Posted by Mark Zaifman on Tue, May 15, 2012 @ 12:44 PM
LearnVest is another excellent financial planning website whose aim it is to empower women and help them take control of their personal finances. LearnVest's goal is for women to "live your richest life." (I wish I had coined that phrase)
Recently they surveyed 10,000 of their readers to see how they managed their finances. They then compiled the data into an infographic so you can compare yourself to others.
I'm not certain of the demographic of LearnVest's readers, but my guess would be that it is geared toward mainly single women between 20-40.
I appreciate the important reminder at the bottom of the infographic:
Your financial life is all about you and your personal choices.
Posted by Mark Zaifman on Thu, May 10, 2012 @ 04:42 PM
One of my clients recently let me know that she and her husband were taking their kids on another international trip - this time to enroll them in college. I sent her the link to Maya Frost's blog about studying abroad. Maya's book The New Global Student, will give you creative ways to cut college costs while at the same time scratching your wanderlust itch.
The following article written by Maya Frost, appeared in the Spiritus newsletter in Jan 2010.
The Best Ways to Cut College Costs Now
by Maya Frost, January 2010
I often receive questions from parents regarding how to save for college, but lately, I’ve been getting emails from financial advisors. They are looking for tips to pass along to their clients who are overwhelmed by the cost of educating their kids and ask me, "What’s the best way for families to save for college now?"
Unfortunately, this is an Old School question that, though still relevant, does not lead to the solutions that are helping savvy families give their kids a great education without spending a fortune.
Things are changing, and I wanted to find a financial advisor who is embracing a more progressive and holistic approach to finances in general. I was especially delighted to connect with Mark Zaifman of Spiritus Financial. I'd learned about Mark through Vicki Robin and her best-selling book, "Your Money or Your Life" which was published in the nineties and just re-issued with an updated edition. My husband and I read this book years ago and it profoundly influenced our perspective on money and time and planted the seed for our big decision: selling everything we owned in 2005 and leaving our suburban American lifestyle behind in order to move abroad with four teenage daughters.
The book offers steps to follow in order to gain a better understanding of our relationship with money and how it influences our lives. We benefited from the advice and played with ways to save even more. In fact, we managed to save enough each month on our same mid-five figure annual income that we paid for four nearly-simultaneous college educations while living the life of our dreams abroad!
But as much as I am a fan of Your Money or Your Life, it doesn't really address what is often the most expensive period of life for adults--paying for their kids' education. Many families that pride themselves on remaining debt-free while their kids are young see no other option than to bite the bullet and take out loans in order to pay for college for their kids.
While ushering our girls through high school and into college in nontraditional ways, my husband and I stumbled upon some stunningly advantageous options that any U.S. student anywhere can leverage to leapfrog over those test-dazed classmates. The new breed of global American students is gliding into the global economy at 19 or 20 with a red-hot U.S. or Canadian college diploma, sizzling 21st-century skills (including fluency in at least one foreign language), a blazing sense of direction, and NO DEBT. Wanting to help other families find ways to completely avoid the angst and expense of the college prep process and discover the full range of accessible and affordable education opportunities, I wrote a book on the subject - The New Global Student: Skip the SAT, Save Thousands on Tuition, and Get a Truly International Education was published in May by Random House/Crown.
Parents need to understand that it may be a lot smarter to save on college than to save for college. With tuition and other costs rising, portfolios shrinking and home values stagnating, a savings plan is helpful but certainly no guarantee of affordability. Families are beginning to look at the true value of education rather than simply scrimping and paying for what they’re told is best for their kids.
Times are changing—and our strategies for educating our children (and paying for that education) must change, as well. The traditional four-by-four model (4 years of high school followed by 4 years of college) is outdated. That’s good news for both students who are rolling their eyes at the idea of spending five or six years in college and parents who are having heart palpitations thinking about paying for it.
The key to the Bold School approach—and the best way to reduce college costs—is to look for ways to blend and balance learning opportunities beginning in high school. Through dual enrollment programs, IB diplomas or AP tests, many students are earning college credit while in high school. Others are picking a more personalized path, getting a GED at 15 or 16 in order to enroll in college early or getting an associate’s degree by the time they receive their high school diploma. Some are taking college courses, either online or in person, during their summers in high school and transferring to a four-year university at 18 as a junior.
And it’s not just a matter of racing ahead to finish early—these students are using their time for meaningful experiences, such as spending a significant period of time abroad before the age of 18 (as exchange students or through extensive study/volunteer opportunities) in order to hardwire their brains for flexibility and language learning and develop a greater understanding of themselves and the world around them.
