January 23, 2017
In a youth-oriented culture, it is easy to feel a little over the hill by the time you turn 50. When it comes to building wealth though, your 50s are the prime of your life - a period when you have a chance to emerge from debt, enjoy your peak earning years and start to see your investments make a serious contribution to your net worth.
To take advantage of this crucial phase of your financial life, it is important to understand some key factors that can help you make the most of your 50s.
Personal finance checklist at age 50
As you look over your financial situation once you turn 50, here are some things you should attend to:
1. Shift more heavily from borrowing to saving
Early in your career, accumulated savings are likely to be modest and it seems you are taking out one loan after another: student loans, car loans, home mortgages, etc. By the time you reach age 50 though, you should have greatly reduced your debt burden. In its place, you should see a growing portfolio of retirement assets. This is the type of trend that can feed on itself: the more you retire your debt, the more of your monthly budget can go to savings rather than loan payments.
2. Estimate your Social Security benefits
The U.S. Social Security Administration will provide you with a free projection of your retirement benefits based on your career earnings so far. While this will remain subject to change based on your subsequent earnings, by age 50 you should have enough of a track record to get a sense of what contribution Social Security will make to your retirement income. This projection can also help you start to think seriously about the pros and cons of retiring early or working longer to achieve the maximum annual benefit.
3. Reassess your retirement goals
In addition to Social Security, look at your other retirement savings and see how much income they project to provide. Knowing where you stand will help you make more concrete plans about the future, including when to retire and what kind of lifestyle to expect.
4. Use catch-up retirement saving opportunities
Looking at your projected Social Security benefits and your savings accounts relative to your goals may tell you that you have some catching up to do. Fortunately, the government gives you some catch-up opportunities in the form off additional tax-deferred retirement contributions to 401(k) or individual retirement account (IRA) plans that you can make once you turn 50. Use this as an incentive to start making extra contributions.
5. Keep your asset allocation aggressive
People often feel their investments should get more conservative as they get older, but age 50 is too soon to throttle back to a less growth-oriented asset allocation. At that age, you are probably still more than a decade away from retirement, and still have an investment time horizon of some 30 or so years stretched out ahead of you. Plus, if you are contributing heavily to your retirement plans, this positive cash flow will help smooth out some of the volatility from growth investments.
6. Update your will
If you first made a will when you started your family, you might find things are radically different by the time you turn 50. Your kids may be on the verge of adulthood and your net worth may be substantially greater, so it is a good time to take a fresh look at what provisions you've made for your survivors.
7. Don't be shy about discounts
Turning 50 makes you eligible for AARP membership. Don't let that make you feel old - just look at the discounts available, and think of it as an advantage you've earned.
8. Take advantage of senior checking accounts
Some banks offer checking accounts for older customers that have no monthly fees. Eligibility is often set at age 50, and with free checking getting harder to find these days, signing up for one of these accounts can be another advantage of getting older.
9. Survey your career opportunities
Since these can be your peak earnings years, you should assess whether your current employer is the best place to capitalize on those years, or whether you could do better somewhere else. To think more defensively, you should also take an honest look at whether your job skills need freshening up so your employer does not view you as out of date.
With proper attention to your finances, this could be your greatest decade for wealth building. After all, it is too late for procrastination and too early for slowing down. This is prime time.
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December 16, 2016
How many times have you resolved to lose 15 pounds or go to the gym more often? Maybe it's time to make resolutions that you can keep for a better 2017.
The start of a new year is a great time to begin an emergency fund, create a household budget or pay off debt.
Several financial planners share their tips on what resolutions and steps consumers can take today that will result in a healthy financial year in 2017.
Here are 15 steps to prepare your finances for next year:
1. Start/build an emergency fund
Wilson Moy, director of financial planning and senior trust officer at AAFMAA Wealth Management & Trust, says that the best move consumers can take is to resolve to build an emergency fund next year.
As its name suggests, an emergency fund is an account -- typically a savings account -- that consumers can tap to pay for life's unexpected events, such as a broken water heater or a blown transmission on the family car.
2. Aim to save 6 to 12 months of expenses
Moy says traditionally, financial experts have recommended that consumers keep three to six months of living expenses in their emergency funds. But that might not be enough today, Moy says.
Instead, Moy recommends building an emergency account that holds six to 12 months of living expenses.
