May 19, 2012

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Carnivals, Mentions, & Weekend Reading #12

May 19, 2012 By 1 Comment

FREE GIVEAWAYS!!

Prairie Eco-Thrifter is giving away A TON OF STUFF: an iPad3 and over $200 in cash and gift cards!

Jeremy from Modest Money is giving away two prizes: $50 in Paypal Cash and a 2nd winner will get $25 in Paypal Cash!

Invest in the Markets is also giving away A few free Webinars & a $25 Amazon gift card!

Carnivals

Mentions

Weekend Reading

Highlight of the Week

This was another week where there were a ton of great posts and it was nearly impossible to choose one. However, this post was one that I recently read and it really struck a cord with me.

Nearly 2 years ago I decided to turn my life upside-down and pursue a career that I was passionate about. Due to my personal struggles with finances (which I’m going to talk about in Monday’s post), and overcoming those struggles, I felt a strong conviction that teaching people how to properly manage money was something I was supposed to do with my life.

While the journey over the past few years has certainly had rough spots, it’s been an amazing thing to meet with people that were desperate and hopeless, and teach them ways to overcome their situations and propel them on a path toward financial freedom.

However, one of my personal battles is remembering how hard it was 6-7 years ago when I struggled with money. Our semi-financial peace and our progress on the financial front has distanced me from the pain and fear that once flooded my life.

Despite that struggle, I often take time to reflect and remember what it was like, and part of what keeps me going with this blog, and even in my personal career, is understanding the hardship that many Americans still face.

People often question whether I’m a pessimist and I simply inform them that I’m a realist. I like numbers…it’s part of what makes me good at what I do. With that said, FACTS and statistics tell me a story similar to those people that say ‘a picture is worth a thousand words.’

With all of that in mind, the best post I read this week was simply a reminder of the financial difficulties the majority of us face. In his post Staggering Financial Statistics, Funancials discusses some rather scary facts about Americans’ retirement accounts and the percentage of us that DO NOT live on less than we make.

Other Great Weekend Reading

Filed Under: Finances

Asset Allocation & Diversification: Stocks, Bonds, or Cash

May 18, 2012 By 22 Comments

Welcome to the ‘Understanding Retirement Planning & Investing’ series! If you’ve missed the first few posts be sure to check them out!

Understanding Asset Allocation & How to Choose Mutual Funds

Knowing that I’m a financial advisor, I’ve come to learn that most people really don’t have the slightest clue as to what asset allocation means.

It’s quite common for people in their 20s or 30s to have an asset allocation that’s suited for somebody in their 60s or 70s (100% in cash – i.e. CDs or money market accounts) because they’re scared of what’s going on in our economy and they don’t want to lose any of their money.

Instead of the traditional investment approach of buying LOW and selling HIGH, most ignorant investors do the exact opposite!

The Average Joe falls victim to emotion and makes decisions based on FEAR and GREED. There is no doubt that mass media plays a large part in this, so it’s likely that the more you read the paper and the more you watch the news, the MORE likely you are to make irrational decisions based on FEAR.

The Basics of Asset Allocation

To first understand Asset Allocation, we must learn what different assets types there are to invest in (particularly in regards to saving for retirement):

  • Stocks
  • Bonds
  • CDs
  • Precious Metals
  • Real Estate
  • Annuities
  • Commodities

Once you have a firm grasp of understanding that there are only a certain number of things you can invest in when saving for retirement, the next step is understanding that your Asset Allocation ultimately determines your rate of return over time.

Asset Allocation simply means what PERCENTAGE of your money should be tied
up in assets like the ones I just mentioned: stocks, bonds, CDs, etc.

Research, through numerous studies, have shown that 91% of a person’s RETURN on investment is based on ASSET ALLOCATION.

Knowing our ignorance in this regard, most Americans’ initial reaction when choosing an investment option in their 401(k) or IRA is to look at MorningStar and find out which funds have their coveted 5-Star Rating.

Others may jump to Kiplinger to find out the hot mutual fund for 2012.

Some may simply look at the 1, 5, and 10-year return on a particular fund and make their investment decision solely based on that.

Unfortunately this method of choosing investments gives you no real understanding of why you own a particular stock or mutual fund; therefore you really have no reason to hold onto it which causes you to sell it when things don’t go well and look for the ‘the next best thing’.

The Greater the Risk, The Greater Your Potential for Return

I mentioned at the start of the post that it’s extremely common to see somebody in their 20s, 30s, or 40s to be invested extremely conservatively based on the fear that consistently gets pumped into our minds.

