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These 8 Everyday Financial Worries Have One Common Solution

These 8 Everyday Financial Worries Have One Common Solution

Recent data from a Money Magazine financial survey of American households sheds light on a shocking reality: 60 percent of respondents expressed anxiety about their family’s long-term financial stability. There are myriad experiences and likely a few horror stories behind these figures, with which most of us can identify — the housing market collapse, 401(k) balances, job layoffs, rising healthcare costs, etc. But with the economic rebound and 2014’s all-time stock market highs, you would think American households would have a brighter outlook on the future.

To that point, one especially interesting section of the survey indicated short-term optimism is exceptionally high for these very same folks. Ninety percent of respondents felt their financial circumstances would be the same or better in 2015. Yet their long-term sentiments were sharply different.

This survey is just a small window into the lives of everyday Americans ranging from recent college graduates and young professionals to high net worth business owners and retirees. Let’s examine the root cause for household financial anxieties and focus on eight of the most frequent financial concerns. Along the way, we’ll highlight one very simple, frequently overlooked answer, to calm each and every worry.

1. What happens if my income disappears?

Whether you’re working for an unstable company or in an altogether shaky industry, everyone loses some measure of sleep worrying about income loss. The question is: what have you done about it? Many fortunate employees have disability insurance as part of their company benefits. At the end of 2013, there were almost nine million Americans receiving Social Security Disability checks every month, with the average monthly payout being just over $1,100 each month.

While this serves a very important function, most could not survive such a sharp drop in income. The solution: disability and life insurance protection. A few dollars each month will provide exponential benefit in the event of temporary or permanent loss of wages.

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2. How will I ever erase my debts?

We all take on debt in some form or fashion throughout life — a mortgage on our first home, a loan for a new car, student loans for higher education, or credit card debt out of necessity. Plenty of financial pundits will tell you to erase all debt, but as I’ve mentioned before, not all debt is bad. Uncontrolled debt, however, can ruin your life and the lives of those around you.

A 2012 study of middle-income American households found that those age 50 and older carry an average of nearly 33 percent more credit card debt than those below age 50. Economic hardships, declining real estate values and a host of other problems are to blame, but the data raises an important question. Assuming those over age 50 aren’t working forever and assuming their savings aren’t rebounding, what happens to that debt when they die?

The short answer is their estate typically inherits the debt and offsets any assets. Translation: the debt comes out of the heirs’ inheritance. Plan for this in your younger years and secure enough life insurance to cover any business or personal debts you might leave to your heirs in the event of your untimely death.

3. Can I afford to raise children?

For couples planning for families in the near future or those who are “in the thick of it” already, the expenses of child rearing are nothing short of staggering. There are plenty savings vehicles and investment options for parents or grandparents looking to give Little Junior a boost. Some options offer more features than others but one especially flexible option involves life insurance.

The concept is simple: stash away savings, extra earnings, bonuses, inheritance, etc. into a life insurance policy that has tax-advantaged growth potential. In addition to growing your cash value for school tuition, room and board, or unexpected medical expenses, you also have life insurance attached to provide a lasting benefit at death. Best of all, if Little Junior lands a full-ride scholarship, the cash value is not required for education expenses as with a number of other savings options. The money is yours to do whatever you want.

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4. How do I plan for a tax-favored retirement?

Take a poll of your five closest pals and ask them who looks forward to paying taxes in April. Chances are you won’t get a very warm response. Ever since the Revenue Act of 1978 laid the foundation for the 401(k) plan as we now know it, the burden of a successful retirement has shifted to you and me. Thankfully, we have investment advisors to help guide us along the way, but my point is your parents’ and grandparents’ company pensions are largely a thing of the past.

So how can we take control of our own retirement and help ensure we not only diversify our mix of investments but also diversify the tax treatment of our retirement assets? 401(k) balances were nearly $4.3 trillion at the end of March, 2014, which represents almost 20 percent of the total retirement savings for American households. Each and every dollar of retirement income taken from traditional 401(k) accounts is generally taxable. What if you could supplement these core retirement investments with an account that builds cash value and allows you to turn on a tax-free income stream? You guessed it — a cash value life insurance policy may be a good fit.

