Five Steps to Fall In Love with Your Finances

Guest Post: The Wealth Stylist, Natasha M. Campbell, Success and Money Coach

Sticking to a budget is one of the biggest money challenges many Americans face. According to a 2013 Gallup poll, only one in three American households prepare a detailed, monthly written, or computerized, budget that tracks their income and expenses. That means 2 out of 3 households say, “No, thank you” to having a plan for their money.

For many, the “B” word (budget) signals deprivation. If you’ve ever been on a diet, you tend to crave what you shouldn’t have because it’s a form of restriction. The same feeling can be true with your money. Instead of looking at ways you can cut things out of your life, a spending plan focuses on meeting your financial goals and values.

Here are five simple steps to create a spending plan to give your dollars some direction.

What is Your “Why”?

Identify what you want to accomplish. Why does it matter? When you look back a year from now, how will you know that your efforts have been successful? Envisioning your “why” will motivate you to take action. Keep a money journal to remind yourself of your goals and recognize your progress.

Where Are You Now?

To get a hold of your finances, it is important to know where you stand. Review your spending to see if it’s in line with your priorities. Consider printing the last three months of your bank statements and list everything you spent during that timeframe. A 90-day financial view will provide a better understanding of your money. You may forget transactions that only happen on a quarterly basis, like getting the oil changed on your car or receiving bonuses from work.

Image via CreateHer Stock

Identify What’s Not Working

Take inventory of what’s not working in your financial life that is moving you away from your goals. What is holding you hostage from improving your finances? Do you spend out of control when you’re emotional? Simple reflective questions will help you become aware of what’s stopping you from creating a healthy relationship with your money.

 Choose a Customized Plan

There is more than one way to create a spending plan, so choosing the right one is important. The 50/30/20 rule is personally one of my favorites. This rule breaks down spending habits into three categories with percentages. Based on your income, essential expenses (like utilities, food, and rent) make up 50% of your spending. Unnecessary expenses (cable, the internet, cell phone) make up 30% of the budget, and future goals (debt payments, savings, retirement fund) make up the remaining 20%.

In the event of a major life experience, a bare bones budget is ideal. A bare bones budget is based on your lowest possible monthly income. If you’re self-employed, work on a commission-based job, or find yourself in financial distress due to job loss or a medical condition, this type of plan will work best for you. Create a plan based on absolute necessities, such as food, shelter, clothing, and transportation.

Image via CreateHer Stock

Track Your Progress

Stay connected to your plan. If you deviate from your spending plan, breathe and forgive yourself. Remain committed to the process. Review your spending plan and make healthy adjustments as needed. Every month is different, so update your spending plan accordingly for special occasions.

Natasha M. Campbell, the Wealth Stylist, is an entrepreneur, wife, mother, personal finance coach, and certified educator. You can find her @wealthstylist  just about everywhere!

Top Three Reasons to Contribute to your 401(k)

There has been a recent push to ditch the 401(k) for its sexier cousin, the Roth IRA. Keep in mind, sexy doesn’t always get the job done. I helped my mom retire after bankruptcy only using her 401(k). Before I get into the top reasons to contribute to your 401(k), what’s a 401(k) plan? A 401(k) is an employer sponsored retirement plan where the employee contributes a portion of their salary and selects their investments from the plan’s investment options. Many of the 401(k) rules also apply to 403(b) and 457 plans.

You are taxed unless Congress says you aren’t

When Congress gives opportunities to defer taxes, it’s usually in your best interest to take it. Tax deferral is arguably the best 401(k) benefit.

The money you contribute to your 401(k) is not subject to federal income tax. Pre-tax contributions provide two benefits. First, contributions reduce your taxable income. Second, you receive the benefit of growth without taxes (tax deferred). In retirement, you control your taxes by only paying taxes on money withdrawn.

A close second to tax deferral is the Roth 401(k), growth and earnings are withdrawn tax-free. Roth 401(k)s have been an option for employers since 2006, but it’s still not offered by many. Unlike the Roth IRA, the Roth 401(k) has no income limits; a huge win for high-income earners.

