It's that time of year again. The weather is cooling off, stores are offering incredible deals, and all food and drinks are being sold with a "pumpkin spice" option. As I mentioned in my latest installment of Free Time Tuesdays, Christmas is only seven weeks away! Will I be able to afford gifts for everyone this year? How can I save money or at least avoid incurring debt this holiday season? How will I handle my crazy in-laws when they start ranting about politics? Unfortunately my friends, I can't tell you how to handle your in-laws. That being said, I offer advice help you keep your finances on track during the holidays.
Fun Fact: Black Friday was named as such because it typically falls around the time of year that most companies start to turn a profit. This is also known as going "from the red to the black." Black Friday is a boon for most companies, which means that it is not always beneficial for consumers. Shoppers can easily spend more money than they intend to simply because there are deals that are too good to pass up. Retailers go to great lengths to advertise and otherwise hype their sales in order to get you to spend as much money as possible. They count on you to spend more money than you intend to in order to turn a profit! For an interesting study that looks at the science of Black Friday, please see this interesting article from Science of People. Before you buy, ask yourself: do I really need this? Did I walk into this store intending to buy this? November is the biggest month for buying and January is the biggest for returning. Buy less in November and return less in January.
A Little Help
Everyone needs a helping hand now and then. Why not sit down with a financial coach for some financial planning? I can help you develop a holiday budget that will keep you out of debt and ensure wise purchases at the same time. Together we will figure out how much money you have to spend. From there, we will allocate specific amounts of available money to your various priorities (i.e. your kids, charity, church, yourself, etc.) and you will know exactly how much you have to spend before you begin your shopping. Don't go into debt because of poor planning!
I'll Leave You With This
This truly is the best time of the year. We all gather with friends and family to give thanks and remember who and what we really value in life. The holidays can be a stressful time of year, but we are here to help you make them as easy as possible. If you would like to speak with a financial professional about your holiday budget, I would love to schedule a free consultation with you today. Phone calls can be scheduled by clicking here or by sending an email here.
In a recent Free Time Tuesday, I turned my focus on the number one killer of retirement funds: poor health. Health issues and nursing home costs can easily exceed $100,000 per year. No matter if you have saved well, costs such as this can be devastating.
So, what can you do? You can be proactive.
First, take care of yourself.
Once A Year Wellness Checkup
I get it, I get it...you hate going to the doctor and I don't blame you. Doctors appointments can be intimidating, and the last thing you need is to get bad news about your health. That being said, making the sacrifice and seeing your primary care physician at least once a year can be extremely effective in the early detection and even total prevention of disease. According to the Partnership to Fight Chronic Disease, nearly one-third of the 133 million Americans with chronic diseases don't even know if they have the disease. Additionally, this organization estimates that upwards of 100,000 lives could be saved every year simply by increasing preventative care. The tiny bit of discomfort as a result of a yearly doctor's visit now can help you avoid catastrophe in the future .
Regular Chiropractic Care
Nearly 35 million adults in the United States rely on regular chiropractic care to improve their health, and with good reason. Seeing a chiropractor can provide relief from headaches and back, shoulder, foot, and neck pain. This type of therapy can also help with annoying numbness and tingling caused by injury or repetitive motion. Most chiropractors will work with insurance companies to lower costs for their patients. Even if a chiropractor does not take insurance, visits are usually in the $40 to $50 range. For the price of a daily coffee from Starbucks, you could see a chiropractor at least once a week. That's an investment worth making!
In addition to the wonderful feeling getting a massage, there are also many tangible health benefits as well. According to the Mayo Clinic, Studies have shown that massage therapy may be helpful in treating anxiety, insomnia, sports injuries, headaches, and even digestive disorders. Most chiropractors today work in conjunction with at least one massage therapist on their staff. Why not combine a chiropractic appointment with a massage if you have the time?
I want you to be wealthy. That’s why I became a financial advisor. I want you to be healthy because there is a correlation between health and wealth. Multiple studies have shown that people who earn more money are generally healthier and have less disease than lower income earners. Aside from access to better healthcare, wealthy people are more likely to be able to afford gym memberships and have access to nutritious foods. I'm not asking you to drastically change your lifestyle overnight, only that you consider making small incremental steps to improve your health. Let's get wealthy and stay healthy together! Let’s talk some more.