What they have in common is a clearer idea of their interests because they have been exposed to more options early on and have built momentum in their learning.
One of the easiest ways to ensure that your son or daughter gets the most value out of their time in college is to compress it rather than extend it. The average college student now takes more than five years to graduate and students no longer expect to graduate within four years. As some college students have been known to say, graduating after four years is “like leaving the party at 10:30 p.m.” But that’s a very expensive party and families need to understand that they do have options for reducing the length and cost of college while still giving students that full “college experience.”
Colleges contribute to the added length by not counseling students on how they can finish earlier and by making courses critical for graduation scarce, necessitating an extra semester or two to finish up. In addition, many counselors, worried that students won’t be able to juggle their social life and their classes successfully, advise students to take a minimal load of courses each semester. This may be helpful for some students, but for many, it establishes a pattern early on of spending more time on recreation than on studying, and reduces their expectations regarding the course load they can handle. The truth is that most students find that they budget their time, get more accomplished, and get better grades when they have a full load rather than a lighter schedule.
Here’s what we can do to save money on college, help our kids develop a clear idea of their interests and enable them to graduate early while having transformational experiences along the way:
- Shift from achievements to interests. The focus during the high school years should be on developing interests and enthusiasm for learning rather than gaining a particular set of academic achievements. This is crucial. By the age of 16, students need to know how to find, understand and synthesis content. They must be able to develop ideas of their own and research the heck out of them. Students who spend years languishing in high school when they could be blasting forward are wasting the most critical period of their adolescent brain development. Kids should be on fire during these years, and as parents, it’s our job to help them come alive rather than simply plod along on a prescribed path. A 17-year-old who can’t wait to learn more about his favorite subjects is going to be more successful in college and life in general than the 17-year-old who does what he is told in order to pass the test. Make this shift in your focus, and your student will be one of those who dives into higher education with great enthusiasm—and graduates early.
- Break free of four-by-four thinking. The key is to look for ways to blend high school and college, getting credit along the way for a variety of learning opportunities and experiences that help our kids figure out what they’re good at, what interests them, and how they want to spend their time. Students have a tremendous amount of freedom regarding how, where and what they study during the high school years and beyond. But too often, we simply enroll them in a decent school and tell them to just take tough courses and graduate with good grades. We need to question why we think the education we received twenty or more years ago is enough for our kids today, and stop assuming that any given school will have it covered. Remember how motivated you were to expose your son or daughter to a range of rich experiences when they were five years old? What would happen if we took that same approach with our fifteen-year-olds instead of assuming that AP classes, sports practice and a part-time job could maximize their potential?
- Release the idea that getting into a top school is a prerequisite for success. There are new cracks in those ivy-covered walls. The recession has shown that even those with the most sought-after degrees are not guaranteed a job upon graduation. Those who are resourceful enough to have designed their own best education in a variety of settings will be in a far better position to find work they love than those who are relying on the name on that college diploma or their connections to get their foot in the door. Young adults who are not hampered by enormous student debt are free to take jobs that truly appeal to them rather than whatever pays the bills, and this leads to greater enthusiasm for work, more willingness to explore options and more excitement about their possibilities. We need our kids to want to work diligently because they love what they do —that’s the winning combination that will lead to personal fulfillment and success.
- Recognize that those who graduate early because they know what they love to do are also saving thousands of dollars. They are not spending five or six years going to the same university—thanks to blending high school, college and study abroad, they may spend less than two years as full-time college students at their final degree-granting institution. By 19 or 20, they’ve got hip-deep experience, a college degree without debt, and tremendous enthusiasm about the next stage of their lives. And when someone suggests that they might have “missed out” on that extra time in high school and college, they simply laugh—they know they’ve packed far more excitement and learning into their personalized education than their peers on the just-tell-me-when-I’m-done track.
I know that families are struggling to pay for college. I don’t have all the answers, and I think parents should run from anyone who claims they do. But the fact remains that simply saving for college is no longer a proactive approach. Selecting a smart blend of education options is more strategic and far more likely to give students the kind of education that is both personally enriching and professionally beneficial without breaking the bank.
Bottom line: be flexible and aware in order to see and seize the best opportunities available—and keep the focus on real value and sustainable growth. That holds true for both finances and education.
Maya Frost is the author of The New Global Student: Skip the SAT, Save Thousands on Tuition, and Get a Truly International Education.
Image credit http://www.flickr.com/photos/sudhamshu/
Posted by Mark Zaifman on Wed, May 02, 2012 @ 07:01 PM
It's never too early to begin thinking about retirement planning, so no matter where you are in the process, check out these guidelines on what to do when.