5. What will happen to my business and employees?

Most business owners, especially small business owners, are laser focused on growing their companies, building a loyal customer base and ultimately increasing net income. As a small business owner myself, I can tell you my focus is often tested by worries — especially financial worries. If I can’t continue working, who will take care of my client base? My employees? My family? Business owners who have partners have another set of concerns unto themselves: What if something happens to my partner? How will that affect the business and the rest of the partners?

A 2011 survey of more than 900 small business owners found that, while more than 40 percent of respondents said dealing with the death or disability of an owner or key employee was a major concern, fewer than 25 percent had formalized any planning to address the concerns. Disability and life insurance are critical components of any business plan, large or small. The coverage provides the cash flow and capital infusion to continue business operations, hire replacement leadership or buy out partnership interests from a deceased’s family.

6. I’m only getting older. What happens if I get sick?

You’ll never be younger or healthier than you are today. From a financial perspective, it’s imperative to take advantage of opportunities to capitalize on this gift. Start saving as early as possible and save in different ways. Cash in a bank account is good, but so are properly allocated investment accounts, quality real estate or even a life insurance policy that builds cash value.

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Many life insurance policies can be tapped before death in the event of chronic or terminal illness and some carriers even offer a long-term care insurance rider to help cover the cost of care for skilled nursing and home care among other qualifying expenses. Utilizing multiple avenues of savings, including a portion in life insurance, will put you in a stronger position to manage the rising costs of medical care due to illness.

7. Will I be able to continue charitable giving?

Giving to charity may have fallen along with the stock market a few years back, but as account balances have rebounded, so too has charitable giving. In 2013, Americans gave more than $335 billion to a mix of charities, just shy of the 2007 high of $349 billion. Giving has grown each of the past four years and the trend is expected to continue — as was evident with this summer’s wildly successful ALS Ice Bucket Challenge, which topped $100 million in donations from more than three million unique donors.

However, what happens if you die prematurely and your donations are lost? Chances are, the good works, community impact and critical services these charities provide will suffer greatly. Many donors choose to name their favorite charities as beneficiaries of life insurance policies to ensure their funding commitment continues. There may also be favorable tax benefits available to you as donor — a bonus over and above the lasting impact your gift is sure to have.

8. What will my financial legacy be?

Nobody sets out with a plan to leave survivors with a financial mess, but through life’s twists and turns some unfortunately end up with utter chaos. With simple planning in advance, you can chart the best course for your own financial legacy to carry on your values, give a boost to your heirs or simply safeguard treasured family heirlooms.

The term ‘estate planning’ may connote images of blue blood aristocrats with many millions in trust funds, but while few are fortunate to experience that level of success, each and every one of us needs some measure of estate planning. In it’s simplest form, estate planning is merely a directive for your heirs on how you’d like things handled when you’re no longer able to make the decisions and how you’d like things divvied up when you die.

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Studies show that more than 50 percent of American households don’t even have wills, let alone more detailed estate planning documents. Similar reports indicate more than 90 percent of millennials age 35 or under have no planning whatsoever. A simple, cost-effective way to provide a strong financial legacy is to incorporate life insurance into your estate plan. Ensure your wishes are carried out while protecting the assets and providing for the people you value most.

Winston Churchill famously declared,

“Let our advanced worrying become advanced thinking and planning.”

Worry, especially financial worry, is frequent, so it’s important to expect it, anticipate it and plan for it. While life insurance is not particularly sexy, it remains a versatile financial tool worth a closer look as you plan and prepare for the ups and downs of life.

Featured photo credit: Screaming via freeimages.com

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Published on May 7, 2019

How to Invest for Retirement (The Smart and Stress-Free Way)

How to Invest for Retirement (The Smart and Stress-Free Way)

When it comes to stocks, I bet you feel like you have no idea what you’re doing.

