What system do you use?

I know for many people, these system used is "as long as there's money in the account, keep spending!".

This is a nice article that gives everyone a nice system that can work. I'm not a fan of budgets or budgeting, but in order for this system to work, you do have to know at least what your major bills are each month. That way, you'll know how much to put into the "fixed" account each month.

Don't forget about timing of the bills and your paychecks. You don't have to have an entire month's worth of expenses in the fixed account if the timing of the deposits line up with when expenses have to be paid.

If you don't have a system, give this a try.

http://www.businessinsider.com/a-financial-planner-shares-her-personal-system-for-managing-money-2015-10

By the way, my wife and I did set a budget this past weekend, and accounted for all of our expenses, and accounted for every dollar of income and expenses. I fully recognize that it was a necessary exercise. It's going to take discipline but would help us achieve our financial goals.

What causes most people to delay retirement?

Obviously, people want to stay active - and people can. But how do you define "retirement"? I would think it's when people do what they want and not have to worry about money.

Chart courtesy of PwC 2015 Employee Financial Wellness Survey

http://media.lifehealthpro.com/lifehealthpro/article/2015/04/23/04-14-15-news-pwc-wellness-t5.JPG

It’s not just about interest and payments

The other day, I had a conversation with another financial adviser about a program to pay off debt rapidly. She was talking about some of the strategies and how it could help people.

Her pitch to me was that by using these strategies, I could help clients find the cash flow to save but most importantly, to get out of debt faster and clients would then have even more money to save for their goals. I told her that I already do this with a different program, but I would be open to hearing more. You never know – maybe her program is better.

I did laugh to myself a bit. She and I were at a workshop last week talking about different money principles and her program appears to go against what we had heard last week.

That principle? Liquidity. According to Merriam-Webster dictionary, liquidity – the noun – is defined as:

consisting of or capable of ready conversion into cash or

capable of covering current liabilities quickly with current assets

What does this have to do with debt? Well, what is the difference between?

$100,000 in cash, versus

$100,000 in equity in your home

Both are worth $100k, but there is a major difference between the two. One you can just use whenever you want. The other requires you to take major action – either sell your house or take out a loan (home equity or mortgage). And to take out a loan, you have to “ask” someone else – that is, you have to apply for it, and you aren’t guaranteed to be approved.

Paying down debt or paying off your mortgage isn’t necessarily a “bad” thing. But the point is here is that you have to consider liquidity – is it worth paying down that debt versus having the cash available anytime?

Of course, paying down a credit card or line of credit is a little different because you can borrow that money right back. But you can’t with a mortgage, a car loan, or even student loans.

Not understanding this principle is why many people who work hard to pay off debt go right back into debt when there is an emergency or major expense. They don’t have cash otherwise to handle that expense, so their only option is to go back into debt.

Many “pundits” on the internet talk about different ways to pay down debt and this program appears no different. I would just hate to see someone put in all of that hard work to simply end up in debt again.

My personal take on this is that paying down debt is just as important as building up savings. It’s not an either or type of decision. Yes, this means that maybe you don’t pay down debt as fast as if you only focused on that. And yes, that would mean more interest paid.

When you pay off those credit cards, you should then just pay off your mortgage regularly. Don’t send in extra payments.

Why? Liquidity.

What’s your thought on this? Do you agree? I’d love to hear comments on this below.

Separately, as a reminder, I’m holding workshops on college financial aid, specifically, “How to Read Your Financial Aid Award Letter”. Workshops will be held:

Feb 24^th

Mar 1^st

Mar 3^rd

Mar 9^th

Details and links for registration can be found at: https://www.facebook.com/longhornfin/events

Good versus bad. Neither! It just "is"

Debt is just debt. It is neither good nor bad.

Sometimes people are so focused on getting out of debt that they miss out on the bigger financial picture. What was the money used for? Could the money that you would otherwise use to paydown the debt earn a higher return elsewhere?

http://www.huffingtonpost.com/nerdwallet/sean-talks-credit-why-you_b_9244544.html

What is your biggest concern about retirement? What would make you feel more confident?

Chart courtesy of PwC 2015 Employee Financial Wellness Survey

http://media.lifehealthpro.com/lifehealthpro/article/2015/04/23/04-14-15-news-pwc-wellness-t4.JPG

How much could this save you per month? And would you really feel this?

For the average American, surveys show that people have trouble meeting basic bills and debt payments. It doesn’t mean these people are poor. Many of these folks make well over the average income in the country. People who make $100k per year have these issues as well.