Additionally, saving money after taxes requires more money than saving on a pre-tax basis. For example, for someone in the 25% tax bracket, an $18,000 pre-tax contribution would be a $13,500 after tax contribution. Finally, it’s difficult to calculate the true value of tax deferral until retirement. Using the above calculation, at a 7% rate of return over ten years:If the retiree’s tax bracket is the same as it was during her working years, it’s a wash between Roth contributions and pre-tax contributions. But if the retiree is in a lower tax bracket in retirement, which is usually the case, deferring taxes provides more money for retirement.

More money for your retirement goals

The main difference between an employer-sponsored plan and IRA (Traditional or Roth) is the increased contribution limits. In 2017, the contribution limit for employer-sponsored plans is $18,000 and an additional $6,000 for “catch up” for employees over 50. Conversely, an individual can only contribute $5,500 with an additional “catch-up” of $1,000 for those over age 50. If you are single and make more than $117,000 ($184,000 for married couples), then your ability to contribute to a Roth IRA diminishes. Luckily, even if an employee makes too much for the Roth IRA, he/she can still take advantage of the Roth 401(k).

No free money for IRAs

Employer contributions to your retirement might seem altruistic but they aren’t. Employers receive a tax deduction for contributions and contributions help recruit and retain employees. Since IRAs are held and managed by an individual, there are no employer contributions.

There are two different types of employer contributions, non-elective and matching. Although you are entitled to non-elective contributions even if you don’t participate in the plan, these are less common than matching. To receive a match, the employee has to contribute to the plan. According to the 56th Annual Profit Sharing and 401(k) survey, 95.3% of 401(k) plans made matching contributions. The most common match calculation is 50% of employee contributions to the first 6% percent of an employee’s salary.

Although there are legitimate concerns about 401(k) fees and limited/poor investment options, neither should stop you from contributing. There are ways to mitigate them, which I will discuss next week. We need all the financial goodness we can get when it comes to retirement. High contribution limits and employer contributions mean more money directed toward your retirement goals. Tax deferral is a tool that can save you money now and during retirement. My suggestion is to contribute to your 401(k) and IRA after figuring out what the best mix is for you.

What is Stock: Through the Eyes of Apple

The original post was written as a guest post for The Millennials Next Door published on January 8, 2017. 

Millennials grew up with Apple products. We played the Oregon Trail on Apple Macintosh computers at school. And I will never forget trading in my bulky Discman for a brand new iPod.

What company is more successful and more synonymous with being a Millennial than Apple, the “world’s largest information technology company”?

Apple’s beginnings

Forty years ago, Steve Jobs and Steve Wozniak created a business to sell the Apple I computer. They established Apple Computer Co. as a partnership, an unincorporated business where the members (partners) agree to share equally in profits and losses. To fund the partnership, Steve Jobs sold his Volkswagen, and Steve Wozniak sold his Hewlett-Packard calculator. Per the terms of their agreement, written by the third partner Ronald Wayne, Jobs and Wozniak each received a 45% interest with the remaining 10% to Wayne. Shortly after formation, unwilling to take on the risk of being personally liable for Apple’s debts, Wayne sold his interest to Jobs and Wozniak.

From members to shareholders

Within months of forming the partnership, it became clear that Apple Computer Co. needed to incorporate. In January 1977, Apple Computer Co. became incorporated as Apple Computer Inc. Incorporation under the laws of California provided several significant benefits. As partners in Apple Computer Co., Jobs and Wozniak had unlimited liability for the company. Incorporation separated and protected their personal assets from Apple’s potential creditors.

Jobs and Wozniak became shareholders, or stockholders, instead of partners. Mike Markkula, a business-savvy entrepreneur, took a 1/3 share after contributing $250,000. As shareholders, they were still entitled to a share of Apple’s earnings and profits but shielded from Apple’s creditors. Apple’s business was doubling every four months, and more infusions of cash seemed necessary in the future. As a corporation, Apple could raise money by selling ownership, or equity, through company stock. As a result, from 1977 to 1980, Apple’s equity owners increased dramatically.

