Big Hairy Audacious Goal (BHAG)

I’ve actually written down a new goal that I’ve thought about for a while, and finally decided to tackle.  The only thing we still owe is our mortgage, which is now at below half of our home value.  While that’s great news, we are ready to attack the BHAG.  It seems overwhelming, and we “could” sell our investments, pay taxes (of course) on the gains, and pay off the mortgage today.  That would create less risk in our lives, but I don’t feel that’s the best way for us to do it.

It’s important to prioritize financial decisions.  Start investing early, with the goal of investing 15% of your income.  Somewhere along the way, we bought a home.  The payments should be less than 25% of your take home pay.   California has it a bit tougher, and we Californians have been known to stretch our payment to 1/3 of our take home pay, but that’s riskier to keep up with the bills and investments.  Once you start making more income, keep up with the 15% retirement investment, and start adding extra funds to pay down the mortgage principal. 

With the proposed tax reform, mortgage interest is not going to be as attractive as a write-off, since the standard deduction will most likely be the best bet for most Americans.  Interest rates are likely to go up this year, so refinancing will not be as appealing, either. 

If we add $700 a month to our payment, we could have the house paid off in seven years.  That would save us thousands of dollars.  My plan is to take any extra income and any savings earned to pay towards the principal.  So far in May, I’ve already saved $143 by catching a medical billing error on my co-payment, negotiating with my Internet Service Provider to not charge us equipment rental, and coupons I used.  It’s early in the month, and now that I’ve written down the goal, my actions will bring in more results.

Is anyone brave enough to make the same challenge?  What ways do you think you can engage to bring in more funds to pay down the principal?  How would it feel to not have a house payment anymore?  

Family Members and Money

 Why is it that we seem to be making some good choices and getting ahead financially, when along comes a family setback, and we’re reeling right along with them.  Are you the one who graduated from college and is doing better than the others, so you are the caretaker?  Are you the oldest child who takes responsibility for the others?  Did you fill your grandmother’s footsteps as rescue worker?

Let’s talk about boundaries.  Let’s outline some things that, regardless of your relationship and ability to pay, you should NEVER do.

• ·         NEVER co-sign on a car loan or other purchase
• ·         NEVER rent a home or rental property to a family member without a written and signed rental agreement
• ·         NEVER add other people to your wireless phone plan

So many times, we have a noble intent to help our sister, and they take that inch and a mile more.  If they can’t buy groceries for their young children, don’t give them grocery money.  Buy them food and bring it to their home.  If they can’t pay the electric bill, call 211 to find community resources that can help.  You may have offered money in the past, so build up your resolve to help them with information and moral support instead of money.  Teach them how to fish.  If they don’t want anything except money, let them find it elsewhere.

Santa Cruz, CA 1920's  My dad is the little guy standing up

I know this is easier said than done, but making them dependent on you does no one any favors.   They’ll never grow strong when there’s always someone to fix their problems.  I know this sounds harsh, and it may be something that a family has never seen before.  Maybe they won’t talk to you; that shows that all they really want is the money, so let them be mad for now.  Think how much more independent people would be if they learned by “tough love” instead of constant coddling.

If it’s your parents, it’s even tougher.  You probably acquired a lot of their struggles when growing up, and may have learned to treat your money differently.  Share with them some of your scuffles, and encourage them to try incremental changes that may make a big difference.

If your family relationships cause issues for yourself or your marriage, read the book “Boundaries” by Dr. Henry Cloud for some insight into understanding and addressing the concerns.  Seek advice from someone to help with your resolve to not give in.  Ask others for help to stick with your determination to not hurt yourself financially to dig someone out again.  

What Have You Been Missing?

Am I paranoid, or are they really trying to overcharge me?  In the past six months, we changed our ISP, entertainment, and phone service, saving us $150 each month.  I have had to call five months in a row because my bill was wrong – sometimes up to $200 in errors. 

I shopped our insurance rates, and it’s reassuring that we already have a company with the best rates and reliable service. Our homeowners’ insurance company had the wrong start date on the policy, and we were able to get it corrected and have two additional months of coverage.

We reduced one bill that provided redundant services and will save $240 a year, and I did find an error on our medical insurance bill dating back to August, and we are getting a refund for $200. 

All this is from reading the monthly statements for our bank, credit cards, cell phone carrier, and reviewing the insurance bills at renewal time.  Except for the phone service and insurance, I accomplished most of these savings in January.  Is there anything you have been missing on your statements?  How would you know?

I’ll admit that reading statements and bills is not very entertaining.  I’d rather be perusing travel brochures and planning our next escape.  That is my motivation for being vigilant about our money – I want to travel and experience new adventures as often as possible.  Our next trip keeps me inspired to save now and enjoy soon enough.

