Life Planning Important - and practical - ďŹ nancial advice for all ages
Insurance What every household should have
Retirement Planning and saving
Budgets How to plan and keep
Debts How to avoid the debt trap BONUS: How to become a millionaire
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n Simple ways to keep a realistic budget Successful financial plans often begin with the creation of a budget. A budget is an estimate of income and expenses in a given period of time. Budgets help with long-term goals like paying off a mortgage or sending a child to college as well as short-term goals like financing a dream vacation. Not all budgets are alike, and when people hear the word “budget,” they may get apprehensive. Budgeting may require making some concessions in regard to spending habits, but it doesn’t have to put a complete damper on plans. In fact, with a budget in hand, people may be more free to spend because they will have a stronger grasp of their financial situation. Making a realistic budget does not have to be a chore. Here is how to get started. n List the necessities. Begin by calculating the costs associated with fixed needs, including rent/mort-
n Use software or apps to help. There are plenty of resources available to help people calculate their budgets and get a picture of their financial habits. Resources such as Mint, YNAB (You Need a Budget) and various accounting programs can produce spreadsheets, pie charts and bar graphs as you work to create a budget.
Budgets do not have to be difficult. With a few strategies, a realistic saving and spending plan can be made.
n Start trimming gradually. Quitting a certain lifestyle cold turkey can be jarring. Gradually cut back on your spending if your analysis suggests that’s the way to go.
easier with fixed numbers, but unforeseen variables can affect spending every month. These can include the extras for clothing, entertainment and much more. Average the cost of these expenses throughout your analysis period so you can get some idea of how much to allocate for them.
n Automate saving. Immediately removing a set amount from your paycheck by having it directly deposited into a separate account can remove the temptation of spending too much from your financial equation. Budgets are a key part of a financial plan and can help people reach their goals.
gage, utilities, food and any other bills you have to pay each month. n Add existing debt. Debt includes any routine payments being made to credit card companies, student loan lenders, car payments, or unpaid medical bills. n Conduct a spending analysis over several months. Budgets are
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n Insurance policies everyone should have factor in mortgage or rent payments, loans, funeral expenses, child care, and taxes when calculating how much life insurance coverage they need. Experts suggest 10 times one’s yearly income.
Insurance is something everyone needs but hopes never to use. Without insurance, already difficult situations could be made much worse and cause financial devastation. Certain types of insurance may not be necessary for everyone, but other types are almost universally necessary regardless of the policy holder’s particular situation. The following are some examples of insurance policies everyone should have.
Disability insurance Many people do not believe they will become ill or injured. But the statistics speak otherwise. Data from the Social Security Administration show that three in 10 workers entering the workforce will become disabled before they reach retirement. Being off from work anywhere from a few weeks to a few months is enough to jeopardize one’s financial future. Short- and long-term disability policies provide partial and complete income replacement depending on the policy chosen.
Health insurance Everyone needs health insurance. The out-ofpocket costs for routine medical examinations can be quite high, and testing, hospitalization or surgery can take quite a toll on a person’s finances if he or she has no health insurance. In fact, a recent Harvard study noted that most people are statistically one serious illness away from bankruptcy. Shopping around for adequate coverage and the most affordable plans for one’s situation is essential, as even minimal coverage is better than nothing when it comes to offsetting the rising costs of health care.
Life insurance Life insurance is something most people will
A recent Harvard study noted that most people are statistically one serious illness away from bankruptcy.