"Things change so fast today," Moy says. "If you're the single wage-earner for your household, what would happen if you lost your job? Three to six months might not be sufficient. Without that emergency fund, you might be forced to make big changes, such as selling your home, if you do lose your income for any period of time."
3. Create or adjust your household budget
Drafting a budget for your household doesn't sound like fun. But Craig Robson, senior vice president of wealth management at the Atlanta office of Merrill Lynch, says doing so is a key step in having a healthier financial year in 2017.
4. Update your monthly income in the budget
Creating a household budget isn't overly complicated. Start by listing your monthly income. Account for any increases in salary or bonuses your employer mentioned for next year.
5. Adjust fixed monthly expenses
Then list your fixed monthly expenses, items such as your monthly mortgage payment, car payment and estimated utility bill. Note if there are any modifications in these costs, like a new addition to the family or the additional expenses of a longer commute.
6. Set aside money for other household costs
Finally, determine how much money is left over. This is money that you can earmark for entertainment, weekly groceries and eating out.
7. Put money toward financial goals
Use the remaining money to achieve your financial goals, such as saving for college or building an emergency fund.
Once you know how much money is coming into and out of your household each month, you can take steps to either reduce your expenses or boost your monthly income to meet your specific financial goals, Robson says.
"Studies show that those who create budgets are more likely to achieve their financial goals," Robson says.
8. Target high interest debt
Kevin McCarthy, financial advisor division manager with SunTrust Investment Services, says before making any big financial moves, consumers should resolve to pay off any debts that come with high interest rates.
This usually means credit card debt, which can come with interest rates of 20 percent or higher, making it the most expensive debt you can carry.
9. Limit dependence on credit cards
Kathleen Hastings, portfolio manager with FBB Capital Partners in Bethesda, Maryland, says the biggest mistake people make is running up their debt. The best resolution you can make, then? To use your credit cards wisely.
Consider only making purchases with your cards that you can pay off in full when your bill comes due. Using your credit cards in this way is smart: You don't have to carry loads of cash with you and you can improve your credit score by paying off your debts on time each month.
"Resolve to stay out of this kind of debt," Hastings says. "If debt gets out of control, it's really tough to eliminate. It compounds. It snowballs. The next thing you know, you are $30,000 or $40,000 in debt."
10. Look into transferring debt to a low interest card
The high interest of certain credit cards make them hard to pay off debt. Some consumers may want to look at the option to transfer their balance to a low or 0 interest credit card. Though the promotional interest rate will not last, they can use this opportunity to pay down the debt. Before moving your balance, compare different cards and be aware of transfer fees.
11. Pay off credit card debt
Financial pros recommend several ways to pay off your credit card debt. Start by paying extra each month on the card that has the lowest balance. Once you pay that off, you can then take the extra cash and begin paying off the card with the next-lowest balance.
Or begin paying off the card with the highest interest rate first, no matter how small or large its balance is. Once you pay off that card, take on your credit card that has the next-highest interest rate.
12. Prepare to max out retirement savings contributions
Kevin Houser, manager partner with Allentown, Pennsylvania's Houser & Plessl Wealth Management Group and one of the authors of "The Book on Retirement," says resolving to maximize the contributions to your retirement plans -- whether 401(k) plans or individual retirement accounts -- is a step that everyone should make.
Most people know this. But they instead let emotion, such as worrying that they'll miss those extra dollars being funneled from their paycheck to their 401(k) plan, over numerical facts dictate their decisions.
13. Raise retirement plan contributions
Instead of devoting, for example 12 percent of each paycheck to their 401(k) plan, they instead contribute only 8 percent. That ends up costing them big dollars come retirement time.
"So often, emotions drive our retirement decisions," Houser says. "The black-and-white of the numbers is easy. People know they should contribute as much as possible to their retirement plans. The underlying shade of grey that comes in when emotions get involved is what clouds our judgment."
To calculate how much to increase contributions to meet your goal, use a retirement savings calculator.
14. Review your insurance
If you haven't had a chance to look over your insurance, from health to life insurance, make sure to go over costs, deductibles and other expenses for next year. For example, you may want to increase your amount of life insurance if your income is now higher.
15. Consider housing options
Are you renting when you should be buying a home or find yourself in a place that is too small? Assess your current living situation, research new housing options and calculate whether you have the finances to make a move. If not, grow a savings account to relocate or see about refinancing to lower mortgage rates.