I’ve talked about this before, First Step to Control – Review Your Bills.  You don’t have to look at every detail on your 401K account, but make sure that your contributions are showing up right, and that the money is being invested the way you had it planned.  At least once a year, have a face to face appointment with your financial advisor to ensure your investments are doing what you need them to do.  Your goals may have changed, and you want to ensure your securities are still the best choice for you.

Starting today, read all the statements that you receive in the mail or e-mail for the next thirty days.  See what you observe about the bills, note any follow-up needed. Make the calls to get things fixed.  You are more in control of your finances than you were a month ago.  Feels good, doesn’t it?  Now, you can browse the internet for your next adventure.

Five Ways I’ve improved my Life in 2016

    I promised to reveal ways I felt I improved my life in 2016. Here's what I'd like to share:

1.       I have less stuff: William Morris said “Have nothing in your home that you do not know to be useful or believe to be beautiful.”  That is my thought process when looking at my clothes, kitchen, pantry, freezer, bathroom cupboards, bookshelf and files.  Having less means not as much to clean, items are easier to find, and I feel lighter.

2.       Expanded our Travel:  As we focus more on experiences, we enjoy our trips even more.  Visiting family in Hawaii, while doing lots of walking and hiking.  Spur of the moment flight to Mexico with no plans or expectations, or weekday trips to Lake Tahoe to take in all the beauty and fresh air.

3.       I am motivated to enjoy Optimal Health:  That means physical health, mental health, and financial health.  I try to spread my efforts into all three areas for a good balance.  Earlier this year, I was turning into an old person by having conversations with friends about our ailments.  No more. I’m steering towards encouragement of positive activities.  More farmers markets, less weight, more cooking from scratch, more planned menus.

4.       I’m striving to be Present:  Fully participating in conversations, blocking out distraction, being intensive in what I am doing.  Creating a weekly planner to make sure I move forward with my goals.  Breaking it down to a daily planner to prioritize and takes steps towards progress and completion.

5.       Letting go:  Not just stuff.  I’m talking about still thinking I would take up golfing, or trying one more time to get along with that negative friend that drains me emotionally.  Embracing excellence instead of perfection (that will always be a challenge for me.)  Saying “no” to responsibilities or obligations I don’t need to carry. Less disappointment about choices other people make.

What about you?  What have you improved, and what will your focus be for the coming year?

It's Not Your Grandfather's Retirement

I remember when I first realized people retire.  First of all, they were REALLY OLD.  Some of them did a lot of travelling, and many just stayed home and did hobbies or socialized with their friends and family.  My father retired when he was 55 years old, and I thought that was the norm, and it became my goal to retire at 55.  My employer for much of my career promised a full retirement at age 55 if you had enough service years and had started young enough, which I had done.

My dad growing up in Santa Cruz, CA

When I was 45 years old, I realized there was no way I could work there for another 10 years.  The old ways of staying with one company had gone, and there were so many opportunities that seemed more appealing to satisfy my need to help, along with my leadership and financial skills.  I left, and never looked back. Fortunately, I had hired a financial planner as soon as I earned my MBA, and relied on her expertise to make the best investment decisions to meet our risk tolerance and future goals.  My parents taught me how to work hard, spend less than you save, enjoy life (especially family and travel), and invest in Real Estate and traditional investments. 

I had to realize that when I left behind that corporate job with a “real” pension, I accepted responsibility for my financial future.  I observed that most people don’t retire until they are 63 years old.  I didn’t know I was going to have to work that long!  I started noticing commercials about your “number.”  Why were those numbers so big?  They said I’d probably spend only 80% of my income in retirement; stop commuting, dry cleaning, business lunches. 

As I have been studying retirement planning for over 10 years now, I see a much different scenario and I don’t think I was the only one who had bought into our father’s retirement.  Employers started reducing retirement benefits, and of course they would not tell anyone that they handed over the responsibility to employees.  A lot of people really thought Social Security would provide enough on top of the retirement pension. The government approved 401K and Roth IRAs, and we liked the potential tax savings, but still didn’t see the whole picture. 

According to a study by Chris Hogan, “Stress and Anxiety Surrounding Retirement”, half of Baby Boomers, who were born between 1946 and 1964, have less than $10,000 saved for retirement.  We are in a bad place with retirement near or already here.  Only 9% of middle income employees save at least 15% towards their retirement.  We don’t have any plans, we’re not saving.  When someone mentions Retirement, we experience anxiety.  We lose sleep. We don’t know what to do.

While some families and cultures have several generations in one home, do you want that to be the only option?  Probably not.  As embarrassing as it is, we need our Baby Boomers to feel comfortable enough to get some help to plan their retirement.  Whether it be their employer, Money Coach, investment professional, banker, or some trusted professional to provide guidance.  It’s time to get in gear, learn your options, and start setting some money aside.  There are lots of us out there to help – the time is NOW to do something.  Make an appointment today.  Write down some goals and questions.  Listen to the suggestions, and pick at least one to start with right now.  Move retirement to a high priority and make it your second job to make solid plans. 