When Apple offered its shares to the public on December 12, 1980, it created approximately 300 millionaires. After the initial public offering (IPO), anyone could become an owner of Apple ($AAPL) by purchasing shares on the stock exchange. The shares were offered at $22 a share. In 2012, in anticipation of the release of the iPhone 5, Apple traded at over $700 a share. Two years ago, Apple had a one-for-seven stock split, essentially dividing the stock price by 7 and making more shares available to the public.

What’s the value in being a shareholder?

Dividends! Shareholders are entitled to dividends, a share of the corporation’s earnings and profits. As an owner, shareholders are subject to the ups and downs of business. Some years the corporation may not be profitable. For example, in 2002, Apple was not profitable and traded as low as $7 per share.

Growth! The main reason people invest is the potential for growth (capital appreciation). Many investors have an expectation that the value of their shares will increase over time. Be warned, just like a stock can go up, it can also go down.

The Stock Market is driven by market sentiment, or emotion, just as much as company performance. As a result, fluctuations in stock price, up or down, are not necessarily reflective of a company’s performance. However, many stock price movements are the result of how the market reacts to company news that may affect its bottom line. Occasionally, as much as investors believe their investment will go up, there are cases where a company loses everything and goes bankrupt. In which case, you’d lose the money you invested in the company. Therefore, it’s important to invest in companies that you know and understand instead of your neighbor’s hot stock pick. Need help with picking your first stock? Look here.

We don’t buy toys; we buy stock

Each Christmas, I try to balance fiscal responsibility and good gifts. This year I adopted the mantra, “We don’t buy toys; we buy stock.”  Because my niece LOVES American Girl Dolls, I wanted to give her the gift of ownership.

Can I buy stock in American Girl?

Before I could get excited about my idea, I had to see if public ownership in American Girl Dolls was available. Luckily, American Girl has been a wholly owned subsidiary of Mattel (NASDAQ: MAT) since 1998.

The frustration of buying stock for a child

Buying stock for a child can be difficult. Because a child cannot hold assets directly, an adult must set up a custodial account for the child’s benefit. To open the account, you need the child’s social security number, which most parents are reluctant to provide. The adult (or the adult you designate) has to manage the assets for the child until she reaches the age of majority, either 18 or 21, depending on the state.

Stockpile makes gifting stock easy. So easy that, even if I didn’t do my research on American Girl, I could have typed it into the search bar on Stockpile’s website and Mattel would have shown up. After picking the stock, I had the option of buying a gift card for $25, $50, $100, up to $1000. The price of the gift included the cost of the trade (commission). Although Stockpile allows the purchase of fractional shares, I don’t recommend anything less than purchasing at least one share. Stockpile provides the most recent cost per share, and you should consider adding 10% to help guard against price fluctuations. I understand that purchasing at least one share doesn’t make a high priced stock like Google, which closed at $789.81 per share on Friday, December 23rd, an option for most. I can assure you there are a lot of low-priced options available.

Points to consider…

Immediately after my Christmas morning purchase (the epitome of last minute shopping), my Godsister received an email with instructions to set up an account and buy the stock. Although I loved the ease of Stockpile’s process,  I do have several concerns. First, my Godsister was not required to purchase Mattel stock. She could have purchased any stock Stockpile offered. Buying another stock could have defeated my intent of gifting at least one full share of stock. With the option of buying another stock, she could have purchased a fraction of a share of an expensive stock such as Google. Second, she could have completely undermined my intent of gifting wealth by buying a store gift card. The final option, the most bothersome, was the option to regift.

Thankfully, my Godsister and I have the same idea when it comes to wealth, and the Stockpile gift alternatives were never an option. But it’s something to consider before using Stockpile. It was a great experience overall. I received an email from Stockpile the Wednesday after Christmas that the gift was redeemed. My Godsister confirmed that my niece is an owner of Mattel stock.

