would need to send in to pay your mortgage off in time for retirement.
You could call your mortgage company and ask them. Or you could use an online mortgage payment calculator and the amount of principal left on your loan, how many months or years until retirement, the interest rate on your loan and find out for yourself. Just remember that the monthly payment it quotes you is just the principal and interest, if you have your taxes and insurance escrowed you would add that on top of the principal and interest.
Invest just a few minutes, and you could be on track to having your mortgage paid off in retirement.
April 13th, 2012
The MOST – Missouri 529 College Savings Plan recently announced that they are offering a dollar-for-dollar match up to $500 per year per account up to a $2,500 lifetime maximum for qualified accounts. This is a privately funded grant, rather than funded by Missouri taxpayers.
Qualifying for the MOST – Missouri 529 College Savings Plan Matching Grant
In order to qualify for the matching grant, you must meet certain criteria. Quoting from the website www.most529grant.org :
* Applicant must be a parent or legal guardian of the beneficiary.
* Both you and the beneficiary must be Missouri residents.
* You must be the account owner of a MOST 529 account.
* The beneficiary must be 13 or younger (when you are first approved for the matching grant).
* Your household Missouri adjusted gross income must be $74,999 or less.
You must submit an application by June 30th. You will be notified by August 31st if you receive a matching grant. The matching funds will be applied to the account January 31st. You must reapply each year.
For details and to get the application, go to www.most529grant.org.
Saving for college
There is $125,000 available for the matching grant program per year over the next four years for a total of half a million dollars. With the high cost of college constantly in the news, and frequently on the minds of parents, this seems like a no brainer if you are a Missouri resident with a child under 13 and an income under $75,000.
College can be so expensive; it makes sense to create a nest egg to offset as much of that cost as you can. People are often surprised to learn how much small regular investments can grow to over time. If you save $40 a month (think of it as just $10 a week) for 18 years assuming 6% annual growth you would have $15,611 for college. Length of time invested is such a terrific boost to your investment, the longer you have the better. However – being invested is the most important factor. The key is to get started.
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