Please remember, there are a lot of us out there to help you understand more about retirement, and there’s no need to be mortified when others see your situation.  You’re not alone.  When you get your retirement plan rolling, help someone else you know do the same.  Let’s share a prosperous future with all of our fellow Baby Boomers.

This is the beginning of my series of blogs on retirement.  Today’s Baby Boomers are my first priority because time is of the essence to do something quickly.  You can find out more about me on my website http://www.moneywiseadvisors.com  

A little research can keep hidden costs from hitting where it hurts most — your wallet!

The unexpected costs of buying a home Buying a home is expensive, but it’s not just the price of the house itself that you need to plan for. If you’re considering a new home, BetterMoneyHabits.com can help you look beyond the sale price to understand and plan for the extra expenses that come with making this big purchase. Low Credit Score Your credit score has a big impact on what your mortgage interest rate will be and how much you will need for a down payment. If your score isn’t great, you might not even be approved for a home loan. You can check your credit report at annualcreditreport.com, or by contacting one of the three credit bureaus: Equifax, Experian, or TransUnion. But if you find you fall into the lower range of credit scores, it is not the end of the world. Check out these BetterMoneyHabits.com videos to get back on track: Build Credit and Keeping Yours Healthy What Really Goes Into Your Credit Score Down Payment and Private Mortgage Insurance The more you put down on your new home, the better. Ideally, you will need to put down 20 percent. At that point, you will receive a better interest rate, have lower monthly payments, and you will not have to pay for private mortgage insurance, or PMI. PMI is a type of insurance that lenders require you to pay if you are unable to make a full 20 percent down payment. This protects them if you default on your loan. And it’s not cheap. PMI can cost up to about 2 percent of the total loan amount. PMI is either required up front, or rolled into your monthly mortgage payment. With some loans, you won’t have to pay PMI forever, but check with your lender for more details. If you cannot come up with a 20 percent down payment, there are some alternative options, such as government programs that require just 3.5 percent. For more information, watch Understanding Alternative Mortgage Options.  Closing Costs Closing costs include things like title insurance, appraisals, and attorney fees. Plan on these closings costs being 3 to 7 percent of the total loan amount. And remember, this is on top of the down payment. Unanticipated Expenses Homeownership may come with some unexpected expenses. These could be increased energy costs, the price of new appliances, homeowner’s association fees, or even just the expense of maintaining a nice yard. So make sure you’ve accounted for all these in your budget. And for good measure, start an emergency fund for those things you cannot prepare for. Learn more by watching Create a Safety Net for Life’s Unexpected Events.

3 Smart Expenses You Can Avoid

Looking at your spending plan, it’s fairly easy to anticipate the regular monthly expenses, and with a bit of planning, the gift occasions, school activities and annual fees.  What is frequently not anticipated are the expenses that others try to include without our pre-approval.  They offer, and we accept the opportunity to spend our precious money.

Awareness is the key to this conversation, and please understand the choice placed before you is optional.  You can start to realize that commitment or acceptance of others’ expectations can “force” you into an expense you didn’t even realize you wanted! 

Here are some examples that I have experienced in my own family’s finances:

•       When our family plan had an available phone upgrade, they went to our teenage son for a few years as he wore them out quickly.  Now, when the upgrade becomes available, there’s the anticipation of using the latest technology.  As soon as we had a chance, we upgraded my husband from a flip phone to the newest iPhone.  He primarily uses it to make calls.  Should we have waited a little longer, or selected a less expensive phone?  It is not a mandatory upgrade. We had a choice.

• Our kids, or we as parents, want to experience every sport, musical instrument, and community organization available.  Youth build lifelong skills and friends through activities.  Each pursuit has fees, equipment, travel and various expenses to contribute.  We will spend all afternoon and weekends driving them all over the place to participate.  Parents end up with no free time, and a lot less money.  Who says it has to be this way?  Set a limit on time and money for activities, which is VERY important with blended families who need to ensure all guardians are on board with the plan and able to give money and time.       
• Can you politely decline a destination wedding, family reunion of 3^rd cousins, or a weekend in Vegas with friends you don’t really enjoy anymore?  If you truly don’t want to go, save the money and precious time and say no.  Tell them you didn’t budget for it, you don’t have that much time, or whatever honest answer you can give.  Other people’s desires and priorities do not need to be forced onto you.  Feel comfortable telling the truth, and not participating out of guilt or responsibility.  You really have the power to make your own choices.

Wouldn’t it feel delightful to have more control of your cherished time and money?  Could you remove the culpability of not doing the things above, and replace it with the empowerment of making smart choices?  This is my goal at MoneyWise Advisors, to encourage you to take action and power to control your finances, and start achieving your goals and dreams.  Your personal finance strategy becomes the tool to increase your earning power.  What choices do you have in front of you today?