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December 8, 2016
Budgeting is a simple concept, yet many people fail to follow.
What best describes your household budget:
- A series of mason jars with money stashed for different expenses?
- You simply spend until you start getting overdraft notices when you try to use your debit card?
- A theoretical concept with few details that you expect will get easier when you win the lottery?
- A carefully-planned, electronically-monitored program that helps you meet your current and future needs?
If number 4 is your answer, then good for you - you are probably in the minority of people with disciplined, well-executed budgets. It's a shame so few fit into that category because efficient budgeting can not only help you use your money better, but it can help grow your wealth and your savings account. A better financial standing can ultimately save you on credit card interest and other borrowing costs, and help you invest your savings more effectively.
The following is a comprehensive overview of budgeting basics to get you on the path toward meeting your financial goals.
Match income and expenses
Budgeting is a way of planning for the flow of money in and out of your bank accounts - usually a checking account, since that is the best suited to regular transactions.
Think of it as an old balance scale. On one side, you have your income and any other money you expect to receive. On the other side, you have expenses and any other money you expect to pay out of your account. The primary objective is to make sure the expense side does not outweigh the income side.
That might be fairly simple if it were a one-time, static comparison, but of course income and expenses are occurring in all the time. That's why another fundamental component of budgeting is planning not just how much you will receive and spend, but when these transactions will occur. Getting the timing to line up is crucial.
Look at recent transactions
If you are starting from square one, the best way to do this may be to look at your check register for the past few months. You can see what amounts flowed in and out, and at what intervals those flows occurred. Now try to project that same pattern forward for the next few months. Once you do that, you will have the beginnings of a budget.
How to deal with expenses that happen irregularly
What makes this a little more difficult is that income and expenses don't always come in regular increments. You might receive an annual bonus, or do project work with variable earnings. Certain expenses, like a dental bill, may only come up now and then. In addition, the cost of seasonal items might be considerably greater in the winter than in the summer, like a heating bill.
Think through these types of things, and try to anticipate them. This is one of the values of budgeting: It helps you see things coming even when they are not routine, month-after-month expenses.
Budget for future needs
The type of budgeting described so far helps you deal with expenses as they come up, but another benefit of budgeting is to anticipate future needs far in advance. For example, if you start setting a little aside for your next car each month, it will cut down on how much you need to borrow when your current vehicle finally needs replacing. Then, of course, there is the big one - creating room in your budget to save for retirement.
Budgeting makes future needs easier to meet because you can spread their cost out over a longer period of time, rather than having to scramble for the money when the need is imminent.
Don't expect to get this all right the first time. An essential part of budgeting is regular monitoring. This is so you can see where you went wrong and adjust accordingly. Budgeting is always a work in progress, rather than a one-time project.
Should you use budgeting spreadsheets and apps?
There are a variety of tools you can use to help automate your budgets. A simple Excel spreadsheet can work, but there are also several web-based programs and apps, many of them free. The advantage of these is usually a managed interface that will help guide you through the budgeting process. Also, being able to access and update tools on a smartphone or other mobile device can help you manage your spending in real time. Just be mindful of security because this also make a lot of sensitive material vulnerable to loss or theft.
You can use state of the art technology, or you an use an old paper ledger. However you do it, making a budget and sticking to it can help grow your money and shrink your financial anxiety.
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December 6, 2016
Investing entails the acceptance of risk in the pursuit of a worthwhile return. Speculation involves the same thing, and that commonality often leads people to confuse investing and speculation. In fact though, they are very different things, and if you are to become a successful investor, it is important to be able to distinguish the two.
Investing vs. speculation
Here are some of the things that distinguish investing from speculation:
1. In-depth information
Successful investors thoroughly research their targets, whether they be companies, government bond issues, or commodities. They understand the supply and demand dynamics that will drive market growth, and they understand the competitive forces and cost factors that will determine the ability to profit from that growth.
Speculators, on the other hand, don't look in depth at the underlying vehicle, but simply put their money on a belief that it will go up or down.
2. A detailed outlook on the future
Understanding current conditions is good, but a further step entails being able to make some calculations about how those conditions will develop in the months and years ahead. This may take the form of things like a multi-year earnings projection for a stock, or quantifying the interest rate sensitivity of a bond.