21 - Once you are 21 years old, and an employee of a firm that offers one, you can join a 401 (k) plan. It’s not easy, but if you start saving early, you’ll be way ahead of the game. Check out the TED talk on personal finance given by LearnVest CEO and Founder Alexa von Tobel - and while you're at it, you should sign up for her blog. In regards to retirement, von Tobel says, "It may seem like it’s light-years away, but the earlier you start saving, the longer time horizon you’re giving your investments to grow." This not-yet-30 woman is super savvy when it comes to personal finance.
50 - Turning 50 does have it's benefits. In 2012 the contribution limit for the 401(k), 403(b) as well as the fed's Thrift Savings Plan is $22,500 for those 50+. That is $5,500 more than younger people can deposit in the same accounts. And another benefit - as an older employed person, you'll be able to save $1,000 more than your younger colleagues with a traditional or Roth IRA.
55 - For 401(k) and IRA changes, check out the Planning to Retire article in USA News & Money. If you retire in the calendar year (or later) that you turn 55, you can take 401(k), but not IRA, withdrawals and not pay the 10% early withdrawal penalty.
59 1/2 - Ending at age 59 1/2 is the 10% early withdrawal penalty on IRA withdrawals. Note: you are not required to take distributions until after age 70 1/2.
62 - As an employee, you are eligible to sign up for Social Security benefits at 62, but if you begin payments now, your payout will be reduced. In other words, if you were born in in 1950 and you sign up for social security at 62, you'll get 25% less per month than if you wait until 65 to claim your benefits.
65 - At 65, you are eligible for Medicare. Initial enrollment starts 3 months before the month you turn 65 and ends 3 months after your birthday. You should sign up as soon as you are eligible because Medicare Part B premiums increase by 10 % for every 12-month period you don't enroll.
66 - Those born between 1943-1954 qualify for the full amount of Social Security they have earned at age 66. Between 1955-1959, the retirement age increases from 66 and two months to 66 and 10 months. When you reach your full retirement age, you can work and claim Social Security payments at the same time without any payment withheld.
67 - Eligibility for unreduced Social Security payments for employees born in 1960 or later begins at age 67.
70 - If you can manage, you may want to delay claiming Social Security until 70, since payments will grow by 8% per year, every year you delay claiming - up until 70. In addition, if you wait until 70, when you pass away, your spouse can continue the higher benefit. After 70, there is no benefit to delaying Social Security payments.
70 1/2 - After 70 1/2, withdrawals from 401(k)s and IRAs are required. If you don't withdraw the correct amount, you'll have to pay a 50% excise tax on the amount you were supposed to have taken out. The first April 1 (after you turn 70 1/2) is when the first distribution is due. Then, annual withdrawals are required by December 31 every year.
'Pushing 65' by Keith Williamson
Posted by Mark Zaifman on Mon, Apr 23, 2012 @ 12:43 PM
It's true - if you want to achieve financial success, you'll need to develop your delayed gratification skills.
Each one of us is tempted by the latest and greatest shiny objects that bombard us through the many media channels countless times day after day. So why do some people seem to be able to resist the myriad of temptations while others succumb and end up in serious financial troubles?
There was a study done in the late 60’s by Walter Mischel, a Stanford professor of psychology, where four-year-olds were presented with a simple, but far from easy choice regarding candy, marshmallows in particular. A researcher offered each child two options: either eat one marshmallow immediately OR, if the child could wait while he left the room for a few minutes, the child could then choose to have two marshmallows once the researcher returned. Most of the kids struggled with the temptation for about three minutes before they caved – they were not able to resist the white, sticky-gooey treat.
But what does the marshmallow study have to do with money?
A great deal it would appear.
The results of the study concluded that the kids who resisted the marshmallow temptation and showed self-control, (which was only about 30%) became adults who were generally more successful than those who didn’t resist. They were self-motivated, patient in achieving the goals they set, had financial success including high incomes, were positive in nature and enjoyed better physical and emotional health. Those kids who displayed immediate gratification grew up to have more issues including behavioral problems, lowing paying jobs and unsatisfactory careers, poor health and many even had drug problems.
Most poignant was what researcher Mischel explained, “What we’re really measuring with the marshmallows isn’t will power or self-control, it’s much more important than that. This task forces kids to find a way to make the situation work for them. We can’t control the world, but we can control how we think about it.”
Ultimately, financial success requires the skill of delayed gratification - fighting the temptation to spend money while employing the discipline of saving money. Since we are all on our own when it comes to retirement planning, we really need to find a way to spend less and save more. If you are willing to postpone gratification by disciplined investing, you will experience sweet financial success and a retirement that provides you and your family with the comforts and freedom you deserve.