 

 

Six Things to do in 2016 to blow your 2017 out of the water

 

It’s the last month of 2016, the year that has worn out its welcome. Instead of waiting for 2016 to pass, begin working on 2017 today. If you are serious about changing your life in the New Year, getting started on January 1st is too late. One of the reasons why 92% of New Year’s Resolutions fail is because people fail to plan. Lay the groundwork now. Here are six things to do before the end of 2016 to get a running start on 2017.

1. Protect your stuff

Image courtesy of CreateHER stock

A major unexpected expense can quickly derail your finances. The American Red Cross reports almost 47,000 fires occur during the winter holidays, costing over a half billion dollars in damage. Although not as devastating as a fire, damage caused by bursting frozen pipes averages $5,000, according to The Insurance Institute for Business & Home Safety. Unfortunately, theft also increases during this time of year.

Although many of these losses are unavoidable, you can lessen their impact with proper insurance. If you own your home, homeowners insurance is paramount. If you rent, your landlord’s insurance only protects his or her investment, not your personal belongings. Thankfully, renters’ insurance is relatively cheap and can be bundled with your car insurance for extra savings.

2. Protect your credit

I recommend checking your debit and credit card statements monthly. But the holiday season requires more vigilance because ‘tis the season for credit card fraud. If you notice suspicious activity, notify your bank or credit card company immediately. The longer you wait to report, the more likely you could be stuck with the charges. Instead of using your debit card for online shopping, consider using a credit card and imposing a strict budget. If your debit card has been used fraudulently, it could take weeks to recover your cash.

Also, if you haven’t already, consider getting your annual credit report through annualcreditreport.com, “the only source for your free credit reports authorized by Federal law.”

3. Clexit (Clutter Exit)

I’m a fan of double duty tasks. This year I reduced clutter and increased my cash by selling on eBay and Poshmark. For clothing that is still good but not necessarily sellable, consider donating to your favorite charity. If you itemize your deductions, make sure this is done before the end of the year so you can deduct your contribution on your 2016 Tax Return. 

4. Holiday shopping budget

To avoid regrettable credit card bills in January, make an overall holiday spending budget for family and friends and stick to it. Although Black Friday and Cyber Monday sales have passed, there are still deals to be had, if you do a little research.

Image courtesy of CreateHER stock

5.  Everyday Budget

Without a budget, many people end up wondering where all their money went or how their credit card balance got so high. If you currently have a budget, review it to make sure that it’s still working for you. Get rid of unnecessary expenses; monthly subscriptions tend to be a major culprit.

To assist with the budget creation process, Certified Financial Coach and Author, Del Shawn Hayes, recommends mint.com, everydollar.com, and vertex42.

6. Take advantage of your employee benefits

On December 31st, many employee benefits expire. Most flexible healthcare spending account (FSA) balances expire at the end of the year with only a handful of employers allowing withdrawals up to March of the following year. Additionally, healthcare deductibles also reset at the beginning of the year, so if you can squeeze in a last minute appointment, your pocket and body will thank you.

 

Demystifying the Dow: What are they really saying on the Nightly News?

Every evening, the news unceremoniously reports on that day’s stock market performance. The market was up today xyz points. OR The market was down today xyz points. The night of November 22, 2016, the news was more spirited than usual as the market hit a historic high of 19,023.87.

What is the “market”? What are “points”? When it comes to your portfolio, should you care?

The Market

The “market” refers to the Dow Jones Industrial Average (“the Dow”). Arguably, the most watched stock index in the world. It was named for its creators, Charles Dow and Edward Jones, co-founders of the Wall Street Journal. The Dow was created in 1896 as a stock index focused solely on industrials. It has evolved into a barometer of the U.S. economy spanning multiple industries. To keep in line with the changing economy, Dow has had 51 changes since inception. The most recent change happened in early in 2015. The Dow removed AT&T (T), a telecommunications giant with a long history on the index, and replacing it with the tech behemoth, Apple (AAPL).

What’s in the Dow?

The Dow is composed of 30 well-established, high investment quality companies. So it shouldn’t be surprising that the decision makers, the editors of the Wall Street Journal, have chosen industry leaders which include Coca-Cola (KO), Nike (NKE), and Johnson & Johnson (JNJ).