However, the people that “play it safe” are really hurting themselves in the long run. If conventional wisdom tells us to ‘buy low and sell high,’ and you do the exact opposite by trying to time the market via getting in when things are going well and getting out when things are going poorly, you’re likely to miss the majority of the gains the stock market is going to give you.

Furthermore, if you always keep your money “safe” then it’s highly unlikely you’ll outpace inflation and realistically (whether you realize it or not) you are losing money – well, you’re losing purchasing power.

While risk tolerance does need to be taken into consideration, some people simply need to be coached on how to properly invest. Being in my 20s, I understand that I’m not going to NEED my retirement investments for a long period of time and this tells me that I can take a little more risk than most people.

Here is a visual that I use to help people understand how their retirement investments should be allocated along the assets of Stocks, Bonds, and Cash:

At the base of the triangle you have Cash (i.e. Money market accounts, CDs, or other “safe money” investments). These types of investments really have little to no risk but they also have little to no reward.

Bonds are a little more risky because there is a chance of default but they tend to give you a higher return over time than the “safe money” counterparts.

Lastly, as we all know Stocks are the most risky, however they tend to give you the best chance for long-term growth.

How You Should be Allocated

Ultimately, your particular allocation (again, the percentage of money that should be tied to stocks, bonds, or cash) will ultimately be based on a few things:

1. Your Risk Tolerance

2. Your Goals and the Rate of Return You NEED to Earn to Get There

3. Your Time Horizon (i.e. how long do you have before you NEED the money?)

The greater return a person needs to get in order to achieve their goals, the MORE they should be weighted towards stocks (when I refer to stocks, I mean stock-based Mutual Funds).

The LONGER somebody has until they retire (or until they need the money), the MORE you should be weighted towards stocks. Maybe an allocation of 95% stocks, 5% bonds…or something along the lines of 80/20 (stocks/bonds).

However, as you near retirement, it’s wise to shift your asset allocation towards a more conservative approach and take on a more bond-based allocation. In the next lesson I’ll discuss the 3 phases of investing, in which your phase on investing ultimately determines your asset allocation.

Choosing Funds in your 401(k) Made Easy

Ultimately, how you break down investment choices SHOULD go in this order:

1. Determine Asset Allocation – which percentage of your money should be tied to stocks, bonds, and cash. This answer lies in the following questions:

  • How much time do you have until you want to retire or until you NEED the money?
  • What is your risk tolerance?
  • What are your goals and what RATE OF RETURN do you NEED to get there?

2. Diversify – once you know you should be allocated 80/20, then you look to diversify the 80% tied to stocks and the 20% tied to bonds.

This could be a whole different lesson but there are a few choices of stocks you could look for:

  • Large Cap Stocks – these are the BIG companies most of us would recognize (Google, Coca-Cola, etc). They have a market capitalization of OVER $10 billion. These are traditionally less risky but sometimes don’t earn as much.
  • Mid Cap Stocks – market capitalization of $2-10 billion. Slightly more risky than large-cap stocks, but an edge on return over time.
  • Small Cap Stocks – capitalization of $300 million to $2 billion. Definitely more risky than the other two, but over time they’ve shown to yield a higher rate of return.
  • International stocks – despite struggles overseas it’s wise to have some portion of your assets tied to international. If you think about it, the MAJORITY of our assets are already tied to US markets (your job, house, etc), so when you’re diversifying it’s smart to always have some investments that aren’t solely based on what’s happening in the US.
  • Emergency Markets – these stocks are a little more risky because they’re invested in countries that the title suggests: “emerging.”
  • Growth Stocks & Value Stocks – value stocks tend to have a higher rate of return over a LONG period of time, but they’re more risky simply because they’ve been ‘undervalued’ for one reason or another.

Once you diversify your 80% stock allocation in the above categories, then you need to break up the 20% bonds:

  • Government Bonds
  • Corporate Bonds
  • International Bonds
  • Short, Intermediate, and Long-Term Bonds
  • High-Yield Bonds (or ‘junk bonds’)

3. Select the Mutual Funds – after you have a grasp of your Asset Allocation and your Diversification approach, THEN it’s time to check out your fund options and choose which funds will best suit you based on:

  • MoringStar or Kiplinger reports/ratings
  • The fund’s return over the last 1, 5, and 10-year periods (sometime it’s good to look at their return since inception as well).
  • Internal fees (expense ratio) and Turnover Rate – turnover is the percentage of the investments in that paricular portfolio that WON’T be in that fund next year. The lower the expense ratio the better.
  • Fund Manager – how long as the fund been managed by the same person?
  • How long has the fund been around? It’s it brand new or has it weathered a few “storms”?