It comes down to saving money (delayed gratification) or spending money, (immediate gratification) it’s your choice.
Photo credit http://www.flickr.com/photos/katerha/
Posted by Mark Zaifman on Mon, Apr 16, 2012 @ 11:02 AM
In an article titled 'Women of Wealth' which appears on the Family Wealth Advisors website - they reference a 2011 study by the Family Wealth Advisors Council (FWAC) called "Women of Wealth: Why Does the Financial Services Industry Still Not Hear Them?" that really caught my attention. This study is one of the largest studies on affluent women ever undertaken. The results shed light on what successful women want from their financial advisor, how happy they are with that relationship, and what they worry about as they look to the future.
The study states that "women are dissatisfied with the financial services industry. Many believe that their gender is a key factor in the disrespect and condescension they have often experienced and the poor financial advice they have received."
The study revealed:
- Women who have gone through a significant transition have greater clarity about what they want in a financial advisory relationship.
- The financial services industry needs to listen carefully to what each woman is saying and learn to meet her unique needs, instead of generalizing about "womens issues."
- Although the financial services industry has said it is focusing more on women, most firms are still missing the mark.
If more financial planners don't get with the program and show some respect for women - well, let's just say, I'm going to be too busy to handle all the business they can't be bothered with.
"Women aren't a foreign country. You don't need an interpreter to talk to them. Even if you're not fluent in their language, they might appreciate it if you gave it a try."
Ruth Marcus - The Washington Post
Photo credit http://www.flickr.com/photos/kathycsus/
Posted by Mark Zaifman on Thu, Apr 12, 2012 @ 12:48 PM
If you’re looking for a way to max out your contributions to a deductible retirement account, the solo 401(k) plan is an option to strongly consider.
With a solo 401(k), you can contribute your maximum annual contributions like you would to any other 401(k) plan; $17,000 of your 2012 compensation or self-employment income ($22,500 if you’ll be 50 or older at year-end.)
But here’s the real ‘sweet spot’ for this option. You can contribute and deduct an additional amount of up to 25% of your compensation income, or 20% of your self-employment income.
Below is an example of how this works. And by the way, to be eligible for the solo 401(k), the assumption is you’re the only employee of your business, corporation, LLC or PLLC or it’s you and your spouse or you and your office manager/assistant. You can of course hire independent contractors and still qualify.
Boost Your Savings
You own Fun Inc. (FI) and in 2012 FI, your corporation, plans to pay you $100,000 in annual salary. You’re 53, so you’re eligible for the catch-up contribution as well, so for this year, your 401(k) salary deductions to your solo plan will total $22,500.
And here’s where the solo plan boosts your savings amount even more. In addition to your annual salary deferrals totaling $22,500, your company can also make profit sharing and matching contributions on your behalf as well for up to 25% of your salary, offering you an opportunity to invest up to $47,500 total for 2012 in this example:
{$22,500-salary deferral+(25% profit sharing & company match of $100,000)}= $47,500
Big Tax Savings Potential
Take it a step further and say you’re in the combined Federal and State tax bracket of 40% for 2012. Your potential tax savings for 2012 would be $19,000. And yes, you read that correctly. In this hypothetical example, by combining your total salary deferral contributions with your company’s 401(k) match along with a profit sharing contribution, you are potentially paying $19,000 less to the IRS and state tax authorities:
$47,500(total salary deferral and company contribution) x 40% (tax rate) = $19,000
For 2012, the combined company and salary deferral solo 401(K) maximum contribution amount is $50,000 or $55,500 for 50 or over.
3 Major Benefits of a Solo 401(k) Plan
When I put my strategic tax planning hat on, I’m constantly on the lookout for optimal tax strategies that are nimble and flexible as much as they are savvy.
- One of the major benefits of the solo 401(k) plan is the flexibility it offers in terms of annual contributions. While some plans, especially defined benefit plans require mandatory minimum contributions each year regardless of cash flow or projected profit, the solo 401(k) plan allows you flexibility in terms of your annual contributions. And from a tax planning perspective, being able to align your retirement planning strategy with your tax planning strategy, well that’s a winning combo you’ll find hard to beat.
- Major benefit number two – During the boom years when cash is flowing like a mighty river and profits are strong, the solo 401(k) plan is your ticket to major tax savings. You’ll reap those savings by maxing out your contribution to your solo plan which in return will significantly lower your tax bill for your current tax year. This strategy is simple and straight forward: Max out your solo 410(k) contributions in the cash flow positive years, save big money on taxes as a result, then reinvest those savings in your practice or business.