Auto insurance never benefit from personally, but it leaves a financial legacy for the people they love, providing for those they leave behind. Parents or men and women who are the sole breadwinners in the household can rest easy knowing their life insurance will keep their loved ones financially secure in the event of their death. According to the financial resource Investopedia, individuals need to
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n How young people can avoid the debt trap Rites of passage come in many forms. Some are religious ceremonies marking an important stage in a person’s spiritual life, while others are less ceremonial but still impactful. For many young people who are old enough to vote but not necessarily old enough to live completely independent of their parents, digging oneself out of debt is an early financial rite of passage. But youth and debt need not go hand in hand, even though statistics suggest otherwise. According to the Federal Reserve, student loan debt reached historical highs in the first quarter of 2018, surpassing $1.5 trillion for the first time ever. That figure is even more staggering when compared to figures from a decade ago, when total student loan was about $600 billion. And it’s not just student loan debt that’s jeopardizing young people’s
financial futures. Consumer debt compiled through the use of credit cards has long been a thorn in the sides of young adults, many of whom apply for credit cards before they fully understand the concept of credit, only to learn the hard way that swiping credit cards comes at an oftentimes steep cost. But while the young people of yester-year might have landed in debt by using credit cards for nonessentials like a night out with friends, a recent survey from the professional services firm PwC found that young adults currently between the ages of 25 and 34 are more likely to buy day-to-day essentials with credit. In fact, 20 percent admitted to doing so in the past six months, compared with just 6 percent of adults age 55 and over. That
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Debt
n Avoid consumer debt. Interest rates on credit cards can be high, especially for Continued from page 6 young people without lengthy credit histories. As a result, it’s best to only use such could be due to a number of factors beyond cards for emergencies and not to pay for young adults’ control, including low and nights out with friends or a new pair of stagnant wages, but it also might be a byshoes. Consumer debt that’s not product of young adults not paid off in full each month also Student loan debt knowing how to avoid debt. If can adversely affect young it’s the latter, then young adults reached historical adults’ credit ratings, which can can try to employ the following hurt them when they get older strategies to avoid falling into highs in the first and look to buy their own homes the debt trap. or other big-ticket items. n Explore your repayment quarter of 2018 n Live at home. While many options. According to Student college graduates want to mainDebt Relief, a private company tain their independence and live that looks to educate and on their own after graduation, moving back empower consumers about student loan in with mom and dad might be the most debt, the average college graduate in the financially savvy move to make. Doing so class of 2016 had $37,172 in debt. That’s allows young adults with jobs to begin nearly $10,000 more debt than the average building their nest eggs and can help them graduate from the class of 2011. Young avoid having to use credit cards to meet adults struggling to repay their student loans can explore various options, including their day-to-day needs. Debt ensnares many young adults. federal student loan repayment plans, such But there are ways for young people to as the Pay As You Earn plan and the avoid debt and pave the way for a bright Income- Based plan. Each plan is different, financial future. but young adults should know that they
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Credit scores are important factors when lenders determine if individuals applying for credit or loans are worthy borrowers. Credit is used when purchasing a new home, buying a car, opening a business, or applying for new credit cards. A credit score is a three-digit number that corresponds to a certain range. The standards were established by FICO¨, and the higher the score, the better (scores start at 300 and move upward to 850). Various things can impact credit score, and some weigh more heavily toward the final score than others. The following are the factors that influence credit score in order of their importance, according to Wells Fargo bank. n Payment history (making payments on time) n Current debts (carrying high balances) n Credit history n New credit application inquiries n Types of current credit (mixed forms of loans, credit cards, etc.)
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n Creating wills: things you need to know also dictate guardianship for their pets and to leave money or property to help care for those pets. However, pets do not have the legal capacity to own property, so one shouldn’t gift money directly to pets in a will.
Drafting a last will and testament is an essential component of estate planning. Despite the importance of having a will, a recent survey from AARP found that two out of five Americans over the age of 45 do not have one. Putting wishes down on paper helps avoid unnecessary work and sometimes heartache upon the death of a loved one. Wills allow heirs to act with the decedent’s wishes in mind, and can ensure that assets and possessions will end up in the right hands. Estate planning can be tricky, which is why many people turn to attorneys to get the job done right. Attorneys who specialize in estate planning will no doubt discuss the following topics with their clients.
n Funeral instructions: Settling probate will not happen until after the funeral. Therefore, funeral wishes in a will often go unnoticed, states the legal advisement resource Find Law. n Executor: An executor is a trusted person who will carry out the terms of the will. This person should be willing to serve and be capable of executing the will.