Schedule a phone call with Shawn at https://calendly.com/shawnemay.
Source | Images: Wikimedia Commons
In an infographic published earlier this year by SCORE, they noted that "a retirement savings plans cost employers only 2.4% of an employee’s compensation" AND that
"48% departing employees said a lack of retirement benefits influenced their decision." (See the PDF at the end of this post.)
That says a lot right there about how easy it is to increase worker retention by simply adding a retirement plan. And, that's not the only reason to do so.
Retirement plans for businesses make sense from several different standpoints. For the small business owner, the best plans from which to start are the 401K and the Simple IRA.
A 401K plan basically allows the employees to make contributions into a retirement plan on a tax deferred basis, meaning they don’t have to pay taxes on the money when they make the contribution. They do have to pay taxes when they take money out….when they retire. But it’s a way to reduce their tax liability now.
A 401K also offers very little expense to the employee because you’re buying funds--you’re buying into whatever the mutual fund is--at net asset value which means you don’t pay a sales charge. Otherwise, if the employee were to work directly with an advisor to invest in a mutual fund, he would be paying anywhere between 3 - 6% for every dollar put in as sales charge.
Another benefit is matching contributions from the employer. Although not mandatory, the employer can set what he wants to contribute to the plan. Usually it is a percentage of the employee’s salary.
So, let’s say the employer wants to match 3%. The employee puts in 3% of their salary to the plan and likewise, the employer puts in 3% to the plan.
To the employer, there are benefits as well:
The downside: there are fees involved that are charged to the employer. These are based on the amount of employees you have. A small business--10-15 employees-- might see an annual cost of $1000. However, if you are contributing to the plan as well for yourself--up to $19,000 per year--as opposed to paying outside sales fees of 3-6%, then it’s a wash.
Another option is the Simple IRA.
There are similarities as discussed above: it's a tax-deferred plan and can be written off as a business expense. In addition, there are no fees to the employer, it is very easy to set up and has low paperwork.
I can help you determine which retirement plan makes sense for you and your employees.
That SCORE infographic I referred to earlier made this claim as well:
"40% of owners are not confident they’ll be able to retire before age 65"
Does any of this ring true for you? Give me a call and let's talk.
Adulting happens. Usually because good stuff happens. Your career gets going. You meet the ONE. You get married. You buy a home. Not all in that order, necessarily, but you know what I mean. The big stuff begins to happen in your life. You make big choices. You have RESPONSIBILITIES. Some of those responsibilities have names. Like Emma and Milo. Or Wyatt and Olivia. Or just Junior.
Starting a family, having kids, produces new scenarios into your thoughtlife. You find yourself thinking, “What if something happens to me?” You might bargain with God. “Just until they finish college”, you plead. You realize you need peace of mind. You need to know that your spouse and/or your mini-me(s) will survive, even thrive, should something happen to you. It might feel a bit scary.
You begin to talk with your spouse about things you never dreamed you would be discussing. Things like living wills. Things like power of attorney. Things like...GASP!...life insurance.
You are hard at adulting now. And I say, “Good for you.”
Here’s why. Putting a plan in place for unforeseeable events is next stage adulting. You are ready to be the partner your spouse deserves, the parent your children need.
So, what do you do next? Well, for legal matters, you should see a lawyer. Ask family and friends who they use. Drop me an email. I know a few good ones. However, if you feel confident to do it yourself, you can find and download simple online living wills and power of attorney forms. If you have dependent minors, it is important to understand the custody laws in your state and to whom your children would be entrusted should something happen to you.
For finances, find yourself a financial coach. Just as the name implies, a coach is the person who helps you reach the goal line. Specifically, a financial coach will assist you in several ways:
In Season 4 of the Big Bang Theory, Sheldon does the math on his own life expectancy and realizes he’s going to die in just a few years if he doesn’t make some changes. For starters, he decides to eat more vegetables and begin jogging. Then, after he falls down a flight of stairs, in order to stay safe, he invents his ‘virtual self’ in a robot form with which to go out into the world.