Creating significant tax savings in the cash flow positive years, while providing you the option to contribute less (or zero) in the lean years, when conserving cash is your highest priority.
- Major benefit number three – Many small business owners usually start off with a Simple IRA plan for their business, even when the practice or business is a solo venture. There are many reasons for this, the main one being the simplicity of establishing this type of retirement plan. Yet what very often happens is that your income grows significantly over the years and you end up outgrowing your Simple IRA plan, never exploring alternatives.
When you compare a Simple IRA retirement plan where the maximum contribution in 2012 for age 50 or over equals $14,000 and contrast that with a solo 401(k) plan, maximum contribution for age 50 or over equals $55,000, it’s no contest.
Full Disclosure
This may sound odd, especially considering I majored in tax accounting during college; I feel good overall about paying my fair share of taxes. And the more I make, the more I ought to pay. That doesn’t mean I will not use the knowledge I gained to play the tax game in a smart and sensible way as illustrated in the above example.
But tax policy at its core is about the type of society we all want to live in. It’s about fairness and it’s about paying it forward for the next generation. Watch Elizabeth Warren, hopefully our next Senator from the great state of Massachusetts say it best:
As a registered investment advisor, we can establish and manage your solo-401(k) plan through our institutional custodian, Charles Schwab.
Let us help you become a smart and savvy small business owner today.
Image credit http://www.flickr.com/photos/xoconostle/
Posted by Mark Zaifman on Fri, Apr 06, 2012 @ 12:13 PM
I never believed that a parent can’t have a favorite child – then again, I’m not a parent. But as a financial planner, I will admit that I do have favorite clients – my ‘Your Money or Your Life’ clients. We speak the same language; we understand the idea of having a healthy relationship with money, we get the concept of money equaling life energy and we value, value. We are inherently frugal and we are huge advocates of setting goals, such as becoming FI.
With the re-issue of the book in 2008, I have seen an influx of clients either having read the book for the first time, or re-aquainting themselves with the philosophy and for that I am grateful to Vicki Robin for the opportunity to have contributed to the latest edition.
I have talked about how it took me 3 or 4 reads before I ‘really got’ the YMOYL life. But becoming FI is worth the journey, so with a few starts and stops with successes and disappointments in between, my YMOYL journey has taken me 10 years. For some it gels immediately, for others, like myself, it can be more challenging to embrace and implement.
This is the case of a new client I’ll call Ben and this is his story.
Discovering Your Money or Your Life
Reading Your Money or Your Life in the spring of 1995 was truly an amazing experience for me that I believe changed my life. The words seemed to directly speak to me (and my desires) and gave me hope that I didn’t have to be trapped “making a dying” until some very distant time in the future. The words also reinforced many values that are important to me: living with intention and integrity, being responsible to one’s self and environment, and acting on one’s personal callings in this short life. I would often argue with books that contained lots of advice or directives, but everything in this perfect book seemed to apply to me. I discovered this book was much more than financial guidelines and rules, but rather a roadmap for life’s journey.
Frugal & Free - Implementing the Lifestyle
I followed the steps and applied the information to my life. I lived frugally and more intentionally, paid off all my student debt in about a year and became in the best physical shape ever. I had absolutely no debt and felt free. I rented a 2-bedroom apartment for over four years, which I could just lock and go. It was really simple. I had no plans to buy a house, but wanted to buy a piece of land (for cash) in New Mexico. This is where I grew up and was near my family. I had no intention of moving, but wanted to spend occasional time there enjoying those vast landscapes and incredible skies.
Temptations – Consuming More, More & Even More - Losing the Way and Going Off-track
Then I got involved with the ‘wrong’ crowd - those colleagues of mine that lived in big houses, drove Mercedes, and consumed the finest from all sources (restaurants, shops, vacations, the theatre, hobbies, etc.). It was alluring and I let this lifestyle enter my life for a few years. After all, I was working hard, long hours and deserved this, right? I could afford it, right?
I ended up with a big semi-custom, newly furnished home in the suburbs, a mortgage, (for ‘tax deductions’) a Mercedes, a Jeep, several snowboards, tons of fly-fishing equipment, season theatre tickets, more clothes and shoes, and the list goes on. Looking back on those days is a little unsettling, but I think I had to go through that personal consumerism or consumption phase to see beyond.
No shame, no blame. And no piece of New Mexico land, either.
New Love X 2 & the Intention to Simplify
Around this same time, life also presented to me a yellow lab puppy Jacob who needed a home, and my mate Daniel who now shares my home. Both were great things, but also changed the mix of my life.
