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A budget is the backbone of any financial plan. It is the blueprint for when and where you will spend money. A monthly spending plan provides a visual of what we value. We don’t want to waste time with counting every dime and dollar we spend, but we should keep the spending plan up to date, and revise it occasionally based upon our experiences. A spreadsheet is a must. Excel comes with sample budgets or you can use my example budget. Whatever you use, just make sure there are enough rows for your major expenditures. You want the spreadsheet to do the adding and subtracting for you. Be sure to tailor it to your needs.

Sample Budget

An Excel spreadsheet is a must in simplifying the budget. Excel actually provides a template for a budget. Just make sure there are enough rows for your larger expenditures. You want the spreadsheet to do the adding and subtracting for you. Be sure you tailor it to your needs.

Investing allows our money to work for us in ways we cannot personally (we only have two arms and legs). If you are in the low to moderate income worker, investing might be more important for you than those with higher incomes. The following things should be considered when planning investments:

What is its purpose – Retirement, education, miscellaneous?
When do you plan on drawing money from the investment? (5, 10, 20 years)
How would you react if you lost 5% or 10% of the investment?
Do you want the earnings to be taxed now, later, or to be completely tax-free?
Do you want a money manager or just someone to develop a portfolio?

Will you design a portfolio yourself?

Do you want to avoid paying high commissions?

No-load mutual fund companies do not charge investors a commission. Their fees are generally less than 1% of your investment amount. If your plan is to invest for greater than five (5) years, you may want to invest in stock (equity) mutual funds. In general, diversifying your investment portfolio is the best way to minimize risk and earn a good rate of return. Bond mutual funds help to reduce the risk with a portfolio of stock funds. Target date funds and balanced funds diversify by use of both stocks and bonds.

With fewer employers providing defined benefit retirement plans (that pay a defined amount for life) workers today must build up their own savings and investments (their Nest egg). Prevailing today are defined contribution plans – (401Ks) and IRAs where the nest egg depends upon how much is contributed and how much is earned on those contributions over time. In building up our nest eggs we need to be mindful of inflation (it historically has averaged 3% per year).

Estimated Retirement Needs Worksheet.xlsx

Because retirement involves long term planning, the time value of money needs to be understood. The compounding of earnings has a geometric impact. With access to on-line calculators it is easy to calculate what a certain amount saved monthly will grow to over a certain time period (5 years, 10 years, 20 years) This will help you project how much of a nest egg you could build over those time periods.

There are basically two types of life insurance: Term Insurance and Permanent Insurance. Term insurance is usually less expensive. If you die during the term (10, 20 years) your beneficiaries will receive the face amount of the policy. With permanent insurance (whole life, universal life, variable universal life, etc.), a part of your premium goes towards your life insurance and the balance is invested. The investment will build up cash value if certain calculations are met. Permanent insurance is expensive but it can provide a way to accumulate tax deferred earnings if you are in higher tax brackets and can afford it. It can also provide ‘paid up’ insurance so you could avoid premium payments later in life.

This is an important insurance to consider if you are 50 years or older. Seventy percent (70%) of Americans will need long term care at some point in their lives! Three reasons for buying LTC Insurance are:

•  Protecting
•  Minimizing burden on our families, and
•  Having more options for our care.

In 2019 nursing home costs ranged from $2,600 to $4,200 per month, some as high as $8,000! Medicare only covers the first 100 days in a nursing home or long term care facility. With the old legacy plans, one paid a premium, but only collected if they needed care. Some companies still provide them but they can be expensive and premiums have been rising in the past few years. Many newer plans provide LTC coverage and are coupled with whole life insurance policies or annuities. Some plans have a feature where they will return of premiums after a specific time period. (you are paid up).

We are more likely to become disabled than die unexpectedly. Those are difficult words to write, even more difficult to experience. Disability Insurance is important if you are still working and you and your family are depending on your income. It would be wise to carry this type of insurance. This insurance is may not as expensive as you think.

Judge Learned Hand said of paying tolls something that could apply to paying income taxes; “It is one thing to avoid a toll by driving out of your way: But it is another thing to crash through the toll booth and have the police chase you down.” So how do we avoid paying tolls (or taxes)? A Roth IRA could give you ‘tax-free’ earnings. Taxes on earnings could be deferred (to a later time) using a Traditional IRA, 401K, or Self-Employment Plan (SEP).

Be sure you qualify to contribute to either type IRA. It is based on your income level and whether you have a retirement plan at work. Remember there is usually a 10% penalty for withdrawals from a Traditional IRA or 401K before age 59 ½.

You might also get tax-free earnings from municipal bonds (I only recommend them if you are in the higher tax brackets. They are not good in retirement accounts either).

We prepare IRS Offers in Compromise for taxpayers overwhelmed with tax obligations.

“The ticket for admission to the theater of financial independence”

Any business should start with a business plan. It should be thoughtful, addressing important business and management matters, and it should be in writing. The six- to ten-page document should convince you (or not) that your ideas have some potential. If your plan shows the risk of loss seems greater than the potential for gain, then you won’t want to invest your time and energy into that business. But if you do see good prospects for profit there are some steps you can take to increase your probabilities for success. I can help you create and develop your business plan and guide you through the steps for starting a successful business.

The number of U.S. citizens dealing with student loans is exasperating. Estimates are somewhere between 1.2 and 1.5 trillion dollars are owed on student loans. With the high cost of college and lack of higher-paying jobs, this debt can hamper us for most of our lives. Usually, the debt cannot even be removed by filing bankruptcy. I can help you design a good strategy to deal with student loans. A word to the wise, do not sign a parent plus loan! There is no loan forgiveness for the parent!

The Price We Pay for Money!

Buying a home or car is good use of credit. Those items usually are not in our power to pay cash for. When it is necessary to use credit you will want the lowest interest rates. The lower the interest rate, the less total costs to us. When you have good credit you can get lower interest rates. To create and maintain a good credit rating, it is best to obtain a major card (Visa, Mastercard) through your bank or credit union. Pay balances off monthly if you can. Paying a lot of interest expense does not improve your credit score. Making small purchases that you can pay off monthly credit is a good way to create good credit history (or at least carry a balance less than 1/3 of your available credit and pay consistently). A good tool to use to plan your way out of debt is ‘Power Pay.’ https://powerpay.org/