Thoughts On Finance

Well, here we are. Approaching retirement and really, really nervous about it. Will we be able to deal with the everyday realities of life on a limited budget, in addition to the out of the ordinary expenses that we know will rear their ugly little heads from time to time. If we haven’t been able to plan for it thus far, then there is no time better than right now to get started.

If you are anything like me, you know financially what it will take to keep your lifestyle just the same as it is right now. You also know what areas of your daily living expenses you can cut and which ones you cannot do much about. But make that list, check it over and over and see what the bottom, bottom line is.

If you are not sure yet, contact Social Security and find out how much of your living expenses you can cover with whatever amount you will be receiving from them. If you have a pension or some other kind of retirement investment that you have set mentally aside strictly for retirement, check out what the advantages and disadvantages are of taking it out or drawing from it and how it will effect you tax-wise.

Plan to have a reasonable portion of your money in savings or money market accounts or mutual funds or the like so that you can access that money without out penalties or loosing earned interest if it should ever become necessary.

Not everyone who “retires” stops working completely. Check out alternative sources of income. Consider beginning a small part-time home business or put your skills to work for you with your art or music or woodworking or sewing or other crafts. There are a world of opportunities out there if you are resourceful.

At some point in time, and this is as good as any, it might be wise to consider the advantages of downsizing as far as your home is concerned. Perhaps selling your present home and moving into a smaller one would be a great move for you. Maybe you would consider a condo or villa or even a fifty-five plus community where the lawn maintenance and repairs are taken care of for you. I kind of like the idea of a golf cart community myself and think I should check that out.

If you retire before you can begin Medicare, you need to line yourself up right now with a health insurance program that will cover you sufficiently, including pre-existing conditions. It will not get any easier as years go by to find something suitable, nor will it get any less expensive.

Living independently as long as we possibly can is how we all want to try to retire. There are some things that cannot be changed financially for us, lottery winnings excluded. But there are little ways that we can make financial ends meet quite nicely if we can keep our options open. I for one, just cannot believe that reaching retirement age could sneak up on me so quickly! The world just must be spinning faster than it did when we were younger.

Well, if you are under forty, you may think all of this is something for you to think about in another ten or twenty years. However, if you are a WISE person under forty, you will pay attention to what I have to say.

OK. So here is the wisdom I need to share with you: IT IS NEVER TOO EARLY TO PLAN FOR RETIREMENT!!! PAY YOURSELF FIRST!!!

I can assume that many folks out there think that it will never become a problem to be able to retire comfortably. They will just pay off their home and live on their Social Security benefits. Social Security benefits alone will not get you very far and will not even keep up with inflation. Let me assure you that if you do not start planning for retirement before you are forty, it may be too late.

In my early 40s, after being a stay at home Mom of 20+ years, I found myself divorced and earning my own living. I did not benefit from the 20+ year marriage in ANY financial way whatsoever — I walked away with my children, a few kitchen utensils and some used furniture. And I know you are saying, but how does that apply to my life. Of course, your first and primary concern is to provide a roof over your head and food on the table. That is primary for all of us. But once you learn that you can do that and you work yourself up a little higher and a little higher on the income earning ladder, you will realize you must also provide for not only your present needs, but your future needs.

So here is where I come in with advice. In your work environment, as soon as you are allowed to begin investing into your retirement package — do it. With most retirement packages, you can start out with a minimum amount and then increase your investment up to a specified dollar figure or a percentage of your earnings. So do that — start out with the minimum. It is usually tax deferred dollars, so the minute you begin investing into the plan, you have made money. ANY amount of money you can afford to put into an account with pre-taxed dollars, do not blink, do not hesitate in any way whatsoever – invest it. Most often, your employer will be contributing at least a small percentage of that amount into that retirement fund also. And as that investment grows, it remains pre-taxed dollars (until you take it out).

If you do not have a retirement plan available where you work, by all means, seek out the advice of someone in the financial industry, whether it is your banker, your insurance company or an investment company. There are many other ways of using pre-taxed dollars to prepare for your retirement. No matter what type of employment you have, even if you are self-employed, find a reputable institution and begin investing in your own future.

If you are thirty-five to forty, you may still have some years that when you choose your investment categories, you may still choose to put that money into a moderate risk investment. Your return on your investment will be slightly higher with only a moderate risk of losing anything along the way. By the time you are fifty, my personal suggestion would be to move it to a more stable category. Your return will be slightly less, but your risk of losing anything will be practically nothing. Every dime you put in, even though it only makes a small return, will be there with no concern of loss. And the older you get, the fewer years you have to make up any losses you may experience in a moderate risk portfolio.

As the economic situation of our world changes, it becomes more and more important to plan to be able to take care of yourself in your retirement years than it ever has before. The pensions our grandparents received after being a loyal employee for all of those years are a thing of the past. Today, you don‘t even get that gold watch. If you do not make sure you will have enough to live on reasonably comfortably in those years when you can no longer work, no one else will either. Start now. Even with a small regular investment, you will be surprised how much it will grow and hopefully, you will be better prepared to enjoy those ‘golden years‘.

Balancing debt and credit is a challenge for many of us today. When my parents or grandparents needed or wanted something, they simply saved up until they could afford to pay cash for it. Credit was only used for those large-ticket purchases like a house or car and then it was done with an “installment loan“. Credit as we know it today was basically unheard of and having more than one debt over and above a home or vehicle was out of the question. It was not considered wise.

Well, wise or not, these days easily acquired credit and resulting debt are a part of our day-to-day lives. Unfortunately, the ease and convenience of instant credit has left many of us depending far too much on borrowed money and in turn living in a raging sea of debt. We jumped into those waters before we knew how to balance the convenience of using credit cards and staying out of deep, deep debt.

Having credit is a good thing if you are using it responsibly. It establishes the fact that you can be relied upon to pay your debts, that you are creditworthy and it may in fact help you secure a lower interest rate when you find you have the need for an important loan, such as a mortgage. Without a good credit history, your chances of qualifying for such a loan are greatly reduced. However, using your credit cards unwisely and to the extent that you begin to spend more than you earn can lead to overwhelming debt that you may never be able to pay off.

Installment loans are a good way to establish credit. The interest rates can be very competitive and specified monthly payments are made at the same time every month with a specified time period established to pay off the loan. There are no surprises when the payment becomes due. Often, even if you have the cash to pay for a moderately priced purchase, it could be wiser to use an installment loan. That would of course depend on the interest rate you are earning on your ’cash’ from the bank and the interest rate you could get on an installment loan. If the bank is only paying you 2% and the installment loan has an interest rate of 6%, you may be better off using the installment loan for the purchase, and possibly paying it off earlier and generating a good credit standing by doing so.

It is very important to periodically take a look at your credit card debt. If you can see a pattern of making impulse purchases or purchases that you know you cannot afford, then it may be time to consider paying off that credit card debt. Analyze your monthly expenses and determine what spending you can eliminate and put that amount towards your credit card debt in addition to your regular payment — and don‘t make any more charges on it until you have it under control. Every time you make a purchase on your credit card, you have just borrowed more money. Every time you consider making a purchase on your credit card, ask yourself if you would borrow that same amount from a friend or family member. That may help to put it into perspective.

If you find yourself drowning in that sea of debt, it would be wise for you to seek out a financial advisor that might be able to help you reallocate your income more effectively to address your credit card debt. There are many companies out there that can assist in getting you out of debt. Whatever you do, always keep in mind that spending more than you earn in even a short period of time can be very dangerous, but doing it over an extended period of time can mean financial ruin.