Feeling out of place in the suburbs, overwhelmed, and very stressed, I made a choice to simplify and move to a smaller house in the city. I laugh now at how simple my life really was back in 2000. I found an English Tudor in a great part of the city that felt completely like home to me. The house would need updating but was live able. So I scrubbed and painted away and moved into the upstairs mother in law apartment with my new furniture and other “stuff” stored on the first floor. I lived upstairs for a year and a half planning the remodel that quickly morphed into a large renovation.
Home Sweet Home
I had originally planned to remodel one floor and then the next, but realized that to update the systems properly I would have to move out. Since this house was ‘the one’, the renovation had to be done correctly. Rather than rent, I decided to buy a Victorian in the same area of town. The renovation lasted 27 months and turned out great. It is home.
Tax Nightmares and Moving Forward
I was going to sell the second house, but my previous accountant thought it would help with taxes - and this is how I became a landlord. I was encouraged by my accountant to buy property for tax purposes. She would deduct all the passive losses, which translated into much lower tax bills. Taking those refunds, I bought a structurally sound, unkempt, four-plex down the street from where I live, which I have been renovating. It has a large yard that I have developed into a vegetable garden. My parents needed to move closer and I also bought a ranch house for them that needed renovations (ramps, a roll-in shower and other ADA amenities).
Through an IRS investigation of my former accountant, I have since learned that I can’t deduct passive losses for rental income in my tax bracket or with my MAGI. I voluntarily amended the required returns and paid back the IRS a lot of those big tax refunds – ouch! I also found a CPA who actually files according to the rules and explains to me the details.
Would I have gone down the road of being a landlord had I known that these deductions were not allowed? Who knows? If my mate, Daniel hadn’t been available to tend to the properties and deal with the tenants, then no. I have, however, gained a ton of experience and knowledge renovating neglected homes and creating better spaces. I really do enjoy the work and design challenges.
I tend not to look back and regret events or decisions in the past. They make me who I am today and if given the same choices, I would probably do it all the same. However, I am not averse to changing things that are not working well for me.
Losses & Sorrow
Personally this year has been tough. My mother had been battling early onset Alzheimer’s for many years. This had required around the clock care and assistance, which was provided by my father and sister at our home in New Mexico. Then the inevitable happened, the disease progressed and she died this summer. My family was in the process of moving here to the renovated ranch house. They did make the move and it is great having them close.
Just as tragic for me was the loss of Jacob, my dog, who had been with me for 12 years. He and I shared a special journey together, including all the moves from house to house, traveling, taking walks together every day, and just sharing a common bond. He had neck surgery three years ago to correct a spinal paralysis. Daniel and I worked with him for many hours to successfully get him back walking. Spending time with him was a joy. It still is hard to talk about.
Work-Life The Delicate Balance
I do have a stress-full and busy job (72 plus hours a week). I also take off 12 weeks vacation a year, which as ridiculous as that sounds, somehow doesn’t seem like enough. I could take more time off, but since we don’t get paid for vacations, I do have to balance the time. My vacation used to involve travel with Daniel, visiting my family in New Mexico, snowboarding, hiking, and fly fishing. Now any time off seems to involve sticking close to home and catching up on things.
The Simple Life?
So my simple life is not so simple. My simple life is not so cheap. My simple life is not stress-free. And I haven’t been rejuvenating my soul on the New Mexico plains in years.
I’m reminded of the saying “expenditures rise to meet income” (Parkinson’s 2nd law), and find that in all ways, this has been true for me. I remember back in 1995 after reading YMOYL that $1,800.00 a month could fulfill my living requirements quite nicely. Now that amount doesn’t even cover one of my mortgages. I definitely need to reevaluate…well…everything. I know the last couple of years I’ve spent a lot of money and accrued more debt renovating the apartments and my parents’ house. These were great improvements and in my parents’ case, absolutely essential. But I look at what comes in and what goes out, and I know there has to be a better way to live financially.
Back to the Basics - Your Money or Your Life
These events and the rereading of Your Money or Your Life has been the catalyst for me to start working again toward a life full of intention.
My vision for the future is having a steady, reliable stream of YMOYL income that would provide enough for my expenses.
This would allow me to work when I was needed or when I wanted – not because I have to slave my life hours away to pay for some tax deduction. I could work in my garden. I could take my runs in the foothills. I could enjoy reading a book without feeling guilty because I have so many ‘things to do’. I could take that road trip to visit old friends or meet new ones or just be by myself. I could bask in that New Mexico sunlight.
