Tag Archives: savings

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Building Your Financial House – Building Your Bedroom

  By remymartini • February 11, 2013 , , ,

You’ve started building your Financial House, starting with a solid foundation after I painted your financial picture, and you’ve got the right material with your knowledge (the bricks not straw), now it’s time to build some rooms. The rooms of your Financial House are your goals in life. It’s arguable what room you would think of first to build depending on your lifestyle, but your bedroom should be all about you and is the place where you (typically) start your day.

If you have a family, you know how often your home transitions. The living room turns into the kids play area, the office turns into a kid’s bedroom. Your bedroom does dual duty as bedroom/office. Closets become half baths. Your home will constantly be evolving, but even if you turn your bedroom into a bedroom/office, it will still be your fort and you won’t be getting rid of the bed. For this reason, I see the bedroom as your goal of a home. A home can be a house, an apartment, a condo, a townhouse, something that you live in and is your responsibility to pay. Homeownership is lots of responsibility and isn’t for everyone, but for arguments’ sake, let’s say that your goal is getting a house. Here is the financial process to get your there.

We always have to start with the basics. Even if you “know” you have a good foundation, you must get in the practice of reviewing your foundation to make sure there are no termites. Are your debts paid down? If you have debt, how much total debt do you have and is it better to pay that off first before looking at houses? How is your emergency fund? If you’re considering purchasing a house, you want to also look at increasing the emergency fund due to the many unexpected expenses (AKA required expenses) houses can obtain. Water heaters going out, roof leaks, A/C out, etc. Having the emergency fund already funded to the level that is needed to purchase a house will help greatly while looking for a house. I’d also like to point out that the Emergency Fund, is for EMERGENCIES, not for a down payment on the house. There are compromises out there, but compromising your emergency fund means you compromised your foundation for your entire financial plan, and when dealing with purchasing a house should be a big “No-No.”

Now that you’ve taken the time to check your foundation, made some adjustments (saving more in your emergency fund possibly) you’re ready to get an action plan in place for getting your house. I know when people really want to get a house they think of all the things they want it to have. 3 bed, 2 bath, nice kitchen, must have gas stove, etc. Before you get into your laundry list of “must have demands” let’s look at it at it’s most basic points. You need to take inventory for your bedroom. Who will be living there (husband, kids, etc) and how much can you afford. How much you can afford has gotten many people in trouble in the past, so let’s not get you into that kind of trouble. How much does your household (you and your spouse) make combined? Let’s say it’s $80,000. As much as you’re trying to keep up with the Kardashians, realize that they’re on the verge of bankruptcy behind closed doors, so you want to live within about 60%-70% of your income (the rest is savings for the fun stuff). That leaves you $48000-$56000 to live by for bills, mortgage, food, gas, etc. Once you’ve done a detailed analysis on your current expenses, make adjustments if you were to purchase a house. If your goal is to have a mortgage payment that is about the same as you pay in rent, realize there are many new expenses such as HOA fees, increased electricity bill, gardening expenses (you have to cut the lawn now), etc. Now you need to factor that into your monthly budget. You pay $850/mo in rent and utilities now, but once you add in extra house expenses it may total $1150/mo. That’s an extra $3600 you spend a year that you don’t now. So instead of aiming for a mortgage payment of $850/mo, aim for a housing expense of $850/mo. This will wrap your housing expenses together. Your mortgage may be $650/mo and all your added expenses bring it up to $850/mo.