People who die without a valid will become intestate. This means the estate Wills allow heirs to act with the decedent’s wishes in mind, and will be settled based on the laws of where n Assets owned: Make a list of known can ensure that assets and possessions will end up in the right that person lived, and a court-appointed assets and figure out which assets are covhands. administrator will serve in the capacity to ered by the will and which will have to be transfer property. This administrator will be passed on according to other estate laws, and jewelry. bound by laws and may make decisions that go such as through joint tenancy on a deed or a livn Guardianship: Parents’ wills should against the decedent’s wishes. To avoid this outing trust. For example, life insurance policies or include a declaration of who they want to become come, a will and other estate planning documents retirement plan proceeds will be distributed to guardians their underage children or dependents. are crucial. your named beneficiaries. A will also can cover other assets, such as photographs, clothing, cars, n Pets: Some people prefer to use their will to
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n Advice on paying off your student debt Recent college graduates may be entering the job market with degrees in tow, but many also are leaving school with sizable amounts of student loan debt. According to a 2018 report from the Federal Reserve Bank of New York, student loan debt rose for the eighteenth consecutive year, and Debt.org reports that student debt in the United States totaled $1.4 trillion in 2018. Canadian students are not faring much better than their American counterparts, owing an average of $28,000 after four years according to the Canadian Federation of Students. Student loan debt is a heavy burden that has short- and long-term effects on borrowers. Sizable student loan debts may affect young professionals’ ability to support themselves. The Federal Reserve Bank of New York reports that such debt has contributed to a decline in the housing market, as fewer college graduates can afford to buy homes while
still in their 20s. The notion of paying off their student loans before they reach maturity may seem implausible to some borrowers. But there are a handful of ways for adults with sizable student debts to do just that.
reach maturity.
n Make more frequent payments. Many homeowners pay their mortgages off early by making bi-weekly payments. Doing so means they will make 26 half-payments, or 13 full payments, each year as opposed to the 12 full payments made by homeowners who pay on a monthly schedule. The same approach can be applied to student loans. That extra annual payment each year can gradually chip away at loan balances, helping borrowers pay loans off before they
n Prioritize paying off high-interest loans. Many students finance their educations by taking out multiple loans. If these loans come with different interest rates, borrowers should pay off the high-interest loans first to reduce the amount they’re spending on interest. Borrowers will still need to make minimum payments on other loans, but any extra money they intend to pay each month should go toward paying down the highest interest loan. n Refinance loans. Many recent college graduates do not have lengthy credit histories, and some might be carrying low credit scores. Once such borrowers have shown that they can consistently make pay-
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n Take advantage of offers from lenders. Some lenders may reduce interest rates for borrowers who agree to certain terms, such as signing up to receive e-statements or enrolling in automatic payment programs in which money is deducted directly from a borrowers’ bank account on the same day each month. The savings created by such offers may seem insignificant each month, but can add up over time. Paying off student loan debts early can be done, even for borrowers whose debts are tens of thousands of dollars.
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ments in full and on time, they can approach their lenders to refinance their loans in the hopes of getting a lower interest rate reflective of their creditworthiness. Refinancing may only be available to borrowers with private loans, but this strategy can save student debt holders a lot of money over the life of their loans.
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n Financial plans: why you need one now month so you can get a clear picture of your spending habits. This will help you make smart choices in regard to spending and saving.
A clear understanding of personal expenditures and savings rates is essential for securing a strong financial future. A financial plan can help everyone from the extraordinarily wealthy to those struggling to make ends meet. The Financial Planning Association says a financial plan identifies goals and objectives that take finances to achieve and creates a plan for making those things happen. A financial plan can serve as a road map that people can look to for years to come as they work toward securing their financial futures. Whether you aim to retire by age 50 or to reduce your debt, a financial plan can be just what you need to turn your dreams into a reality. Here are some steps for devising a financial plan.
n Eradicate existing debt. One of the key parts of a financial plan is to pay down high-interest debt to free up money for the future. Focus on paying off credit card balances, high-interest loans or balances for other accounts where interest is high. A debt consolidation loan may be worth exploring if you’re having trouble paying down high-interest debt.
n Identify what you want. You You’re never too young or old to devise a financial plan. must identify what you want to achieve. n Audit your finances. Conduct an audit of Goals may include buying a home, retiring early, providing for a child’s education, or your finances so you can get a clear grasp of your current situation. Make a list of all of your having more time and money for travel. Putting assets, and then subtract existing debts to figure your goals on paper may inspire you to pursue out your net worth. While you’re tabulating, find them more vigorously. out how much you bring in and spend each
n Start saving. Building savings is essential to reaching many goals. It also is key to help avoid financial ruin during emergency situations, such as home or car repairs, disability that takes you out of work and so forth. Start small by having a certain percentage of money deposited into a separate account automatically. Then watch it grow. Investing in the right products also can help you grow your savings. Financial advisors can help individuals devise plans to meet their short- and long-term goals.
