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TAKING CONTROL OF SPENDING
Most money goes to housing, transit, food Those areas offer opportunities for cutting back METRO NEWS SERVICE Who hasn’t tallied up monthly bills or looked at a credit card statement and pondered if they’re spending a little too much? The average person also might wonder how their expenditures compare to other people around the country and what they need to do to enjoy financial freedom in retirement. According to the U.S. Bureau of Labor Statistics, the average American household spends just about $57,000 each year between necessities and luxuries. So how are people allocating their funds? The results might surprise you and indicate where it’s possible to trim some fat and save big bucks. Across America, housing is the largest line item in people’s budgets. Various sources suggest that housing and shelter needs account for anywhere from 30 to 40 percent of most household budgets. By making housing decisions based on areas with the most efficient cost of living, individuals can save considerably over the long run. The second largest expenditure cate-
gory is transportation. This accounts for the cost to finance or lease a vehicle and insure it, and it also includes urban dwellers who rely on public transportation or ride-share services to get around. Keeping transportation budgets in check can be great a way to save. Food is the next largest expense. While everyone needs sustenance to stay alive, how that money is allocated can make a big difference in saving versus spending. The Bureau of Labor Statistics says that food at home costs around $4,000 a year, while spending on dining out amounts to around $3,100, for a grand total of $7,100 each year. Cutting back on dining out can be a great way to save money, as can becoming a more sale-conscious grocery shopper. Health care, utilities and entertainment are the next most costly expenditures, respectively. But each of those items are considerably less expensive than the top three. Therefore, making changes to where one lives, how one gets around and how one eats can certainly add up to considerable savings.
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So how are people allocating their funds? The results might surprise you and indicate where it’s possible to trim some fat and save big bucks.
INDIVIDUAL FINANCES
Here are some simple ways to maintain a realistic budget Process provides stronger grasp of financial situation METRO NEWS SERVICE 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 might 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 might be more free to spend because they will have a stronger grasp of their financial situa-
tion. Making a realistic budget does not have to be a chore. Here is how to get started. • List the necessities. Begin by calculating the costs associated with fixed needs, including rent/mortgage, utilities, food, and any other bills you have to pay each month. • Add existing debt. Debt includes any routine payments being made to credit card companies, student loan lenders,
car payments, or unpaid medical bills. • Conduct a spending analysis over several months. Budgets are 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.
See BUDGET, Page 6
January 2019
| FINANCE MATTERS
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SENIOR CITIZEN FINANCES
Early retirement: There are pros and cons to it Weigh the advantages and the disadvantages
Retiring early is a complex issue that requires weighing the pros and cons. Some people 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?
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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 recent 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.
Advantages Many people seek early retirement so that they can live a life free of 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
Metro News Service 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,
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and contribute to trouble sleeping. 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 opportunity — one where workers have greater control over their schedules and careers.
Disadvantages One of the disadvantages of early retirement is a 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 Wealth How, 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 jumpstart 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 health care, 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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be due to a number of factors beyond young adults’ control, including low and stagnant wages, but it also might be a byproduct of young adults not knowing how to avoid debt. If it’s the latter, then young adults can try to employ the following strategies to avoid falling into the debt trap. • Explore your repayment options. According to Student Debt Relief, a private company that looks to educate and empower consumers about student loan debt, the average college graduate in the class of 2016 had $37,172 in debt. That’s nearly $10,000 more debt than the average graduate from the class of 2011. Young adults struggling to repay their student loans can explore various options, including federal student loan repayment plans, such as the Pay As You Earn plan and the Income- Based plan. Each plan is different, but young adults should know that they have many repayment options. • Avoid consumer debt. Interest rates on credit cards can be high,
especially for young people without lengthy credit histories. As a result, it’s best to only use such cards for emergencies and not to pay for nights out with friends or a new pair of shoes. Consumer debt that’s not paid off in full each month also can adversely af fect young adults’ credit ratings, which can hurt them when they get older and look to buy their own homes or other big-ticket items. • Live at home. While many college graduates want to maintain their independence and live on their own after graduation, moving back in with mom and dad might be the most financially savvy move to make. Doing so allows young adults with jobs to begin building their nest eggs and can help them avoid having to use credit cards to meet their day-to-day needs. Debt ensnares many young adults. But there are ways for young people to avoid debt and pave the way for a bright financial future.