Because the Dow is a price-weighted index, the higher priced stocks, such as Goldman Sachs and Boeing, have greater influence over the value and the movement of the index. The Dow’s early calculations merely added all of the stock prices together on the index and divided by the number of stocks. Voila! The Dow’s value for that day.

The Dow is now too complicated for a simple average to produce an accurate reflection of its value. A traditional average would miss stock mergers and stock splits. If these events were not calculated, the index would be useless. When an event occurs that changes a stock’s value, the Dow divisor (the number used to produce the average) is adjusted to accommodate that change.

 

 

 

Value of the Dow = (Sum of the shares prices of all 30 of the companies in the index)/Dow Divisor

 

The current Dow divisor is 0.14602128057775. With a divisor less than one, the Dow’s average will always exceed the total sum of the underlying stocks. Many analysts have said, but for stock splits and other share value reductions, this would be the actual value of the stocks on the index.  On Wednesday, November 23, 2016, the Dow closed at 19,083.18.

Points

A point is essentially a number in the index value. The concept of a “point” doesn’t mean much unless it can be effectively used as a measure. Points are usually used to discuss a change in the value of an index.

The Dow closed on Monday, November 21, 2016 at 18,955.90. On Tuesday, November 22, 2016, the market was up 68 points to close at 19,023.87, to finish at its record-breaking high.

19,023.87- 18,955.90= 67.97 = 68

When it comes to your portfolio, should you care about the Dow?

Yes and no. The Dow is a good indicator of the economy. Although it is a good measure of the market’s strength, it’s probably not reflective of your personal portfolio. First, the Dow is only 30 stocks, so it is not representative of the entire market. If you have any mutual funds, your portfolio most likely has exposure to hundreds of stocks. For more accurate view of total market performance, look at the S&P 500, an index that tracks 500 leading companies which covers about 80% of the market.

Second, even if you own some of the stocks represented in the index, your portfolio will not necessarily reflect the gains or losses of the Dow. Remember, the Dow is an “average,” so even with Tuesday’s record high, major players- Pfizer, Visa, Johnson & Johnson, Merck, and IBM- were down.
Third, the market has surged since the Presidential Election. I was caught off guard (see here for my commentary on The Huffington Post) and so were many analysts. The upswing has been lead by just a few industries, banks and companies related to manufacturing and construction.

How can you get in on the fun?

SPDR’s exchange traded fund (ETF), DIA, tracks the Dow. However, since the market is at record highs I’m not advocating purchasing the index right now. Remember, buy low and sell high.

Brexit: Investment Strategies from the Ashes

Two days before the historic vote, the Daily Mail backed Brexit, Britain’s EXIT from the European Union. It was not until then did I consider the actual possibility of a vote to leave. The referendum, the question presented to the general population for a vote was, “Should the United Kingdom remain a member of the European Union or leave the European Union?” In my mind, the answer was simply, “Remain.” Until Thursday night, it seemed a majority of Brits had the same answer as I did. When the results poured in, one of us got it wrong.

“It’s not whether you’re right or wrong, but how much money you make when you’re right and how much you lose when you’re wrong.” Stanley Druckenmiller

On the evening of Thursday, June 23, 2016, the world learned the United Kingdom voted, 52%-48%, to leave the European Union. Chaos ensued the next day in the world’s financial markets. The Nikkei 225, the Tokyo Stock Exchange index, ushered in its biggest decline since 2000, dropping almost 8 percent. The DAX, the German stock market index, closely followed with a drop of 7 percent. In the United States, the Dow Jones Industrial Average fell by 600 points (3.39%), its biggest loss in 10 months. In a strange turn of events, the U.K. market over performed, closing up 2%. However, the pound, the U.K.’s currency, fell to a 31 year low, down 10%. The Financial Times reported that the Global markets took a two trillion dollar Brexit hit. In short, the world’s markets tell a compelling story, the U.K. got it wrong and will pay severely.