While it goes without saying that none of us is as smart as Sheldon or that a sitcom exists primarily to provide entertainment, the “The Cruciferous Vegetable Amplification” episode illustrates perfectly what happens to us all: We. Will. Die.
The comedic relief softens the blow, but the episode also drives home two things:
Rather than building your virtual self, however, I suggest something far simpler. Invest in life insurance. To be absolutely specific, term life insurance.
Adulting: Life Insurance
You may have some knowledge of life insurance or have purchased life insurance already. You may have it through your job. I want to clarify the true purpose of life insurance. Then, I want to tell you why you only want term life insurance.
First of all, here is the definition of life insurance, courtesy yours truly:
Life insurance is simply designed to replace income when someone else is relying on that.
So, when you’re married and your spouse relies on your income, then there is a need for life insurance. When you have children who rely on your income, then you need life insurance.
Next, there are two basic forms of life insurance from which to choose:
There is whole life. Whole life is essentially a life insurance policy combined with a savings account. It’s typically sold to those of us wanting to create a means to save for retirement or who are planning for a large purchase down the road, such as a house.
That would be most of us millennials.
So, you sit down with a life insurance agent and he or she suggests whole life insurance as the best way to go.
You may hear these phrases:
‘You only have to qualify for it once so you never have to worry about proving your health again.’
‘Whole life is going to pay its own premiums after a while - keep it long enough and you won’t even have to pay for it anymore.’
‘It creates a nest egg for your retirement.’
‘It’s always there for an emergency if you need it back.’
Basically, these are lies designed to get you to buy a product.
One of the biggest injustices brought upon middle America is the selling of whole life insurance by the large insurance companies. In fact, I believe it’s one of the major contributing factors to the lack of wealth in the majority of our society today.
I know it sounds absolute. I also know it’s true.
Whole life is more expensive than term insurance...way more expensive...3 to 5 times more expensive. Not only is it more expensive, whole life over promises and under performs.
So, a counter argument to that would be that term insurance expires. It does expire.
That’s the whole point: you don’t need life insurance for your entire life.
Any life insurance agent who tells you that is lying to you and trying to make money off of you.
Here is what these companies downplay.
For the first 6 -12 months, your policy won’t earn anything in savings.
Sometimes is takes up to 2 - 3 year for the company to recoup their fees. So, it’s like paying 3 years for a savings account and you’re not getting a dime added to it.
Once the policy does begin to accumulate savings, it is going to start with a rate of return somewhere between 1 and 4%. I’ve never seen one over 4. Remember the rule of 72 from my previous blog post? Do the math.
So, let’s imagine a scenario: You have an emergency and you need money now.
These policies have it written in, that if you ever need this money back, you have to request the money and the companies can (and often do) take up to 6 months to give it to you.
Here’s another scenario: You are 65 and you want to take some of that cash out for retirement, or to buy a house,
If you need that money, you must borrow it from the policy. However, it’s not a loan like you loan to yourself, where you pay interest to yourself. No, when you take a loan against the policy, the interest you pay on that loan goes to the insurance company.
If you don’t pay it back, that loan amount comes off the face value of the policy should you die.
There’s a reason these policies are 30 and 40 pages long...all this has to be spelled out, all these details. It is so convoluted and the language so difficult to follow at times. No wonder 99% of those who purchase never read the contract.
It’s a huge injustice to individuals to spend way more money for a product that is not creating any value for them. It’s causing middle income Americans to go further into debt.
If you have this kind of policy, then call me and let’s sit down together.
I will show you in your contract exactly where it says these things. I will highlight the details for you and help you understand exactly what it all means. I will help you find a better way.
It’s not your fault if you were duped. The adult thing, however, is to do something about it.
You may have heard of the rule of 72.
Also known as ‘the banker’s rule’, this rule
determines how your money doubles when invested.
The financial industry doesn’t want you to know how this works because it will...
well, wake you up. I personally believe it should be taught in every school.