Everyone who’s not a financial expert has been there. I’ve been there. But, time is passing and you need to be crystal clear with how you’re investing for your retirement.

Otherwise, it’s back to work until you can afford not to. So, how can you invest for retirement when you’re not a financial expert?

You take the time to learn the fundamentals well. If you do, you can grow your wealth and retire happy. The best part is that you don’t need to be a financial expert to make smart investment decisions.

Here’s how to invest for retirement the smart and stress-free way:

1. Know Clearly Why You Invest

Odds are you already know why should invest for retirement.

But, maybe you know the wrong reasons. It’s time you get clear on why you’d like to retire. Here are some questions to help you get started:

  • Will you spend more time with your family?
  • What does retirement mean to you?
  • Are you looking to launch that business you’ve been holding off for years?

Everyone wants to retire but not for the same reasons. Once you’re clear for why retirement is important for you, you’ll focus on making it happen.

Investing in the stock market allows you to take advantage of compound interest.[1] All this means is that your money earns money on top of its interest. A reason why investment in the stock market is one of the best ways to plan for retirement.

2. Figure out When to Invest

“The best time to plant a tree was 20 years ago. The second best time is now.”– Chinese Proverb

It’s true if you’d had started investing when you were 10 years old, you’d have a lot more money than you do today.

The reality is that most people don’t start investing until it’s too late. So, if you’re currently waiting for the perfect time to start an investment, it would be today. Open your calendar and block out 2 to 3 hours to choose how you’ll invest for retirement.

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A quick way to get a snapshot of where you stand is to use Personal Capital. Input all your personal information and spend some time setting your retirement goals. Once completed, you’ll know where you stand with your retirement.

Having a savings account for retirement isn’t planning for retirement. Why? Your money loses value when you factor in US inflation.[2]

3. Evaluate Your Risk Tolerance to Create the Perfect Portfolio

Investing your money well depends on your emotions.

Why?

Because when the market drops most people panic and withdraw their money. On average, the US stock market yields an annual 6% to 7% ROI (return on your investment.) But, this won’t happen if you’re worried about short-term loses.

Before you invest your next dollar, know your risk tolerance.[3] Your risk tolerance determines the number of risky and safe investments you’d have.

Regardless of your investing style, you need to view investing for retirement as a long term game. Know that some years you’ll lose money but recoup this in the long-term.

Avoid watching market-related new. Also, create a double authentication to log in your investment account. This way you’re less likely to withdraw your money.

4. Open a Reliable Retirement Account

Depending on your circumstance, you may need to open a new brokerage account. This is the account is where you’ll invest your money.

If you’re currently working for a company, odds are that they offer a 410K investing account. If so, here’s where you’ll invest most of your money. The only problem with this is that you’re limited to the stock options that are available.

You do have the option to open a separate IRA (individual retirement account.) Here are some of the best brokers:

  1. Vanguard
  2. TD Ameritrade
  3. Charles Schwab

5. Challenge Yourself to Invest Consistently

Committing to invest for retirement is hard, but continuing to do so is harder.

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Once you’ve started investment for your retirement, you run at risk from stopping. Often you’ll want to contribute less, so you’d have more money in your pocket.

That’s why it’s important that you create a budget that allows you to invest each month. If you’re working for a company, you can set a percentage for the amount you’d like to contribute each month. Most people by default contribute 1% but aim to contribute 10% to 15%.

Be the judge for how much you can afford to contribute after covering important expenses. To stay motivated, use Personal Capital to view your net worth.

A benefit to contributing money to your retirement account is not taxed. For example, if you earn $100 and invest 10%, you’d contribute $10, then get taxed on the remaining $90. As of 2019, the most you’re able to contribute towards your 401K is 19K but this can change.