If you do an internet search, you’ll find many articles on the subject of saving money per month.  Brown bag your lunch. Brew your own coffee at home. Drop the cable and gym membership. And I’m sure you could list many more.

You know what though??? It doesn’t work! Why? All of those tips require the average American to give up something. Like many diets, it will work for a while but then people fall off the wagon. DD here I come!!!!

My focus with clients have always been about finding ways to free up money each month, but WITHOUT impacting lifestyle, because people don’t stay with the change.

Recently, I was speaking with someone about electricity. As we discussed this, it became more obvious that this is an easy way to save money. I’ve been thinking about this because we’re about to get solar panels.

Looking at your electric bill (ours is National Grid), you’ll see 2 sections - one for delivery and the other for supply. There are charges for both sections. According to my bill, the delivery charge is a total of 8.1 cents per kilowatt hour. The supply side is 13.038 cents for a total cost of 21 cents for kilowatt hour.

(If you want to know how National Grid really provides electricity, click here)

You can change suppliers and lower the cost of electricity. In fact, National Grid even lists what companies are available here.  On the page, National Grid even states: “Choosing who supplies the energy that we deliver to you gives you an important opportunity to take better control over your energy costs. Choosing an energy supplier is easy and does not have to take a lot of time or be complicated.”

One company I looked at offers supply at 9.25 cents (versus the 13 that I pay now). Taking that difference and multiplying it by our average usage, it means an average savings of $40/month – without affecting lifestyle.

Of course, you have to read the fine print for each company. Even National Grid offers different rate programs, so make sure you compare apples to apples.

But how much could this save you each month? What would you have to give up to save the same amount otherwise?

On a separate note, I have a couple of events coming up for college planning. I'm doing classes on "How to Read Your Financial Aid Award Letter". The dates are as follows:

2/24 - Westford Roudenbush Community Center

3/1 - Acton-Boxborough High School

3/3 - Littleton High School

3/9 - Tewksbury High School

More information and registration links can be found on my Facebook page here.

Our next president will have lots of impact on these

Happy President's Day!

Our current system of taxation originated in 1913 with the adoption of the 16th Constitutional amendment - though the tax code is far more complex today.

Our choice of who will be the next President will have a major impact on the tax code. And with all of the talk of taxing the wealthy, there might be some unintended consequences on the middle class.

What some people call "loopholes", other people call "deductions".  And they aren't just for the rich!

http://www.bloombergview.com/articles/2016-01-05/closing-tax-loopholes-would-choke-the-middle-class

Trivia question - who was the President of the US in 1913?

Even making $100k, finances are tight?

Cash and debt management.

Even if you make $100k per year, it can be difficult to meet day to day bills and debt payments.

Here's how the average American handles their debt and bills.

Courtesy of PwC 2015 Employee Financial Wellness study.

http://media.lifehealthpro.com/lifehealthpro/article/2015/04/23/04-14-15-news-pwc-wellness-t3.JPG

Money is either working for you or against you.

When it comes to finances this time of year, something people are thinking about is taxes. You see the commercials on TV for all of the tax preparation services and software. And they all look so happy – personally, I don’t know anyone is actually happy about taxes, except for, perhaps, the tax accountant.

According to the IRS, the average refund last year – 2015 returns for tax year 2014 – was $2,797. That figure was basically unchanged from the prior year. I’m sure that everyone who gets a refund is pretty happy about it. Well, certainly happier than the people who have to pay – because that’s never any fun!

Take a moment and think about money in general – not just taxes. Perhaps you have a dollar bill lying on the table. What is it doing? Is it just laying there? Is it really just laying there?

Money either works for or against you. Money works for you by generating a return, such as interest from a deposit account. Money works against you due to interest you have to pay on a loan, or simply just inflation.

If you left that dollar on the table for a year, it wouldn’t have the same purchasing power. If inflation is 3%, then the purchasing power of that dollar a year from now would only be 97 cents.

Besides inflation, there is the opportunity cost. That is, the interest that dollar could have earned, but didn’t because it was just on the table.

So what does all of this have to do with taxes?

Let’s consider that for an entire year, you don’t have access to that money, not earning interest for you, and inflation is reducing the purchasing power. What does that mean in real money?

Consider opportunity cost. Let’s suppose that instead of earning zero while the government has your money, you could have earned 5%.

Taking the average 40 year old person, and going until the normal retirement age of 67, the figures look like this:

Refund / Yr	$2,797
Total Amount to age 67	$75,519
Assumed Interest Rate	5%
Total Amount with Interest	$152,910
Opportunity Cost	$77,391

The table above shows that the total amount of the refunds to age 67 is over $75k. But once you factor in interest, that amount goes to almost $153k.

