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2015 Fall Perspectives

2015 Fall Perspectives

Taking Responsibility for Your Future

Piggy BankThe art is not in making money, but in keeping it ~ Proverb

In yoga philosophy, there is a concept called Samskara. Loosely defined samskaras are behavior patterns that are repeated over and over and create a “groove” that sets peoples thoughts and reactions on auto-pilot. These mental and emotional patterns are difficult to break. A pattern is repeated so many times that a person may truly believe that the way things are cannot be changed.

I have witnessed this behavior over the years. A woman is convinced she can’t move forward because of something she has internalized. Example: I can’t save, I don’t make enough money, my spouse spends too much, and the list goes on and on. I’d like to show you how to turn a negative pattern into a positive one. I talked about social security in my last blog and today I am going to discuss the first step in taking an active role in saving for your future. Stop creating self imposed limitations and decide to take action now to prepare for your future.
take actionLet me introduce you to a very common long term savings plan called 401(K). If you work for a company that employs more than one or two people, there is a high probability you have a salary reduction plan sponsored by your employer, which could be a 401k plan. In simple terms a 401(K) is a tool to save money for your future. Money is taken from your paycheck before tax via payroll deduction by your employer and sent to an investment company. Both the salary reduction and the potential earnings on the money you save will avoid taxes until you are ready to use the money in your future for supplemental income. Currently you can start making withdrawals after you turn 59 ½ without penalty.

Let me use an example to illustrate the concept. Let’s assume you currently are in the 28% income tax bracket and you want to save $1,000. If you take that money from your paycheck you will have $720 after tax to invest. ($280 is 28% of $1000 dollars)

In order to save $1,000 after tax you would have to earn almost $1,400 dollars ($1,400 less 28%, $392 equals $1,008). By having your employer take the money pre-tax, the full $1,000 goes to work for you. It is equivalent to the IRS giving you a tax free loan of $280 to put towards your retirement. Many employers provide a “match” or what I like to call free money. How does that work?
60sec_matchThe plan I offer my employees offers a 4% match if the employee saves 5% of their salary. On a salary of $35,000, an investment of $1,750 will receive a $1,400 match from me, the employer. That represents an 80% return on your money before it is even invested. If that is not enough incentive to run to your employer and sign up, then go back and re-read this blog entirely. Even with a match from your employer, it is still a great way to put money to work for you that otherwise would be paid to the IRS. The savings depends on what your income tax rate is.

Jack Canfield said, “If you don’t like your outcomes, change your responses”! You must take 100% responsibility for your own life. In order to do this you have to stop making excuses and justifying why you do not participate in a program that can have such a positive influence on your future.

No 401(K) available at your job? Don’t fret. My next blog will discuss what’s available for individuals to save for their future.

*The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by NFP Advisor Services, LLC. This article is for general information only and is not intended to provide specific investment advice or recommendations for any individual. Any illustrations are hypothetical and there is no guarantee that similar results can be achieved. If fees had been reflected, the return would have been less. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results.

September Edition: Advisor Views

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Money is Only a Tool

Tool“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.” – Ayn Rand

This quote by Ayn Rand is a comment on the importance of being in control of your money and your finances, rather than your money being in control of your life. What does that mean to you? Most people don’t get in their automobiles without a destination in mind. They know where they are going, and they know they may have choices on which route to take. The most direct route may take a little longer than utilizing a short cut. How does this translate to money?

I’ve written several times about the importance of planning. The next few blogs are going to address the different sources and strategies for long term savings to start building a secure investment strategy for your future.

Let’s start with one of the most overlooked sources, Social Security. If you have done nothing up to this point, the fact that you or your partner or spouse has a job means you have already started planning for your future. For every dollar you earn, your employer is obligated to contribute 6.2 cents into a fund for your future income. For 2015, your employer deducts 6.2 cents from your paycheck and sends it into the social security administration on your behalf up to $118, 500 of income for 2015.
Saving pennies on the dollar may not seem like much money, but let’s look at how this translates into real dollars for your future. You might be thinking, what is this really worth to me and my spouse?