6. Consider Where to Invest Your Money

The most common way to invest your money is in stocks, but it’s not the only way. Here are other ways to invest:

Robo Advisors

Robo-advisors[4] are fancy algorithms that’ll choose the best investments for you. Sites like Wealthfront make it easy for first-time investors to invest their money. You’d input information about yourself and set your risk tolerance.

Then, set your monthly contribution amount and your robo-advisor would do the rest. Robo-advisors charge a fee to manage your money, but less than regular advisors.

Bonds

Think of bonds as “IOUs” to whomever you buy them from.

Essentially, you’re lending money and charging interest. Like stocks, not all bonds are equal. Some will be riskier than others depending on their rating.

Here are the different types of bond categories:[5]

  1. Treasury bonds
  2. Government bonds
  3. Corporate bonds
  4. Foreign bonds
  5. Mortgage-backed bonds
  6. Municipal bonds

Mutual Funds

Picture a group of people dumping all their money in a jar that’s managed by a professional. This is how mutual funds work. The fund manager manages the money looking to earn capital gains (interest.)

One of the best types of mutual funds is index funds. Since these funds don’t try to beat the market and instead follow it, they need less research. Because of this they often charge the lowest fees and yield the best long-term results.

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Real Estate

Yes, buying a home is an investment when done correctly.

Imagine buying a home and using it as a rental property. After repairing it, you receive a monthly surplus check of $100 to $200.

This may not sound like a lot, but repeat this process enough times and you’d earn a large amount of passive income. That’s why real estate is one of the best investments to not only retire but become wealthy.

But, it requires a lot of money to start and you should expect losing money along the way as you learn the process.

Savings Accounts

Your money can still grow in a savings account. Nowadays most online banks offer a 2% annual return. Although the average inflation is higher your money will be available when you need it.

7. Master Disincline to Dodge Short Success

Investing for retirement is a long-term strategy. That’s why you need to master delayed gratification. All this means is delaying short-term pleasure for something bigger in the future. Research shows that those who have delayed gratification are more successful.[6]

So how can you master delayed gratification?

By building your discipline.

Think back to what retirement means to you. A clear purpose will help you avoid withdrawing your money during a market downturn. It’ll help you contribute more towards retirement when you’d want to waste it instead.

Your journey towards retirement will be long, so reward yourself along the way. Choose a reward that’s relevant and meaningful, so that you reinforce positive behavior. For example, after contributing more towards retirement, treat yourself to dinner.

8. Aggressively Invest on This One Investment

I’ve mentioned several types of investments but haven’t covered the most important one.

It sounds cliche but here’s why you’re your best investment towards retirement. The more you know, the more money you’ll be able to make. The more good habits you adopt, the more secure your retirement will be.

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More importantly, investing in yourself is an investment that no one can take away. There’s no market downturn nor tragic circumstance that’ll wipe your knowledge and experience.

But, how can you invest yourself?

Reading books, blogs, and anything that’ll help you learn new topics daily. Listen to podcasts and audiobooks on your commute to/from work.

Save money to buy courses and hire coaches. I used to believe hiring coaches was a waste of money when I could learn the subject alone.

But, coaches see your blind spots and hold you accountable. Hiring the right coach will help you achieve your goals faster than you would’ve alone.

Retire Happy with Excess Money

The key to a secure financial future doesn’t only belong to financial experts.

It’s possible for you and I. What if you were able to retire earlier than most people and weren’t a financial planner? What if you were able to focus on what you enjoy doing the most while your money was working hard for you?

I know this sounds impossible now, but the truth is you’re capable of taking charge of your retirement. I’m not a financial expert but I’ve learned how to invest my money by reading books and learning from others.

Investing your money is scary. So start small and invest a small amount of your money with a robo-advisor. Feel your money drop and rise for a month or two. Then, invest more and keep this up until you’re aggressively saving for retirement.

One day, you’ll wake up with a net worth you’re proud of – confident about your retirement. You now know a few strategies you can use to invest in your retirement. Will you take action to retire happy?

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Featured photo credit: Matthew Bennett via unsplash.com

Reference

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