You now have an idea of how much money you want to spend per month on your house, now it’s time to shop around on a deal for the mortgage. You’ve got to furnish your bedroom with the bed and curtains and dressers, and you want the best deal possible. If you’ve stuck with your financial plan for a few years, you should have built up some good credit. If you’ve stuck with your financial plan for MANY years, you may have saved up enough money to buy your house in cash (CRAZY!). For those that have stuck with their financial plan for a few years and built up a good down payment on a house but need to finance the rest, it’s time to go shopping for the best deal. This is going to take time and effort. The best is to get a low fixed rate mortgage, if possible for 15 years or less. As helpful as the internet is, all the answers don’t always hide there. Great for research, but person to person in these type matters is much more important. Once you’ve done your research, take a day out of your schedule to visit with as many of the banks you found that had good fixed rates and talk to them in person. Ask as many questions as you need to make sure you understand every point of how they deal with mortgages. If you don’t understand, do not do anything. Figure out the payment schedule, how much the mortgage would be and think about it. Don’t sign anything, go home and think about it over night. As exciting as finding a new house is, it crumbles the moment you realize you got screwed.

Congratulations you were approved for a fantastic loan of $500,000! DO NOT LOOK FOR A $500,000 home! Stay with your budget that you just figured out. Do not get glossy-eyed at the thought of a “dream” home. The Kardashians did that and are secretly going bankrupt. You are more mature and balanced than that and are more than happy to stay within/under your means. You have a great fixed rate and you know your range to keep within your budget, now it’s time to look at houses within that budget. Yes, now look. If you look before you’re going to set yourself up for failure looking at “dream” houses and many houses you think are in your price range, but really are not. A Realtor is exceptionally helpful to help you find the right place because let’s face it, you’ve got a job, your spouse has a job, and you’re crazy busy. Think of the Realtor as the interior decorator/carpenter you hired to create your bedroom. You give them the budget and they stay within it with your vision in mind. Spending your little free time trying to find a house is going to drain you, no matter how excited your are. Realtors have the inside scoop and have their ear to the ground, plus when you’ve done it for many years it’s second nature to you. You’re fantastic at your job, they’re fantastic at theirs because they’ve honed their skills. Make sure your budget is very clear and if you’re going to compromise, compromise your “must-have” list for the house, not your finances. The right house is out there, it will take time, so don’t give up. Once you have found your house and a great offer has been accepted, make sure to understand all the terms and conditions as well as all the fine print. You wouldn’t hire a carpenter to fix up your bedroom, give them a budget, only to find out there was an added finishing fee for finishing the job. The tricks are in the fine print, so make sure to understand them before signing anything.

Congratulations on your first room of your financial house! As tiring as it may have been to plan and have it built, it was well worth the time and effort!

*Disclaimer*

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Retirement?!? Who’s retiring now-a-days?

  By remymartini • January 7, 2013

Whether you’re 20 or 60 or older, you hear the word retirement thrown around a lot. The younger you are the idea of retirement seems so far away and a concern for another date and time. The older you get the more you worry that you haven’t saved enough, how does social security factor in/work, and/or can I afford to retire given the state of the economy?

Retirement means a lot of different things to a lot of different people. But planning for it is key to success, no matter the definition. For example, you love what you do and can’t think of ever retiring and not coming in again. Your definition of retirement may mean stop working 70 hours a week and working 20-30 hours or having the financial capability to come in/out as you please. On the other hand you may want retirement to be never coming in or talking to the office ever again. Maybe it’s something in between. Retirement is whatever you want to make it, but make sure you can define it for yourself and create a plan on how to get there.

Here’s great things to consider when creating your plan:
What is your time frame for your retirement vision?
What is the amount of risk you’re comfortable with?
What are the appropriate investment vehicles to get you there?
How does inflation factor in?
How does social security factor in?
What is the total amount you’re shooting for?
What have you done so far to save for retirement (IRA’s, 401k’s, etc)?

Does this seem a little overwhelming? Understandable, especially when you have a full time job, a family and want to sleep a few hours at night. Whether you’re an expert in numbers and problem solving, sometimes taking the time out to sit down and create a plan can just be the straw that breaks the camel’s back. Hiring a financial planner to guide you through the process and do the hard work for you can save you money and valuable family time. A financial planner is there to help explain where you are, help develop a picture of what you want retirement to look like, and how to get there in a way that is right for you.

If you’re curious to see how you’re doing make sure to check out Waddell & Reed’s personal retirement assessment calculator to see if you’re saving enough!