Over time at a hypothetical 5% return, the money could earn over $77k!

That’s called having money work for you!

In order to recapture this lost interest, follow these 2 steps:

1. Use the IRS withholding calculator or any of the numerous calculators provided by various the tax preparation software companies. The link to the IRS calculator is here. 

2. Set up auto deposit from your paycheck to the savings vehicle of your choice. You’ll be getting extra take home pay, so make sure you save it.

Even if you don’t get the hypothetical 5% return in the example above, have it earn some interest. Having your money work for you is better than having it work against you!

How to become wealthy in 11 easy steps...maybe

I don't agree with steps #2 and #7 because part of what makes people rich is discipline to choose and not justify buying everything that catches your eye.

However, what I do agree with the most important concept in this article - mindset. Wealthy people have a different mindset about money. How it can work for you. How it can help you. It's a tool, just like a hammer or a wrench.

Understand that, and you'll be on your way to wealth!

http://www.businessinsider.com/actions-to-get-rich-2015-9

What would help you achieve your financial goals?

Here's how most Americans answered.

Chart courtesy of PWC 2015 Employee Financial Wellness Survey.

http://media.lifehealthpro.com/lifehealthpro/article/2015/04/23/04-14-15-news-pwc-wellness-t2.JPG

After filling out those forms, now what?

If you have college bound kids, chances are you spent the weekend filling out the dreaded FAFSA or CSS Profile forms. For some people, it’s like having to do taxes twice!

And for many people, they realized from filling out the forms that debt – credit cards, auto loans, and student loans – doesn’t factor in aid calculations. That’s right – I know people who are up to their eyeballs in debt, and per financial aid regulations, it doesn’t matter. It’s not a good feeling knowing that on top of everything else, the prospect of a bunch of more student debt is coming.

Parents now typically are asking, now what? What happens next? Generally speaking, financial aid letters will go out in March with the results. They will show a combination of merit-based and financial need-based aid. Merit based aid is based on your kid’s GPA and test scores, among other factors. What is not true is that your kid has to be a genius to get merit aid. Each school is different and could also vary by major within a given college.

Financial need based aid is determined by your finances, and why you likely spent the weekend pulling up tax forms and bank statements. Here’s the important fact – just because you are eligible for aid does not mean you’ll get it. Most colleges do not meet 100% of need eligibility.

That still means you are responsible for the EFC – expected family contribution - your share of college costs. And for many regular working families, this could mean tens of thousands of dollars!

Once you get your financial aid award letter, you’ll be faced with a decision. First, add up how much your EFC is plus any cost that was not met by aid. Most people find that figure shocking. Think about it – you’re essentially buying a new car each year for the next 4 to 6 years!

If you’d like to compare, Motor Trend magazine has this nice buying guide for new cars in different price ranges.

Just picture yourself in one of these new cars, and then look at your kid. How much do you love your student, but some of these cars are pretty nice.

What I told my own son is that money matters and it doesn’t. After all, even if he got a full ride at a school, but didn’t like the school, he would be miserable going there. At the same time, a very high cost school may be unaffordable even if he likes it there. So there has to be a balance.

It is critical to go over the details of each award letter and truly understand what is being offered. And comparing apples to apples. Most people wouldn’t buy a new car without some research – it’s the same concept here!

Decision day is, typically, May 1^st when the deposit is due. Note that housing deposits may have a different – even earlier due date so make sure you keep track!

It’s a huge decision that will have a major impact of the rest of your financial life. What you decide today could mean the difference between retiring earlier or having to work longer.

If you’d like help deciphering the award letters, I’ll be running a workshop on “How to Read Your Financial Aid Award Letter”. The dates / locations are as follows:

Feb 24^th – Westford Roudenbush Community Center

Mar 1^st – Acton Boxborough High School

Mar 3^rd – Littleton High School

Mar 9^th – Tewksbury High School

See the Events page on my Facebook page for more details.

On a sad note, I found out recently that a good friend, Al Blake of Seacoast Financial in Hampton NH, passed away last week. Al was a giant in our industry both in the region and nationally. While I only knew Al professionally, he was always kind and generous with his time and knowledge. I always learned something from him, and was looking forward to learning more tips. I – along with many people – will miss you “Uncle” Al.

The forgotten group in the debates?

With all of the debates and talk about income inequality, what about the group with the most people? The "middle class"!

http://www.csmonitor.com/USA/Society/2015/1101/So-how-s-the-American-middle-class-really