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n How to finance long-term care needs Failing to plan for long-term care expenses may leave aging men and women with few or no assets late in life. AARP says that the cost of long-term care continues to rise and the array of options can make it difficult for families to find the best, most affordable care. The median monthly costs for a semi-private room in a U.S. nursing facility hovered around $6,800 in 2016, according to The Genworth Cost of Care Survey. That adds up to roughly $82,000 per year. Individuals who only anticipate hiring a home health aide should know that such options cost an average $3,800 per month. Retirement savings can quickly dry up when long-term care is required. Individuals need to keep in mind that in 2014 the Social Security Administration said the average monthly retirement income from Social Security was just $1,294. The National Care Planning Council says that at least 60 percent of all individuals will need extended help during their lifetimes. Ongoing care can last for many months or years. Long-term care needs, including assisted living and nursing home stays beyond a few months, may not be covered by federal health insurance programs, such as Medicare. As a result, it is up to individuals to find ways to finance their care.
says that policyholders will be reimbursed for qualified long-term care costs up to a maximum daily benefit amount. Coverage varies, but policy premiums generally increase with the age of applicant.
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Long-term care insurance Long-term care insurance is one way to offset costs of care for later in life. But many people are unaware that this type of insurance exists. A survey conducted by Leger Marketing for the Canadian Life and Health Insurance Association found that 74 percent of respondents said they haven’t included provisions for long-term care in their retirement plans. Long-term care insurance is a safety precaution that can be purchased early in life to plan to help pay for expenses aging men and women may incur in their golden years. New York Life Insurance
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Government aid is available for U.S. and Canadian residents, but qualifications vary and it is usually limited to those with financial hardships. Medicaid pays for the largest share of longterm care services in the United States, according to the Administration on Aging. But to qualify, one’s income must be below a certain level, and the person must meet minimum state eligibility requirements. Canadian provinces will assess one’s ability to pay and may subsidize care costs. Also, there may only be a handful of facilities supported by the government, so applicants cannot be picky about accommodations. Financing long-term care is something individuals must consider as they make their plans for the future. It is a large expense that cannot go unaddressed even though the need for care might be in the distant future.
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n Financial tips to survive losing your job n Find ways to supplement your income. Bringing in any money can be helpful. If it is feasible, look for ways to make some cash while you search for a new job in your field. This may include working from home, freelancing or selling items online. Consider part-time work while you look for a job. You may prefer to find temporary or part-time work in your field, but your hobbies and other interests may present income possibilities as well.
The job market is fickle, and no one is immune to layoffs. Although the unemployment rate in the United States dipped to 3.9 percent in December, the job market remains somewhat unpredictable. Preparing financially for unemployment can be prudent, even for working professionals who do not anticipate being laid off. Financial advisors recommend adults save the equivalent of six months’ salary to cover their expenses in the event of job loss. Individuals who want to protect themselves and their assets in the case of job loss can also heed the following tips. n Examine current finances. It’s important to have an accurate assessment of your current financial situation. Calculate monthly expenses to get a handle on what you are spending. Compare those expenditures against your savings to see if the latter can keep you afloat should you lose your job. Look for areas where you may be overspending, even cutting out some luxuries if you suspect a job loss is looming or just want to build your savings. n Begin budgeting for loss of health insurance. Health insurance coverage typically ends when a person is laid off. Loss of coverage might not be immediate, but it may occur within months
Preparing financially for unemployment may be prudent. of a layoff. Health insurance is a considerable cost, and you will need to budget for the expense so that you will have access to the health services you need. n Research options in government benefits. Few people like the prospect of visiting the unemployment office after being laid off, but delaying the process could negatively affect your finances. It can take some time for unemployment claims to be processed, so apply as soon as possible after losing your job.
n Practice living with less. Cut out unnecessary expenses and attempt to live with less. You may find that this comes easily and continue to do so even though you remain employed. Such a trial run can bolster your savings in the event of layoff while also acclimating you to living with less should a layoff ever occur. n Don’t burn bridges. While it’s understandable to harbor some resentment toward an employer for letting you go, that same employer may be able to help you in the long run. Supervisors can help you find a new job or write glowing recommendations. Staying positive and resisting the temptation to badmouth a former employer can only help you in the long run.