Until next time, stay sane in this crazy economy!

– Financial Lanscaper

PS. If your plan is to win the lottery to pay for “retirement,” make sure that step 1 is buy a lottery ticket. ;P

 

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Black Friday – A Cautionary Tale

  By remymartini • November 21, 2012 , , , ,

Who’s going out in the crazy lines this Friday for some CrAzY savings? I’m down for a good deal and saving money everyday of the week/month/year but within some boundaries. Make sure before you go out to spend lots of money on those holiday gifts review a few of these thoughts:

1) Use the money you’ve saved for holiday presents – Ideally, you want to have a set amount of money already saved up to spend on that day/weekend. This is your budget that you don’t want to go over. If you don’t have some kind of budget or goal in mind you’re going to start spending like crazy. People like to focus on the amount they are saving, whether that’s in dollar signs or percentages off and then rarely notice how much they are actually spending. Don’t fall into the “I saved XXXX, how could I say no?” trap.

2) Create a budget – If you don’t already have your holiday budget saved up, make sure to set a budget for what you want to spend. Remember that all those sales that you put on your credit card will quickly accumulate interest fees. The less you can put on the credit card the better. Just because you saved 50% on the tag price, doesn’t mean that you’ll be paying only 50% of the tag price when you factor in the interest rate you have to pay for throughout this coming year.

 

 

 

OR

 

 

 

3) Figure out what’s important to you – A lot of stores are not only opening at midnight Friday morning but even Thanksgiving day. Depending on how often you see your family and what you do this may be the only time each year to spend time with them. Is saving money on a TV from Santa more important than spending time your family members? Don’t just think of the short term importance of spending time with the family, but what are your long term goals. If you want to go on that vacation next year or invest in your kids’ college fund, is going out to save money this weekend going to help save for that goal? If it’s not helping you achieve your goals, is it worth going out?

 

 

4) Set the right example – If you enjoy going shopping and like to make it a family affair, what example are you creating? Do you vocalize your limits and expectations? Are you the one where if you see it, you love, you buy it, you charge it, and pay for it later? If you make shopping a family affair, make sure to set boundaries and communicate them regularly before, during and after the shopping. Communicating the expectations so often will help land good habits in everyone’s mind. Don’t just charge it to the card, if you have kids it’s hard for them to wrap their head around money they don’t see. The more expectations you create around money for your kids, the easier it can create a healthy financial lifestyle for not only your kids but yourself.

 

Though everyone likes to save money, make sure not to get wrapped up on how much you’re saving but focus on what you’re spending.  Make sure to balance your wants/needs and what your overall life goals are.

If you have a Black Friday success story I would love to hear it. Please comment below if you have stories of self control, great deals that helped you achieve your goals, or setting the right expectations for your family.

Sincerely,

Financial Landscaper

 

 

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Spending $5 to Put into Your Savings Account INSTEAD of Starbucks Coffee…

  By remymartini • November 14, 2012 , , ,

I would like to thank Chris Salzer for this WONDERFUL blog post idea.

From Facebook:

“How much money would I have for retirement if I didn’t spend $5 a day at starbucks for my entire working career?…”

GREAT Question! Love it!

Ok coffee fend (I’m guilty too at times, not going to lie), your financial savvy friend points out you can save A LOT of money if you “spend” that money on your savings account instead of the Starbucks coffee so often. Well I’m glad that’s got you thinking about what that number could be.

 

 

The answer could be A LOT of money if you consider a few things:

1) You’re spending $5 EVERY day of the year on Starbucks or local coffee shop, etc. 365 days a year. So you put a $5 bill in a jar in your bedroom for 365 days a year then deposit into a savings/investment account.

2) Your working career lasts 30 years (at least)

3) Your savings/investment account is a high interest account, we are assuming at least 4%.

4) Calculation is based upon compounding annual interest rate.