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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.
Debt ensnares many; here are ways to avoid it METRO NEWS SERVICE
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. 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 yesteryear might have landed in debt by using credit cards for nonessentials like a night out with friends, a recent survey from the professional services fir m 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 to so in the past six months, compared with just 6 percent of adults age 55 and over. That could
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How younger generation can avoid the debt trap
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FINANCIAL TRENDS
Keep benefits of joint bank accounts in mind They help keep couples on same financial page
Merging bank accounts can be a good idea for newlyweds for various reasons.
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Once a couple walks down the aisle and returns home from their honeymoon, various tasks must be performed. Couples should not overlook the importance of tending to their financial futures. One of the first steps is merging and managing bank accounts. A study from Kansas City University found the No. 1 cause of divorce in the United States is fighting over money and other financial problems. Therefore, being on the same page concerning finances and maintaining financial transparency can help reduce the propensity to clash over cash. Merging bank accounts can be a good idea for newlyweds for various reasons. • Improved efficiency: Having one account makes it easier to track income and spending and can make keeping track of money less complicated. Also, having only one bank
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means cutting down on statements or correspondence from multiple institutions. • Greater communication: Some people are natural spenders and others savers. It’s easy to gloss over financial indiscretions when there are separate accounts. A joint account makes it easy to talk about
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spending habits and the flow of money in and out of an account. • Creates accountability: Not being able to hide debt or large expenditures or withdrawals makes couples accountable to each other. This creates transparency in a relationship and may help couples become closer as a result.
• Good in emergencies: According to the financial resource Money Under 30, having a joint bank account can ensure that a surviving spouse has uninterrupted access to funds in the event his or her partner dies. This may not be the case with individual bank accounts until the estate goes through probate. • Get better banking: Certain financial institutions may offer perks like no fees if customers maintain a specific balance or meet the criteria of debit card usage per month. Such requirements may be more easily reached with two people utilizing the account. • Combine with ease: Financial expert Dave Ramsay says it’s particularly easy to merge when individuals already were using the same bank or credit union. Simply showing up with identification and transferring the balance of one account into the other and adding a signer is all that’s needed. In instances where couples use different banks, select a convenient institution and open up a new account together after closing the individual ones.
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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. 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. 1. 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. 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 are paid, so weekly paychecks will not be great-
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Saving for retirement is important, and it’s never too late or too early to start setting aside more money for your golden years. ly 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.
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2. 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 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. 3. 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. 4. Reinvest tax refunds. Working professionals accustomed to receiving tax refunds can use that money to catch up on their retirement savings. Rather than spending tax refunds 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 longterm benefits of reinvesting refunds are substantial.