                                                                                             Shutterstock

 

“If you’ve got money, you vote in. If you haven’t got money, you vote out.”

In the days before the vote, The Guardian described Brexit as “a kind of misshapen class war.” Although class disparities and irrational xenophobia were the proximate causes of Brexit; the stage for Brexit was set twenty-four years ago in the Treaty, which created the European Union (“E.U.”).

One of the five aims of the E.U. was to establish “an economic and monetary union” with the ultimate goal of creating a central currency. Not eager to lose the pound, the U.K. conditioned its membership in the E.U. on an “opt-out” provision. This clause enabled the U.K. to participate in the E.U. without being mandated to join the currency. It was not a surprise when the U.K. decided not to opt in. Since the E.U.’s inception, the U.K. has taken an a la carte method to adopting its rules and regulations while still enjoying all of its benefits including increased investment in UK firms and access to a single market of 500 million people.

Look no further than the pocket of an average Brit for another, major contributing factor to the Brexit vote. While the majority of the E.U. member countries use the Euro, the U.K. was the largest non-participating member. Shared currency would have provided an actual identity between the U.K. and other member countries and might have made some voters consider how leaving would seriously affect their pocket. Now the country is headed into a recession. Those who championed Brexit will also bear the brunt of its burden. The average voter did not seem to understand, or appreciate, the implications of leaving the E.U. and now are poorer for it.

                                                                      Shutterstock

Where are the investment opportunities?

Brexit fueled a domino effect sell-off in the world’s financial markets; first Japan, then Germany, and finally in the US. In the second trading day after Brexit, the markets continued to slide as the world’s economic fate was still very uncertain.

Equities (Stock)

   Considering Warren Buffet’s advice, “buy when everyone else is selling,” now is a good time to buy. Regarding what to buy, Bank of America’s Chief Investment Officer, Chris Hyzy, suggested that investors should diversify into “higher-quality investments” and look to long-term investment growth strategies. Investors have been using that strategy as the U.S. market posted losses for the second day as they sold off “risky” holdings. Considering the geopolitical landscape, it seems fitting that U.S. and British banks have posted the biggest losses. For guidance on picking stocks, see my blog post, Three Steps to Picking Your First Stock.

Currency

In times of economic turmoil, many investors flock to “safe” assets such as the Japanese yen and gold. However, a strong yen is problematic for both Japanese companies and the Japanese economy. A strong yen makes it expensive for global companies to do business with Japanese companies making it difficult to spur the Japan’s economic growth. Tony Roth, CIO of Wilmington Trust, observed, “[i]f the yen does not weaken, the Japanese economy is going to get destroyed.” To counteract this, the Bank of Japan will sell off yen to lower the price. On the other hand, the pound will continue its unassisted downward movement as the U.K. heads into a recession. Between the two currencies, I would strongly consider a short position in the Yen.  Primer on the Forex Market.

 

 

 

Mommy & Me: How I tried to repay my mom

In celebration of Mother’s Day, this article was posted on The Huffington Post on May 8, 2016.

Today, June 17, 2016, we are celebrating my mother’s FIRST day of retirement from 37 years of Nursing. Mommy, we made it! Ten years ago, my mother didn’t think this day was going to come. Why? A little over ten years ago, my mother was unemployed and bankrupt with $10,000 in her 401(k) account, a little over $370 for every year she worked. She had to cash it out.

Why did she cash out her 401(k)?

Around 2002, Mommy filed for Chapter 13 bankruptcy. My mom, like many others, used it to save her home from foreclosure. In addition to stopping foreclosure, a Chapter 13 bankruptcy plan reorganized her outstanding debts into manageable payments. She was required to make these payments to a trustee who then distributed the payments to her creditors.

Under Chapter 13, if the debtor fails to make their regular mortgage payments after he/she files for protection, the debtor can still lose their home. In 2005, my mom’s unemployment was not enough to cover the trustee payments and her mortgage; she was in danger of losing her home again.

Her retirement savings didn’t mean much if she didn’t have a place to live.

What about taxes and penalties related to an early withdrawal?