That’s how important it is.
It goes like this:
The number 72 divided by the interest rate (return on investment) will equal the number of years it will take for your money to double.
For example, most people put money in their bank and they get a 1% return.
So, you divide 72 by 1
That looks like this: 72 ÷ 1 = 72
which means it will take you 72 years to double your money.
Likewise, if you put $10,000 in the bank at 1% return, it will take 72 years to get it to $20,000.
So ask yourself this: how many 72 year periods do you have in your life?
Maybe one, if you’re still real young.
I don’t know about you, but I don’t want to wait that long for my money to double.
I like this quick little video. It explains the rule of 72 very clearly.
How long do want to take to double your money?
Most banks are paying you less than 1% on your money. Then, they turn around and loan it back to you in the form of credit cards and mortgages.
If you want to be mindful of where you invest your money, 1% in the bank is probably not going to get you where you want to be.
So what if you raise the percent interest to 6%? You will double your money in 12 years. How many 12 year periods do you have in your life? Quite a few.
Raise the percent interest to 9% and you are doubling your money every 8 years.
This will really help you to grow your wealth. This will allow you to become independent.
I get asked this all the time: Where am I going to get a 9% return?
Double Your Money Faster
That sweet spot of creating wealth--somewhere between the 6 - 12% range--
is going to really increase your odds of being financially free.
There are several areas where you can realize these kinds of returns.
How much money do I need to begin?
Not as much as you might think.
Let’s take the stock market, for example. You can begin with as little as $500 to $1000. Then, you add to it as you go. Certainly there are ins and outs to investing in stocks. What to buy. When to sell and when to buy.
It can quickly become overwhelming, I know. However, think about this:
The key point is that you want to begin.
To be a smart investor. To build your wealth so you can reach your goals. To retire.
To send your kid to college. To start that business or non-profit. To travel.
To give away. Whatever your dreams, visions, goals, you must begin at some point to build the funds to make them happen.
...you can simply put it in the bank, where you’re going to pay more in taxes than you’ll ever earn.
There’s a reason Warren Buffett is Warren Buffett
You’ve probably heard of billionaire Warren Buffett. He is often quoted because he is a natural genius when it comes to investing. He made his first profit when he was five years old selling cola drinks from his dad’s store.
I bring up Mr. Buffett, not because he is quoted so frequently or because he is a billionaire. I bring him up because he is a billionaire who started when he was five years old selling sodas he bought from his dad’s store and selling them for a profit.
I bring him up because he and his wife lived in a small, shabby apartment when they were first married. I bring him up because he did not begin as a billionaire.
Warren Buffett is a billionaire today because he followed the rule of 72.
The story goes that when Buffett was 26 years old, he quit his job in New York to return to his hometown of Omaha, Nebraska. He wanted to begin an investment fund. He visited every one of his father’s friends, literally knocking on their doors wearing his one, old tatty suit. Now, this was middle America in the 50s and they were people who knew him as a small boy. So they gave him some time.
And with that time, Buffett began by explaining the rule of 72. They did not all listen. They did not all invest with him. But some of them did. And those who did?
They all became millionaires. Quickly.
(Click here if you are interested in a timeline of Buffett’s life.)
Earlier I said I did not bring up Mr. Buffett because he is so quotable. He is well known, however, for his quotes. Because they are true.
I want to wrap up this post with this one of his.
“Risk comes from not knowing what you’re doing.”
After reading this blog post, you now know something. You now know the rule of 72.
Will there always be risk in investing? Sure. There’s risk in any action you take.
But I believe there is much more risk in inaction.
Reduce the risk in your financial future. Be prepared. Take action.
I’m always ready to sit down if you want to know more.
Give me a call and let’s take some time to connect.
Click here to open my calendar and schedule a call with me.
Today I visited Operation Heartfelt with my good friend, Jessica Banfield of USA Benefits Group. Operation Heartfelt distributes food in backpacks to Hernando County school children. Please watch and consider helping Jessica and myself support this amazing organization. You can also learn more by visiting my FB page.