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How to become a millionaire saving just $4,500 annually Retirement can seem like it will never come for young professionals. But time can be a sieve, and retirement age can arrive in the blink of an eye. Young adults who have not planned accordingly for retirement can find themselves in financial straits at a point in their lives when they want to kick back and enjoy themselves. Financial experts from Money, CNN and The Motley Fool advise that financially solvent people should begin saving aggressively for their retirements early on. Ideally people should start saving in their 20s when they first leave school and begin their careers. The sooner one saves, the more time money has to grow. Vanguard says that the person who saves $4,500 per year over a career spanning 45 years can reach a goal of having more than $1 million in savings by the time he or she retires. Compounding interest and investment matches from employers can further secure professionals’ financial futures.
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n Pros and cons to early retirement ty - one where workers have greater control over their schedules and careers.
A lifetime of working compels many people to look forward to their retirement. Some people even work to retire early. But what are the advantages of early retirement beyond starting a life of leisure? And are there any detriments to this plan? A 2014 survey by the financial services provider TIAA-CREF found that 37 percent of Americans plan to retire before age 65. However, many of them will not have control over the matter. Those who do may want to consider the pros and cons of early retirement.
Disadvantages
Advantages Many people seek early retirement so that they can live a life free from the constraints of schedules. In retirement, time becomes, more or less, a retiree’s own. Leaving a job can be a boon to a person’s health as well. Relieving oneself of the pressures and stresses of professional life can free up the mind and body. Stress can affect mental and physical health, taxing the heart and contributing to conditions such as depression or anxiety. According to the Mayo Clinic, stress can cause headache, muscle and chest pain and contribute to trouble sleeping.
There are many important considerations to make if you plan on retiring early. The earlier the retirement, the more opportunity to travel before health issues begin to limit mobility. Early retirement also can be a way to volunteer more or even start a new job opportuni-
One of the disadvantages of early retirement is loss of income. Contributions to retirement accounts also cease at retirement. This can lead to financial setbacks if adequate savings were not allocated for retirement. According to the resource WealthHow, some people who retire early fear outliving their savings. While retiring early may be good for health, it also can have negative consequences. An analysis from the National Bureau of Economic Research found that retirement can lead to declines in mental health and mobility as well as feelings of isolation. Retiring early may jump-start these health implications. Another consideration is that health insurance provided by an employer typically ends at retirement. That means having to pay out of pocket until a person ages into government-subsidized healthcare, such as Medicare in the United States, at age 65. Retiring early is a complex issue that requires weighing the pros and cons.
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n 4 simple ways to save more for retirement It’s never too early to begin saving for retirement. While millions of people have no doubt heard or read those very words before, surveys indicate that few people are taking that lesson to heart. A 2018 survey from Bankrate.com found that 20 percent of Americans don’t save any of their annual income. Things aren’t necessarily rosier in Canada, where the financial institution CIBC reports that 32 percent of people nearing or on the cusp of retiring have nothing saved for retirement. Saving for retirement can seem impossible in households where every dollar counts. But the following are four simple ways to save more for retirement without making dramatic lifestyle changes.
n Turn raises into retirement savings. According to the WorldatWork 2018-2019 Salary Budget Survey: Top Level Results, salary budgets in the United States are projected to rise by an average of 3.2 percent in 2019, while those in Canada are expected to rise by 3 percent. Working professionals can save more for retirement by converting some or all their raises into retirement savings. Pre-tax retirement accounts allow working professionals to put aside money before taxes
people every pay period, increasing your contribution rate dramatically when your bonus is issued is a great way to save more for retirement. Contribution rates can then be returned to normal the following pay period.
n Downsize your home. Empty nesters nearing retirement age may benefit by downsizing their homes. Doing so can reduce utility bills, property taxes and other expenses, and those savings can then be redirected into retirement accounts.
n Reinvest tax returns. Working professionals accustomed to receiving tax returns can use that money to catch up on their retirement savings. Rather than spending tax returns or depositing them into traditional savings accounts, reinvest them into a retirement account. Speak with a financial planner to help you figure out how to accomplish this goal. Even if it requires opening a new account, the long-term benefits or reinvesting returns are substantial. Saving for retirement is important, and it’s never too late or too early to start setting aside more money for your golden years.
are paid, so weekly paychecks will not be greatly affected if you choose to increase the percentage of your income you deposit into such accounts. Do this each time you receive a raise and your retirement savings will grow considerably.
n Put bonuses to work. Professionals who receive bonuses can speak to their employer and request that their retirement contribution rates be increased when bonuses are issued. Many 401(k) retirement plans allow workers to contribute as much as 80 percent of their paychecks. While that’s not sustainable for most
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