Distributions from a 401(k), or any other qualified plan, are taxed at the participant’s ordinary income rate. In addition to ordinary income tax, distributions made prior to age 59 ½ are subject to a 10% early withdrawal penalty. There are several exceptions to the penalty rule. One applied in Mommy’s case. Mommy’s unit closed in 2005, the year that she turned 55. If a 401(k) participant leaves their employer during or after the calendar year in which he/she reached 55, the penalty does not apply. Because she received unemployment compensation for the majority of 2005, she was not subject to a heavy tax burden as a result of her withdrawal.

 West Virginia University College of Law Graduation May 12, 2012

By the end of 2005, Mommy was back to work and caught up on her mortgage. But with zero dollars saved, she was still woefully unprepared for retirement. Her debt was draining her paycheck. Although she cut her personal expenses, she was only able to squeeze 10% of her pay to contribute to her new employer’s 401(k). Even with a small amount coming in, I allocated her 401(k) to maximize her contributions.

My first task was to use her paycheck to eliminate her debt as quickly as possible. I focused on her bankruptcy. In 2006, she received her much-needed bankruptcy discharge. When she received her discharge paperwork, Mommy’s attorney told her with a smile, “Most people don’t finish Chapter 13 payment plans… Let alone early. Congratulations.”

I then turned the payments that Mommy made to the bankruptcy trustee into mortgage principal payments and additional retirement contributions. After a minor skirmish with her mortgage company, she paid off her home in 2012. From 2012 forward, she maxed out her 401(k) contributions, which included “catch-up” contributions for those over 50 years old. We also pushed her social security date back to her 66th birthday. After ten years of focused energy, Mommy’s last day at work happened yesterday, and it’s a good thing.

Retirement isn’t just about maximizing your savings but minimizing your expenses. If you must file for bankruptcy, allow it to be your “ground zero,” not your end. I will never be able to repay mother for what she’s done for me, but I hope that helping her achieve this goal helps

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Five Phenomenal Investing Tips

 

On Wednesday, May 25th, I had an awesome teleconference about investing with Bahiyah Shabazz from Brown Girls Do Inve$t. If you missed it, here are the highlights from the call.

“We don’t buy toys; we buy stock.”

The road to investing with your children starts with saving. Whenever you give your child money, encourage them to put 10% away. Also, encourage a desire to own companies and not just things. When they say, “Mommy/Daddy, can I have…?” Respond with, “If you like it, let’s see if we can own it.” Can we buy into Disney? Can we buy into Apple? And how much will that cost?

401(k) and 403(b) v. Roth IRA: You don’t have to pick just one.

A Roth IRA and an employer-sponsored account are two components of a balanced retirement plan. Employer-sponsored accounts- 401(k), 403(b), 457- traditionally allow contributions before taxes. Pre-tax contributions lower your current taxable income while saving for retirement. When you withdraw the money from this account, the money is taxed at your ordinary income rate. Conversely, a Roth IRA allows after-tax contributions. The bonus is that the money comes out in tax-free.

Employer-sponsored accounts have higher contribution limits. For 2016, the maximum contribution for employees under 50 years old, is $18,000. The contribution limit for IRAs for individuals under 50 years old is $5,500.

Utilizing both types of accounts provides the opportunity to “mix” up your tax liability in retirement. If you don’t have $5,500 to contribute after taxes during the year, use your tax refund. Bahiyah said it best, “I know our economy needs to thrive but at the same time we need to make sure that we have a secure financial future.”

Picking your first stock is as easy as 1,2,3…

I love this quote from Bahiyah, “Stocks are not a one size fits all.” Finding the “right” stock starts with researching brands you frequently use. As an investor, it’s imperative that you have a basic understanding of the company you wish to purchase. Understanding the company enables you to decide if it is either on “on sale” or if the low price is an accurate reflection of company’s value.

For a step by step process, “Picking your first stock in three steps.”

If you find good companies, dividends will come.