You need to have thought through both what you expect to happen and how your investment will react if you are right. Without specifying how you will succeed, you are just speculating that things will work out in your favor.
3. Consider valuation
Taking into account valuation is a critical component of investing. It means comparing the price now with the likely future value of the investment based on its underlying fundamentals. This is critical, because markets often anticipate the future. If what you pay for an investment already reflects an assumption of its future success, there will be little upside for you even if things go in your favor.
On the other hand, speculators just hope that if things go well, the price will go up.
4. A flexible time frame
True investments can take some time to succeed - economic fundamentals usually evolve gradually, and sometimes it takes markets a while to recognize value. Having the flexibility to wait for all of this to play out increases your chance of success. In contrast, narrowing down the time frame in which it can happen takes you down the road towards guesswork.
5. An awareness of a differing perspective
Understanding how your view of an investment differs from the market consensus is very important, because if you don't see things differently, there is less potential for you to profit. This is why buying into highly-popular investments takes on an increasing element of speculation. You haven't really thought through why the investment should go up any further, you just like what everybody else likes.
Your differing perspective can involve any or all of the things discussed above: the information you have, your outlook on the future, valuation, or the time frame over which you are willing to hold onto the investment.
6. Recognition of the downside
Speculators tend to be focused primarily on the rewards of winning. But a true investor also understands the probability and downside potential of being wrong.
7. Extent of reliance on others
The "greater fool theory" means that you don't care if you overpay for an investment, because if it keeps going up a greater fool will come along and pay you more for it. Depending on the irrationality of others rather than on investment fundamentals is one of the hallmarks of speculation.
Investing vs. safekeeping
Though true investing should be less of a risky proposition than speculation, it is important to understand the distinction between investing and safekeeping. Investing involves being conscious of the risk of loss, and trying to manage it in proportion with the potential upside. Safekeeping involves eliminating the risk of loss, at the expense of any real upside.
For example, savings accounts and other insured deposits should be fully protected against loss, but they offer little in the way of upside - especially when interest rates are low. However, if safekeeping is what you want, it is important to recognize that as your priority and ensure that your money is placed accordingly. This means making sure you stay within FDIC insurance limits, and not mistaking truly safe vehicles for somewhat low-risk investments, like government bonds for example, which still carry some risk of loss.
The distinction between investing and safekeeping is in the trade-off between potential upside and potential loss. The distinction between investing and speculation is essentially the difference between making a reasoned business decision and placing a bet.
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November 23, 2016
The holidays are the peak time for shopping and gift-giving and scammers are already on the prowl for their next victim. Consumers face nightmare scenarios like expecting a package that never comes or seeing fraudulent charges on their credit card, putting their celebrations and savings accounts in jeopardy. But consumers can fight back to prevent con artists from ruining the festivities and save the holidays.
1. Counterfeit products
If you’ve seen a coveted gift like an iPad, makeup palette or purse for a rock-bottom discount online, beware as you’re probably not getting the real thing. Scammers often use inferior materials or shoddy electronics that could make these gifts unsafe for your intended recipients. For example, fake makeup or fragrances can contain toxic ingredients like arsenic or cadmium, according to the FBI.
How to avoid scammers: Buy directly from the manufacturer’s store or from authorized sellers of brand name products. If buying from a third-party, check ratings and reviews before your purchase to see if other people have been scammed.
2. Charity scams
The holidays put shoppers in a giving spirit, but some scammers take advantage of this goodwill with fake charities. They may cold call unsuspecting people or approach them in front of stores or on busy streets. Instead of going to great causes, donations go straight into the tricksters’ wallets and you don’t receive any tax deductions as a result.
How to avoid scammers: Check out Charity Navigator’s list of fake charities before donating. Look up the name of the charity on Guide Star’s website detailing information on nonprofit organizations to determine if it’s legitimate and the funds are going to where they should.
3. Gift card fraud
The National Retail Federation estimates 56 percent of consumers will purchase gift cards this holiday season, but this popularity makes them very vulnerable to scammers. Thieves can steal physical gift cards from the store, write the card numbers down or use a magnetic strip reader and then place the cards back on the display. They can also scratch off the PIN code associated with the card. Once a customer purchases and activates the card, thieves can check the gift card balance online and transfer it to a different card or drain the account.