5) This is JUST AN EXAMPLE as interest rates change often so actual numbers may vary depending on reality. This is for ILLUSTRATION purposes only to understand the concept. Every investment has its own risk, so please chat with a professional before considering where to put your money. Thanks.

(I used this handy dandy excel calculator so that you can check my work and play with it yourself if you would like)

$5/day for 30 years (I’m not including leap years for simplification purposes here):

Overall investment ($5 x 365 days x 30 years) + your initial yearly deposit of $1825 = $56575

Compounding 4% interest over those 30 years the balance could be = $108,274

What’s even BETTER is instead of waiting to deposit the money once a year is to do it on a monthly basis. The first year you save $1825 in a money jar in your room to help get you in the right habit of saving and open a savings account. Now you put $152 into your account every month for 30 years. You invested the same amount of money for the same period of time, but instead of $108,274.21 you’ve got $111,542.64. An Extra $3268 just for depositing it monthly instead of annually.

Now that I KNOW you’ve glazed over the past few paragraphs let’s simplify this so it’s easy to look at:

Deposit Annually Deposit Monthly Total Invested 4% APR Annual Deposits 30Year Total 4% APR Monthly Deposits 30Year Total Annual VS Monthly Deposits Difference

$1,825.00

$152.00

$56,545.00

$108,274.00

$111,542.00

$3,268.00

$3,650.00

$304.00

$113,090.00

$216,548.00

$223,085.00

$6,537.00

The HARD part of this will be reality. It’s hard to say no to tasty temptations and decide to save, but no worries. It CAN be done! Maybe it’ll be babysteps at first. Cutting down to every other day, then once a week, then once a month, then not really needing it all.

What do you think? Do you think you can save $5/day for 30 years? I KNOW you can.

Until next time!

Financial Landscaper

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November is Long Term Care Awareness Month

  By remymartini • November 5, 2012 ,

Long Term Care – what is it and why do I care?

It’s simple and complicated all at the same time, so let me tell a story near and dear to my heart because it’s my family.

My grandparents live in a small town, about an hour and half from here. They were very involved with town politics and social life. They were great business minded people and served the community well. When I visit them today and we go out, we can’t help but be greeted by 3 or 5 people, “HEY Jerry! How’s it going?!” Then I get introduced to Mr. so-n-so and his wife that went to high school, was on his city council campaign, or lived next to him growing up. Yes my grandparents, especially my grandfather, is was and will always be the social connection of his town. However, when it came to planning for their own personal future with retirement, they dropped the ball. It wasn’t for a lack of money and thought about money, it was the lack of knowing what kind of curve balls life throws at you and how to make sure you have a plan that can hit the curve ball.

Their basic plan was to rely on their investment properties throughout the town and the savings they had accumulated throughout the years. The curve ball that stroke them out the hardest is my grandmother’s health. Assuming medicare would take care of them is a common thought. However, at first the care she needed didn’t qualify for medicare. She needed personal day to day assistance for eating, going to the restroom, and so forth. It’s only when she needed skilled care could she possibly be covered under medicare and even that was limited. Most of their money is now drained and they rely heavily on my aunt and her generous husband to help fund the nursing homes they live in. I say homes because they live in different homes based off level of care needed.

I hear many stories of my parents’ friends that have to cut back at work to go and take care of their aging parents. They can’t afford to spend the money to have someone else take care of them for their daily living duties. Whether it’s preparing food to eat or helping them to the bathroom, it’s time consuming and can be mentally and physically draining doing it day in and day out.

Long Term Care Awareness Month is meant for you to be a wake up call and push you to go out and seek the knowledge you need around your golden years. It’s meant for you to understand what are the options out there between medicare, medicaid, long term care insurance, and other similar products. You should arm yourself with the knowledge of what is covered under medicare and medicaid, how to qualify and how to prepare yourself in case something isn’t covered.