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Four simple ways to save more for retirement
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HOME OWNERSHIP
Methods for saving money for your first home METRO NEWS SERVICE Home ownership is a dream for people across the globe. Many people save for years before buying their first homes, squirreling away every dollar they can with the hopes they can one day become homeowners. But thanks to factors beyond their control, even the most devoted savers can sometimes feel like their dream of home ownership may never come true. According to the Pew Research Center, American workers’ paychecks are larger than they were 40 years ago, but their purchasing power is essentially the same. Various challenges can make it difficult to buy a home. However, some simple strategies can help prospective home buyers build their savings as they move closer to the day when they can call themselves “homeowners.” • Determine where your money is going. If you’re finding it hard to grow your savings, audit your monthly expenses to determine where your money is going. Using exclusively debit or credit cards can
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Saving enough money to purchase your first home is a worthy effort that can be made easier by employing a few budget-friendly strategies. simplify this process, as all you need to do is log into your accounts and see how your money was spent over a given period. If you routinely use cash to pay for
items, even just to buy coffee on the way to work, keep a notepad handy so you can jot down each expense. Do this for a month and then examine how you spent your money. Chanc-
es are you will see various ways to save, and you can then redirect that money into your savings account. • Become a more savvy grocery shopper. Another great way to save more money is to alter something you already do each month: grocery shopping. If you haven’t done so already, sign up for discount clubs at your local grocer. This is a largely effortless way for shoppers, especially those buying food for families, to save considerable amounts of money. Shopping sales at competing grocery stores also can save money. • Dine in more often. The U.S. Department of Agriculture says that Americans spend, on average, 6 percent of their household budgets on food. However, the USDA also notes that Americans spend 5 percent of their disposable income on dining out. If these figures mirror your spending habits, you can nearly cut your food spending in half by dining out less frequently. That might be a sacrifice for foodies, but it can get you that much closer to buying your own home.
FINANCIAL PROTECTION
A look at insurance policies that everyone should have Health, life, auto, disability important METRO NEWS SERVICE Insurance is something everyone needs but hopes to never use. Without insurance, already difficult situations could be made much worse and cause financial devastation. Certain types of insurance might not be necessary for everyone, but other types are almost universally necessary, regardless of the policyholder’s particular situation. The following are some examples of insurance policies everyone should have. Health insurance: Everyone needs health insurance. The out-of-pock-
• BUDGET Continued from Page 1 • Use software or apps to help. There are plenty of resources available to help people calculate their budgets and get a picture of their
et 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 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 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. 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. Auto insurance: People who drive are urged to have auto insurance to protect themselves in the event of an accident or theft. Auto insurance also helps to protect against any litigation as the result of accidents when a passenger or other driver is injured. Insurance is a wholly necessary expense that provides peace of mind and protection.
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. • Start trimming gradually. Quit-
ting a certain lifestyle cold turkey can be jarring. Gradually cut back on your spending if your analysis suggests that’s the way to go. • Automate saving. Immediately removing a set amount from your paychecks 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.
GROWING WEALTH
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Investing has always been a means for people to grow their wealth and make their money work for them. Investors know that protecting investment earnings is important, and that often can be achieved through tax-advantaged investments. Tax-advantaged investing, also called tax-efficient investing, allows investors to maximize the profits they can keep after taxes are filed. Investment selection and asset allocation are important factors affecting returns, but minimizing taxes and other costs is also crucial, according to the Schwab Center for Financial Research. There are some ways for investors to keep more of their assets. A qualified financial adviser can help navigate the waters of the best tax-advantaged options. When investing on an annual basis, there are some general accounts people can use to their advantages. • A 401(k) or 403(b): These accounts are an ideal way to get “free” money. Funds in these accounts are put away pre-tax. Because your adjusted gross income is lowered, so is your federally taxable income. In addition, some employers may match contributions up to a certain percentage. Companies also might offer Roth 401(k) plans, which differ from traditional plans in regard to when you pay taxes. With Roth plans, you pay taxes up front. When the money is eventually withdrawn, those withdrawals are tax-free. • IRAs: Individual retirement accounts are similar to 401(k) plans in that they’re tax-deferred. However, they generally offer greater freedom in investment choices. Roth IRAs, like the Roth 401(k) plans, must be paid with after-tax dollars.
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Working with a financial planner can help investors maximize their investments to be as tax-efficient as possible. Financial experts understand funding limits and the timeline in which to invest for tax advantages. But the advantages are higher contribution amounts, withdrawals that are tax-free, and no mandatory withdrawals when a person reaches a certain age. • College savings accounts: Investing in a 529 plan can be wise for parents. While money is invested after
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Tax-advantaged investing can protect earnings
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