I love working steadfastly toward a goal. I become a little depressed or sluggish when there is nothing to strive toward. My life history seems like a series of goals (finishing school, getting a job, paying off debt, getting in shape, building and renovating homes, rehabbing my dog after his surgery, renovating a place for my parents, etc.). Some of these events were planned and others were not. I am now ready for the long neglected challenge of putting my financial life in order.
Photo credits - the author
Posted by Mark Zaifman on Thu, Mar 29, 2012 @ 04:02 PM
Sunset magazine had an article in the Feb 2012 issue featuring 20 'dream towns' in a best places to live list. The criteria was that these towns had to be slow paced and stress free - not easy to find anymore in our crazy busy world.
Who could resist fantasizing about taking off for Nelson, BC or Whitsunday Islands in Australia. It's interesting to read about these couples who actually did it, leaving behind friends, family, careers and homes in search of a more mellow lifestyle.
Pat and I did it 20 years ago when we moved from the east coast to Northern CA, and although we always miss our families, we've never looked back. Although I admit, whenever we visit a new and beautiful place, (the most recent being San Luis Obispo) we always ask ourselves, "could we live here?"
Whenever I read an article like this, as a financial planner, I always think about the planning process to get from point A to point B. To keep the article light, exciting and adventurous, of course they aren't going to go into the how-to financial nuts and bolts of making a major life change such as this, but it is crucial to get all your planning done before embarking on a huge life move.
I've helped people make big life changes, including moves to other countries, retiring early to a fantasy life like the ones described in the Sunset article - and I'll say, I LOVE helping these adventurous clients live their dreams.
The Sunset article lists woodsy, wine country, tropical and Pacific Rim escape hatches, or as they refer to them as, 'fantasy towns'. Four different couples are profiled, discussing what they gave up, what they gained and the moment they knew they had become 'a local' after making their moves.
WARNING! This article is very inspiring - espcially to those with chronic wanderlust.
Photo credit Thomas J. Story
Posted by Mark Zaifman on Wed, Mar 28, 2012 @ 07:00 PM
When it comes to retirement income planning, one of the most important decisions you’ll make is the assumption for your projected rate of return.
Before the market crash of 2008, counting on your retirement savings growing 8, 9 or even 12 percent plus, year after year after year, are likely gone. In the ‘new normal’, cautious investors are learning to revise their expectations downward and for good reason. Recent market volatility, the debt crisis in Europe, a slower growing global economy, a weak real estate market and political gridlock have all contributed to revisiting long-term growth forecasts.
Setting Realistic Investment Returns
What is realistic when it comes to setting your projected annual return amount?
According to California-based Index Fund Advisors (IFA), 86 years of data reveals the long-term return of the Standard & Poor’s 500 index to be 9.78 percent annually, while long-term government bonds average 5.73 percent. Use these historical figures as a starting point and start refining from there depending on your particular asset allocation.
Keep in mind that whatever figure you decide on will have an enormous effect on determining how much you need to save right now in order to reach your goal of retirement in year x.
The assumptions you make regarding your investment returns are crucial to your long-term financial wellness. If your forecast is too optimistic, by the time retirement rolls around there’s not much you can do about it, which is why this assumption has to be thought through with the care and seriousness it deserves.
Mutual fund giant Vanguard uses 6 percent for a long-term, balanced portfolio rate of return for their retirement calculator whereas T.Rowe Price, another large mutual fund company, uses 7 percent annual returns.
Of course, being ultra-conservative with these key assumptions will mean you need to save more, actually quite a bit more each year than if you were to use say 7 percent or 9 percent. But like my wife Pat who often reminds me it’s better to show up early rather than late to a meeting, better to end up with too much than too little.
Retirement Planning Tips:
As easy as it seems to plug a few numbers into a web retirement calculator and poof-out comes a retirement plan, please think again, it’s not as simple as it appears. As an attorney once told me before I was about to represent myself in court for a speeding ticket; “Only a fool has himself for a client”.
Here are some helpful tips for projecting a rate of return:
- Use long-term averages as a guide, not an absolute. If your time horizon until retirement is lengthy, with decades to go, then it's reasonable to expect a higher return over the long run. The shorter your time horizon, the less helpful those figures are as a guide.
- Go low with your estimates. I prefer using 6-7 percent as a modest guide for annual portfolio returns. And for clients that want to reach the finish line with plenty of room for comfort, I’ll often choose 4-5% annual portfolio returns. And remember, the biggest issue is not picking the ‘right’ investments or asset classes, its investors, guided by their emotions that too often tend to buy high and sell low. The issue is not necessarily too high or too low a return rate we choose but instead our money behavior and how we seem to move in and out of various investments at all the wrong times.