How to avoid scammers: Inspect the card for signs that the card has been tampered with, such as a scratched off PIN, before leaving the store area. Purchase gift cards that are secure behind a glass case instead of an open display where thieves can grab cards. Keep the receipt in case you or your gift recipient notice strange activity to increase your chance of a refund.
4. Data breaches
Retailers are a big mark for cybercriminals, especially during the holidays, leading to data breaches. It’s hard to forget the data breach that hit Target in late-2013 that impacted millions of customers during the peak holiday shopping season. Breaches can expose financial data like debit and credit card numbers and personal information, such as names and home or email addresses.
How to avoid scammers: Use cash or a credit card instead of a debit card when shopping. Credit card companies typically provide fraud protection for consumers. In the event of an unauthorized purchase with a credit card, you are only liable for up $50, Federal Trade Commission states. If you used a debit card, you may be liable for all the money stolen from your account.
5. Email phishing
Phishing is not new, but con artists are always changing their approach to swindle victims and steal their identities. Emails can claim you’re the winner of a giveaway or you owe money to a debt collector or the government. These emails may appear like they’re from authentic people or organizations, but the websites they link to are designed to take your information or install malware.
How to avoid scammers: Whatever the phishing scam, do not respond to requests for money or your personal information and stop yourself from clicking on links or opening attachments. You can forward suspected scam emails to firstname.lastname@example.org or file a complaint with the FTC if you believe you’re a victim. In addition, you can report these fake messages to the real organizations they’re impersonating.
6. Card skimming
Card skimming is a simple yet financially devastating scam affecting ATM and debit cards. The New York Times reported 2015 had the highest number of ATM fraud incidents recorded by FICO Card Alert Service. Thieves will install a card skimmer inside ATMs to steal card numbers and a camera to take images of PIN codes. Increasing this threat, there is now new skimming technology that involves a probe that connects to the ATM’s internal circuit board to more easily steal card information.
How to avoid scammers: Use ATMs that are located inside banks, which make it harder for thieves to manipulate the machines. When entering your PIN, block the pad with your hand. Make it a habit to monitor your debit card and transaction activity to report losses immediately. You are liable for just $50 if you report ATM or debit card fraud within two business days of learning about the loss, the FTC notes. But if you report it after 60 calendar days, you can lose all money stolen from your ATM or debit account.
7. Fake social media giveaways
Giveaways hosted on social media sound too good to be true - and many times they are. Travel + Leisure recently warned readers about a fictitious giveaway on Facebook targeting Southwest Airlines. Scammers made a Facebook post designed to look like it came from Southwest Airlines and promised a free trip and gift card to the lucky recipient who shared, liked and commented on the post.
How to avoid scammers: Determine if a giveaway is posted by the actual brand and not a fake page. Facebook and Twitter both feature a blue checkmark next to brand names to verify their pages.
8. Ransomware/malware infections
A malware infection on your computer or phone can make it easy for hackers to take sensitive information or even take control of your device. Ransomware is a scary type of malware where cybercriminals can lock you out of your computer or threaten to release stolen information unless you pay a certain amount of money.
How to avoid scammers: Install security and firewall software on your device and only use secure browsers and websites.
9. Phony IRS phone calls
The IRS regularly warns consumers of a scam where con artists pretend to be from the organization and call victims claiming they have a refund or that they owe money. The scammers may demand payment in the form of prepaid cards or wire transfer.
How to avoid scammers: Remember the IRS will not call, email or text you about personal tax problems. Legitimate communication from the IRS will usually take place via mail. If you received a fake phone call, report the incident to the Treasury Inspector General for Tax Administration.
10. Package thieves
The increase in online shopping during the holidays keeps mail carriers - and thieves - busy. The USPS alone anticipates delivering 750 million packages during the 2016 holiday season, up 12 percent from last year. Thieves follow carriers’ trucks to snatch up packages as soon as they are delivered or drive around neighborhoods looking for unattended packages.
How to avoid scammers: Schedule a delivery when you know you’re home or pick it up from a carrier location. You can also have the package sent at your office if that’s more convenient. If you have a security system, set it to record so you can catch the thieves.
Not all Grinches come in the color green. As this list shows, fraud and scammers come in many forms. Look out for these scams to have a safer and more enjoyable holiday.
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