When a company pays dividends, it is sharing its profits with shareholders. Companies that do not offer dividends aren’t necessarily bad companies. However, Bahiyah shared that she seeks out companies because “it’s like they are paying [her] to invest.” Great point. Additionally, regular dividend payments are an indication of a company’s good financial health.

Savings: There are levels to this.

When you are saving, it’s important to make sure you are earning interest on your money. If not, inflation will certainly eat away at your buying potential. Paying down debt is important but don’t forget to take the first 10% for yourself. Consider contributing 5% to retirement and 5% to general use savings. Regarding where to save, for time periods shorter than a year, a regular savings account is fine. For periods greater than a year where you might consider a CD (Certificate of Deposit), consider purchasing a high-quality corporate bond. CDs tend to be illiquid and provide a low rate of return.

For the playback of the call, dial (515) 604-9009, Code: 362566#.

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Baby, they’ve got your money… FREE MONEY ALERT

 

Yes, you read that correctly. The government has your money. And no, this is not another tax refund. According to the National Association of Unclaimed Property Administrators (NAUPA), state governments are holding approximately $41.7 billion of unclaimed property (unclaimed money). Do you know much of the $41.7 billion belongs to you?

Companies are required to send any money owed a person to his or her last known address. If they are not responsive, the company is required to turn over the funds to the state. State Treasury Departments hold unclaimed property for individuals living in their state at the time the property was “lost.” As a result, you could have money in every state that you lived. States reunite the rightful owner, or their heirs, with their property. The state holds unclaimed property, but there are some notable exceptions, such as retirement accounts and insurance, listed below.

In addition to unclaimed funds held by state governments, a survey by Consumer Reports found that there’s “at least $1 billion in benefits from misplaced or forgotten life-insurance policies.” The average unclaimed insurance benefit is $2,000. At 1 in 600, there’s a better chance that you are a beneficiary of an unclaimed life insurance policy than winning the lottery.

Myth: I haven’t owned any property in any state, so I can’t have unclaimed property.

Truth: Most states define unclaimed property as financial accounts that have been inactive for over a year. These financial accounts include bank accounts, stocks, uncashed payroll checks, and the contents of safe deposit boxes. Most people don’t abandon their money purposely. Moving to a new address, losing a check in the mail, or dying can cause money to go “unclaimed.” I found an old paycheck from college on my state’s site a few years ago.

Myth: I have to pay to locate unclaimed funds

Truth: Most states return unclaimed funds to you at no cost or for a small filing fee, so there’s no need to pay a search firm. However, some businesses conduct unclaimed property searches for a fee. Others will find lost property and charge based on a percentage of located assets. Unfortunately, there are also fraudulent companies which will charge hundreds of dollars up front and return nothing. Check with the state’s Treasury Department if you decide to go with a search firm to ensure they are an approved and legitimate company.

Where can I search for my funds?

Unclaimed property:

Start with your state’s unclaimed property website by googling, “[your state] unclaimed property.” For example, “Pennsylvania Unclaimed Property.” You can also do a free search at MissingMoney.com or Unclaimed.org. The “.ORG” is important because unclaimed.com is a paid site.

Retirement accounts:

Pension benefits – Pension Benefit Guaranty Corp

Old 401(k) accounts – National Registry of Unclaimed Retirement Benefits

Railroad retirement benefits – Railroad Retirement Board

Veterans Administration Benefits – http://www.insurance.va.gov/liability/ufsearch.htm

Bank accounts:

Banks that closed between January 1, 1989, and June 28, 1993 – FDIC – Unclaimed Funds.

If your credit union credit union was liquidated – NCUA – Unclaimed Deposits.

Government Bonds:

Forgotten or Lost Savings Bonds – Treasury Hunt.

Mortgage Refunds:

FHA-insured mortgage – https://entp.hud.gov/dsrs/refunds/.

Insurance policies:

There are six companies committed to reuniting beneficiaries with their funds. You must contact them directly for additional information.

AIG: 800-888-2452

Forethought: 800-331-8853

John Hancock

MetLife

Nationwide: 800-848-6331

Prudential: 800-778-2255

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