Let’s say social security estimates that you are eligible for a $1,200 per month benefit in future dollars and you can start collecting this benefit at age 62. You would need a lump sum of over $235,000 today to create that amount of income (source: immediateannuities.com). If you did not work outside the home you are entitled to ½ of this amount as a spousal benefit, which has a value of another $117,000. (These are approximates and should only be considered as an illustration based on the current interest rate, for educational purpose only.) So a deduction of 6.2 cents by you and your employer can equal to $1,800 a month for life!

If you are currently working, or you just got out of college and are ready to start your first job, you have to start a plan for your financial future. IMPORTANT POINT: Social Security is intended to SUPPLEMENT your own personal savings and investments. It was not intended to be the ONLY source.
Picture1The average social security benefit in 2015 is a bit over $1,328 per month (source www.savvysocialsecurity.net).

In future blogs we will talk about what you can do to save for your future. We will look at “short cuts” that can help you save more; we will explore what investment tools are available to help you reach your goals. In general women are planners and successful investors. They are educated on the how to’s and the whys.

My goal is to help take you down the path of feeling confident enough to start the journey to your own personal destination. You can take the lead and be the driver whether you are married or divorced single or widowed. Let’s get behind the wheel!

If we spend more than we earn, the result is misery!

miseryAnnual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery – Charles Dickens

What was true in David Copperfield’s time still remains true today.  If we spend more than we earn the result is misery.  Misery in the form of guilt, stress, lying, rationalization, denial the list goes on.

I have interviewed many people throughout my career as a Certified Financial Planner™ professional and I have come across different money personalities and philosophies. By far the most successful people financially and the most satisfied in their life overall have the money philosophy of not spending more than one earns.  How simple a concept, but difficult in reality.

Our modern culture idealizes excess consumption, accumulation of “stuff” as being superior to meeting the basic needs of food, clothing and shelter.  It provides status to own designer labels, bigger houses, eat at expensive restaurants, own luxury cars, etc. This is not inherently “bad” if your income will support that lifestyle; and allows the opportunity of not spending all you earn. Often that is not the case. People justify living beyond their means for varied reasons; most which involve some form of rationalization.

I’ve met people over the years with high incomes, multiple mortgages, and expensive toys living paycheck to paycheck.  On the other hand of the spectrum I have met secretaries who saved 10 cents of every dollar they earned, who accumulated over a million dollars. I’ve met housewives, who were in charge of the finances, who accumulated hundreds of thousands of dollars over time.  The people who saved had less stress and more options as they approached “retirement”.
I am generalizing here, but it has been my observation that people who live beyond their means, accumulate “stuff” instead of saving money for a rainy day,  lead a less balanced, more stressful life. They may be one paycheck away from a disaster.

This type of money personality has an attachment to money that prioritizes pleasure and enjoyment now over the potential misery that will be created by the loss of a job, a health crisis or premature death. 

In my years of yoga practice and teaching yoga, I have been taught and try to teach others to apply the principles of self observation and the cultivation of balance in our life.

We must take the time to really explore what is important to us and to our loved ones. And then set a plan in place to achieve what will make you feel confident and in charge of our futures.

It’s exploring where you need to be to be able to tell yourself, “I have enough”, rather than feeling victimized by the belief that “I’ll never have enough”.

If you are in a situation where you feel you are living beyond your means sit down by yourself or with your spouse/partner and ask these questions:

1) Are you using credit cards to buy groceries or other items you used to buy with cash?
2) Are you using savings to pay monthly bills you used to pay from checking or taking cash advances on your credit cards?
3) Are you spending more than 28% of income on your home mortgage?
4) Are you saving less than 5% of you income?
5) Is your credit score below 600? – If your score falls below 600 you are probably over your head

savingsMany people get in trouble during the holiday season by over spending.  These may be a warning signal that it is time to make some changes before your money situation gets out of hand.