- Remember two crucial factors in terms of retirement planning. Number one-the money in your tax deferred retirement accounts is not 100% yours. A big chunk belongs to the IRS, perhaps 30-40 percent in some cases. Second, remember how corrosive inflation is to retirement income planning so plan for higher inflation. With the money the Fed has been printing, perhaps much higher inflation than the usual 3-4% projection most often used.
- Play it smart and conservative with your projected investment return, understand your relationship with money and the emotional triggers that can set you off and always check your progress at least yearly.
Happy Planning...
Photo credit http://www.flickr.com/photos/plaisanter/
Posted by Mark Zaifman on Thu, Mar 22, 2012 @ 03:41 PM
You Are Not Your Net-Worth
Over the past two years, I’ve met many people who were at the top of their game prior to the 08’ crash. Some owned very successful businesses, many had thriving careers prior to the crash and a few were close to reaching financial independence. The common denominator was that not a single person ever imagined anything could or would go wrong and not one had built a relationship with a trusted financial advisor that could have offered them an independent and objective second opinion.
They believed the music would never stop, that real estate prices would continue upward, and the economy would keep expanding and growing. With this belief came the desire to take on more and more debt. Many purchased 3,4,6+ homes with negative amortization mortgages. Business owners leveraged their assets including their retirement accounts in order to expand beyond common sense. By the time they met with me, many of these folks had already lost 70-80% of their overall net-worth.
No doubt that a loss of this magnitude, especially for someone in their 50’s or 60’s, is devastating. It’s a personal financial crisis of the highest order - yet it’s a spiritual crisis as well. Many who suffered this type of financial loss have also, at least temporarily, lost faith in their ability to succeed again. It’s this loss of faith in 'better days to come' that prevents them from regaining their true and divine authentic power.
Although the ‘Great Recession’ officially ended around June 2009, the fallout from this global downturn still causes havoc in many lives. It’s hard to quantify which demographic group was hit hardest, but I do know that with time not on their side as they approach retirement, baby boomers have been feeling the pain.
Like with any setback in life, resilience is the key. We need time to assess the damage, accept what happened, get back in the game and move forward if we’re to regain our mojo and start moving forward again.
Although many of us have experienced the pain of a broken heart when a relationship has gone south, we eventually summoned the courage and strength to trust again and ultimately to love again. It’s amazing how the pain eventually dissipates to be replaced with true love, yet again. And yes, count me as a hopeless romantic.
Yet lose a substantial amount of money on a speculative investment that you knew in your gut was too risky, or lose the business you started 20 years ago because you stayed in denial mode too long and didn’t face reality soon enough to course correct, then getting back up on your feet can become one the greatest challenges you’ll face in your life.
Faith, Gratitude, Empathy & Forgiveness-The Way Forward
During the Great Depression, when so many had lost everything, including their faith and ability to dream, a book was published that would go on to become one of the greatest best-sellers of all time - Think and Grow Rich, written by Napoleon Hill.
Although the title suggests it’s all about getting rich, the word ‘rich’ is a relative term. It’s more about using your mind and the power of auto-suggestion to reclaim your authentic and divine power. As Hill puts it, “If you can control your mind, you can control your destiny”. And remember, this book was published during the height of the depression when so many were lost and confused about regaining their power to succeed.
If you’re someone that has suffered from a devastating financial loss, then renewed faith is very much needed in order to restore your self-confidence. Fear will find every avenue possible to seep into your life if you allow it to. Fear restricts energy while faith expands energy. Fear is darkness, faith is light.
As you begin to rebuild your life, step by step, dollar by dollar, know that your attitude of gratitude will turn fear into faith and hopelessness into optimism. It’s the secret sauce in the formula for rebuilding your life. As much as you may have lost, you must find ways to be grateful for all you still have.
The emotion you’re aiming for as you rebuild is empathy. Perhaps when you were on top of the world, it was challenging to understand the plight of the less well off. Now events have conspired to help you feel empathy for all who suffer and go through tough times. Perhaps this crisis was a blessing in disguise?
In order to summon the power you’ll need to pick yourself up, dust off and get back in the game, you ultimately need to forgive yourself fully and unconditionally. You must learn to love yourself again for the magnificent person you are destined to become, and this love must be unconditional. The love will allow you to begin the healing process.
And finally, as hard as it may be to imagine, when the time comes that you’re able to look back on this financial/spiritual crisis as a gift, then you will know and feel your divine power again and this time the power will be authentic and sustainable.
Photo credit http://www.flickr.com/photos/quinnanya/
Faith photo credit http://www.flickr.com/photos/soloflight/