This is why long term care planning is so important. As people we WANT so badly to be able to take care of ourselves and we can never imagine a time where we can’t. Either pride or shame can get in the way of asking for help when the time comes that we actually need help. Long term care planning helps you stay independent without asking family and friends for help. Family members that would be the ones taking the responsibility of the aging parent would also be grateful.

Long term care planning consists of making a game plan in case you can no longer take care of yourself. This plan goes hand in hand with what kind of legacy you want to leave.

Would you prefer in home care or a nursing home?

How are you going to pay for in home care or a nursing home?

How does medicare factor in?

Do you want to leave your children or grandchildren a legacy of wealth?

What about medicaid?

These are all just a few questions to consider.

The sooner you can sit down with a financial planner to prepare a customized plan for you, the more flexibility you’ll have and typically the cheaper it can be. There are many products out there that can help you achieve your goals of staying independent through your golden years, but sitting down with someone that can explain the differences and help guide you to the right one for you is going to be key to your long term care plan success.

Do you have any long term care stories near & dear to your heart? If so, please share!

As always, I’m looking to bring out wonderful clients to help them achieve their life’s goals. If long term care has been on your mind and you don’t even know where to start or you have lots of questions, please don’t hesitate to contact me for a meeting!

– Financial Landscaper

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What’s Your O Shnike Threshold?

  By remymartini • November 2, 2012 ,

First, you’re asking yourself, “What are you talking about?”

Well your “O Shnike (pronounced as if you’re shhh nike shoes) Threshold” is the threshold where you start to get nervous when your funds dip below a certain amounts. It’s that mental threshold that you give yourself when you’re gauging how much money you have to spend for doing x, y, z the rest of the week/month.

So let’s put this into everyday action:
You want to see the AWESOME new Iron Man 3, grab a coffee with friends, AND go out for drinks Saturday this week. You look at your bank account to gauge if you have enough to do all three. What best describes your “O shnike threshold” when you look at your bank account?

A) If you do all 3 you’ll be at basically $0 by the end of the week. You’re cool with that because paycheck is coming in a few days and you have a credit card for emergencies.
B) You have enough to grab coffee, but not the movie & drinks. Not a big deal, you’ve got room on your credit card so you decide to go to all social events.
c) If you go to all 3 you still have $136 left over. You decide to go to coffee, but stay in and invite friends over for a movie night and drinks. You still want to be social, but when it dips below $200 you get nervous.

Were you a, b, or c?
Let’s analyze each:
A) Your the “0” threshold person. You only spend what you make typically, but typically you spend all that you make. If you have it in the bank account, it can easily be gone by the next paycheck. This is living on the edge because you’re not preparing yourself for emergencies. If you spend all the paycheck before you receive the next paycheck you could be devastated by a last minute emergency with a credit card bill that your finances aren’t ready to pay for.

B) You’re credit card dependent. Not only is it the emergency fund, but it’s also gets you between paychecks at times. You’re the “Negative” threshold person. Typically your credit cards hold a balance and your checking account is often low. A huge emergency will quickly put you in a very tough spot.

C) You have to have “wiggle room” or “buffer” in your bank account. You’re the “Positive” threshold person. You need to have a good chunk of money in your account to feel comfortable doing anything social or otherwise.

I hope that you can guess which is the best to have. If you answered “C” you are correct. If you’re use to A or B then it may be a good time to re-evaluate your financial habits.

Changing habits takes baby steps. For the “Negative” threshold person, you’ll need to step into the “0” threshold, including paying off all the credit card debt built by ignoring the “0” threshold in the first place.

For the “0” threshold person, bump it up by $100 each paycheck.

Once you become a “Positive” threshold person, you need to validate that threshold with a professional that is appropriate for your situation.

One of the hardest thing you can do is say “no” to social exchanges. One thing I suggest is to open about what goals you have in life and come up with cheaper alternatives. Movie nights at the house, potlucks at friends, or just relaxing with drinks at home may be a great alternative and save a lot of money.

If you ever need help finding a cheaper social alternative, make sure to comment below and we can work together to find a more financially fit solution. :)