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 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.
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.
A lot of things have happened to me in the first 30 years of my life...things I could never have seen coming. I am one of those fortunate people, however, whose loved ones cared enough for me to take care of me by making wise financial choices to provide for my future.
Read more about my early life on my ABOUT page.