Finance Essentials: Personal Budget Basics
You cannot take control of your financial life if you don’t know two basic things: (1) how much money is coming in, and (2) how much money is going out. Most people operate in the dark as it relates to their finances. They often take the head-in-the-sand approach or the, cross-your-fingers and hope approach to their financial life. Yikes! Perhaps it will end up working out, but what a stressful way to handle your money. Just knowing where your money goes and how much you need to “keep the lights on” at home provides a tremendous sense of relief. It is integral to everything related to your financial life. So, building a cash flow projection should be at the foundation of your financial strategy. Rather than averaging expenses over a year, I advise that you project your annual income and expense by month. But don’t go over-board. It isn’t meaningful to create line items for coffee expenditures or even clothing for that matter. Rather, list all expenses that you need to keep your house running, food in the fridge and gas in the car. The rest is discretionary; it’s what you can spend on things like eating out, movies, clothes
How Finances Play a Role in Your Relationship
Relationships are typically divided into two financial roles: the active and the passive. To be more specific, the person who assumes the domestic financial lead by paying bills and making financial decisions and the person who takes a passive approach to the finances (“I don’t know” … “fine” … “you decide.”) Although this is typical, it is not optimal. In this traditional circumstance contentiousness can emerge between spouses as a result of misunderstandings and miscommunications about money. Ideally, partners should approach finances like all other areas in a healthy relationship, as a team: collaborating on goals and strategies while openly communicating about money. If they don’t however, the following are important points to consider about each role. The Financial Lead The role of the financial lead, for those who take this responsibility seriously, is not an easy one. You have the challenge of balancing the important financial responsibilities while simultaneously making your family happy. And for domestic tranquility’s sake, you can’t always say “no, we can’t afford it,” but occasionally you need to pull the reins on the household spending. We have met with many widows who were surprised to find that their spouses left them in a precarious monetary
Why You Should Consider a Roth at Any Age
It is typical for people to turn to “common wisdom” when looking for answers to major decisions about money. But this is a mistake because each financial situation is unique. You cannot maximize the success of a financial plan by simply following rules of thumb. One such rule I frequently hear, purports to simplify the usefulness of a Roth to: it only makes sense if you are young. Rules of thumb like this make Certified Financial Planner™ professionals like me cringe. Successfully navigating the complexities of our financial system depends on how well you know your players and how creative you can be in your strategy. When used properly, a Roth IRA, Roth 401(k) and Roth conversions can be the queen in your financial chess game, at any age. So, what makes the Roth so special? Tax-Free Growth While after-tax monies are used to fund Roth contributions, earnings grow tax-free. The longer the investment time horizon one has, the greater the potential for tax-free appreciation, which is why it is commonly considered a tool only for the young. Do not forget, however, that even a retiree may have a time horizon of thirty years or longer during which their money
Estate Plan vs. Beneficiary Statement
Misconception: “My designated beneficiaries on my IRAs and 401(k) are no longer relevant because I have had my estate planning done and I have a living trust.” Not so – don’t make this mistake. Bottom Line The beneficiary statement, whether it is for your 401(k), IRA, life insurance and so on is a will substitute. It matters not how your wills or trusts are written; the beneficiary statements dictate where those monies go. We recommend that you have your estate planning attorney periodically review these to make sure they are properly coordinated with your overall estate plan. Tell Me More This item deals with the transfer of asset at death. When a person passes away, each financial institution will look for an instruction about who should inherit the money. In many cases, a beneficiary is designated upon account establishment, such as in the case of a 401(k), IRAs, life insurance policies and so on. A beneficiary designation provides the necessary instruction to the institution for the distribution of the asset. But in cases where there is no beneficiary designation, such as an individual account or real estate, there is no instruction about to whom this money should go. As such,
Finance Essentials: Personal Budget Basics
You cannot take control of your financial life if you don’t know two basic things: (1) how much money is coming in, and (2) how much money is going out. Most people operate in the dark as it relates to their finances. They often take the head-in-the-sand approach or the, cross-your-fingers and hope approach to their financial life. Yikes! Perhaps it will end up working out, but what a stressful way to handle your money. Just knowing where your money goes and how much you need to “keep the lights on” at home provides a tremendous sense of relief. It is integral to everything related to your financial life. So, building a cash flow projection should be at the foundation of your financial strategy. Rather than averaging expenses over a year, I advise that you project your annual income and expense by month. But don’t go over-board. It isn’t meaningful to create line items for coffee expenditures or even clothing for that matter. Rather, list all expenses that you need to keep your house running, food in the fridge and gas in the car. The rest is discretionary; it’s what you can spend on things like eating out, movies, clothes
How Finances Play a Role in Your Relationship
Relationships are typically divided into two financial roles: the active and the passive. To be more specific, the person who assumes the domestic financial lead by paying bills and making financial decisions and the person who takes a passive approach to the finances (“I don’t know” … “fine” … “you decide.”) Although this is typical, it is not optimal. In this traditional circumstance contentiousness can emerge between spouses as a result of misunderstandings and miscommunications about money. Ideally, partners should approach finances like all other areas in a healthy relationship, as a team: collaborating on goals and strategies while openly communicating about money. If they don’t however, the following are important points to consider about each role. The Financial Lead The role of the financial lead, for those who take this responsibility seriously, is not an easy one. You have the challenge of balancing the important financial responsibilities while simultaneously making your family happy. And for domestic tranquility’s sake, you can’t always say “no, we can’t afford it,” but occasionally you need to pull the reins on the household spending. We have met with many widows who were surprised to find that their spouses left them in a precarious monetary
Why You Should Consider a Roth at Any Age
It is typical for people to turn to “common wisdom” when looking for answers to major decisions about money. But this is a mistake because each financial situation is unique. You cannot maximize the success of a financial plan by simply following rules of thumb. One such rule I frequently hear, purports to simplify the usefulness of a Roth to: it only makes sense if you are young. Rules of thumb like this make Certified Financial Planner™ professionals like me cringe. Successfully navigating the complexities of our financial system depends on how well you know your players and how creative you can be in your strategy. When used properly, a Roth IRA, Roth 401(k) and Roth conversions can be the queen in your financial chess game, at any age. So, what makes the Roth so special? Tax-Free Growth While after-tax monies are used to fund Roth contributions, earnings grow tax-free. The longer the investment time horizon one has, the greater the potential for tax-free appreciation, which is why it is commonly considered a tool only for the young. Do not forget, however, that even a retiree may have a time horizon of thirty years or longer during which their money
Estate Plan vs. Beneficiary Statement
Misconception: “My designated beneficiaries on my IRAs and 401(k) are no longer relevant because I have had my estate planning done and I have a living trust.” Not so – don’t make this mistake. Bottom Line The beneficiary statement, whether it is for your 401(k), IRA, life insurance and so on is a will substitute. It matters not how your wills or trusts are written; the beneficiary statements dictate where those monies go. We recommend that you have your estate planning attorney periodically review these to make sure they are properly coordinated with your overall estate plan. Tell Me More This item deals with the transfer of asset at death. When a person passes away, each financial institution will look for an instruction about who should inherit the money. In many cases, a beneficiary is designated upon account establishment, such as in the case of a 401(k), IRAs, life insurance policies and so on. A beneficiary designation provides the necessary instruction to the institution for the distribution of the asset. But in cases where there is no beneficiary designation, such as an individual account or real estate, there is no instruction about to whom this money should go. As such,