Life Insurance is not a Religion (and Neither is Yoga)

Life FamilyI have been a financial planner for over 20 years and a yoga teacher for over 10 years. I have heard the statement “I don’t believe in life insurance” many times in my career and it always baffles me. Life insurance is not a religion; life insurance is a tool. Life insurance is an asset that provides an instant estate, upon death, if you have not had the time to accumulate an estate (translated estate = money in the bank which can become investments that can create an income stream if the breadwinner dies prematurely).

It is not a matter of “believing;” it is a matter of looking at your financial situation and determining if you could continue to live the way you live today if your spouse or partner is no longer here, or if you are a single parent with a child who depends on you, that your child could be adequately cared for.

If you or your spouse feels this way about insurance then you may not understand it. Let me tell you two stories. Many years ago, I met with a couple in which the husband was a television executive making a high six figure income. They had a nice house with a big mortgage and very little savings. His wife did not work outside the home and they had no children. When I recommended that they purchase life insurance to pay off the house and provide an income for his wife he told me, “I don’t believe in life insurance,” and referring to his wife “Sally” he stated that, “she could just move back in with her parents if something happened to me, they will take care of her”. Sally was in her late forties and just sat there not saying a word. I asked her if that was a solution she was comfortable with. She said no, but he wouldn’t budge. I often wonder what happened to that couple.

I think it is very selfish and short sighted to not care enough for your spouse to make sure he or she is taken care of should a premature death occur. I encourage couples to talk this through and make an informed decision on how to insure for a loss like this. Too many people don’t think about planning for an unexpected death until it is too late.

Unexpected street sign

I will share another story. One of my clients referred her sister and brother-in-law to me for some financial planning. Let’s call them John and Jane. John had retired early and he and Jane had not saved as much as they hoped to save for retirement, but with his pension they determined they could live comfortably. John had chosen the highest payout, a lifetime annuity with no survivor benefit (this decision was made prior to meeting me) because this provided a larger monthly benefit. Jane signed off on this option, but she did not understand that if he died, she would no longer receive any pension benefits at all, ZERO. She was upset, but relieved that there was a solution. I recommended a life insurance policy to replace the pension should John die prematurely. John applied for a policy, was approved, and when I went to deliver the life insurance policy he had changed his mind and no longer wanted to spend the money. It was “too expensive”. I tried to talk to him about the ramifications of this decision, and I encouraged him to come back in along with his wife, Jane, to discuss what I felt was a poor decision. He refused and said it was a joint decision between him and Jane. About a month later, John was killed in a motorcycle accident. Jane and her sister contacted me to see if there was anything she could do since the insurance had been approved so recently. They had done some research and knew about the free look period an insurance policy provides, but since Jane and her husband had refused the policy, nothing could be done. I felt horrible, but I could not take responsibility for the decision they made. I ended up losing the sister as a client too.

Lesson here: Don’t let anyone else make decisions about your financial future without a full discussion of all the pros and cons as well as looking at the worst case scenarios. These “beliefs” may be completely misguided and could have a negative impact on your life. One thing I have learned from my yoga practice is that we are responsible for our own wellbeing. Sometimes you have to take charge and insist that these things be discussed so you and your family are cared for. Take the time and make the effort to insure that you can live your life the way you want to, no matter what happens.

Don’t stick your head in the sand and hope for the best. Take care of yourself today, as tomorrow is promised to no one.

Note: Due to industry regulations on communication, we are unable to allow for public comments on this blog. Please feel free to email me your questions and/or comments to kathy@fishandassociates.com. Thank you. Securities and Investment Advisory Services offered through NFP Securities, Inc., Member FINRA/SIPC. NFP Securities, Inc. is not affiliated with Fish & Associates.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Kestra IS and Kestra AS are not affiliated with Fish and Associates. Kestra IS and Kestra AS do not provide tax or legal advice.

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