There is little doubt that MOST people don’t want to mess with this process, thus we end up with people that (1) try to time the market based on FEAR AND GREED, (2) don’t know what they own which further lends itself to buying and selling, and (3) end up with people that get “burnt” by the market and choose to stay invested in cash and therefore never outpace inflation.

If you need help choosing funds in your 401(k), then there is nothing wrong with paying a professional a few dollars to help walk you through the process. I am biased, because it’s what I do, but I think it’s definitely worth the money in the long run!

For those that are too cheap to pay somebody, or for those that don’t really want to do the leg-work themselves, I’ll discuss Target Date funds in an upcoming post.

Filed Under: Finances, Investing, Retirement

Our Journey to Financial Peace – April 2012

May 14, 2012 By 51 Comments

Another Day, Another Dollar

Every day and month presents one more opportunity to get closer to our goal of becoming debt free. Whether or not we pay anything “extra” towards our debt we’re still guaranteed to make some progress simply due to the fact that we’re paying our minimum payments.

While April wasn’t anything spectacular, it was a solid month for us and we were able to hop back on the wagon!

A few of the positives from April were:

  • We didn’t eat out at fast food restaurant! If you recall we ate out at 5 fast food restaurants in March, so I was pretty happy with how disciplined we were in April!

  • We increased our Emergency Fund to $3,000! While a $1,000 emergency fund has worked for us over the last couple of years, we’ve wanted to increase it (especially considering my job is 100% commission). We were finally able to get that done towards the latter part of March and into April; it was pretty exciting and it’s a little more comfortable knowing that the money is sitting there if we need it!

The Bad

Despite sticking to the budget for the majority of our cash spending limits throughout the month, there was ONE spending category that we failed miserably in…

So, my wife and I have wanted a new camera for a few years now and we FINALLY decided to take the plunge!

I’m pretty stoked about it and have been loving it for a few weeks now.

The camera we’ve been using for the past 6 or 7 years served admirably, but when you like to take as many pictures as I do, and when you’re taking food pictures for your blog, it’s okay to upgrade every once in awhile.

I can’t wait to use this new camera when we go on our next vacation (I took about 1000 pictures a few years ago in the 2 days we went to DC; did I mention I like to take pictures?). Furthermore, we’ve been taking all of the new recipe pictures with the camera, and IT. IS. AMAZING.

The colors are so unbelievably bright and the images are so clear…I can’t really believe I’d been using my old camera for so long.

Well, I do believe it because my wife and I are very frugal and we don’t buy things on a whim (we really don’t buy things in general). However, when we do buy things we spend a little more money than most as we place a high priority on quality knowing that we’re going to keep it for at least 6-10 years.

Here are some pictures I’ve taken in the last few weeks with the new camera (I had to modify the image quality a bit because the original files were 3.5MB and that just doesn’t fly on a blog):

Picture from the KU Spring Football Game:


Interception!


KU’s campus from the stadium. I miss that place!


Gunner pouts as he wishes he could be in the kitchen with mom while she’s cooking. lol.

A New Chapter

While we haven’t made any final decisions, my wife and I are considering selling our current house and moving to another suburb of Kansas City.

Toots recently got a new job which she starts a week from today. It just so happens the new job is in the same city as the one where I work! Currently, we drive about 25 minutes each way (20 miles or so) and the thought of moving closer and saving TIME and MONEY (on gas) is a huge lure.

However, we love our current home. It is our first home together, it’s the perfect size, we have a lot of space, quiet neighbors (which we appreciate), and the house is fairly new with a lot of the upgrades houses such as this come with.

We’ve decided we probably won’t make a lateral move, or even upgrade (as most people would)…we want to downsize and we’re contemplating a rather drastic change.

It would certainly be a tough emotional decision and will likely take us out of our comfort zone, but there are some possibilities that we’re having trouble overlooking:

  • We would buy a place cheap enough so that we can get on a 15-year mortgage (and even possibly a 10). This obviously would have some great long-term benefits on our financial situation.

  • Despite the 10 or 15-year mortgage, we’d likely be able to lessen our monthly payment which would help us in the short-term as well.

  • We’d save approximately $200-300/month on gas for the cars and on lower utility bills.

  • Lastly, if my job continues to develop as I expect, it’s likely we could pay off the house within 2 or 3 years. If that were to develop then we’d end up using the house as a rental and start our real estate empire.

While we haven’t made a decision we’re pretty positive we’re going to move. The questions now become:

How much can we sell our house for?

How much are we willing to spend on a new place and can we find one that we think is suitable to live in for the short-term AND something we’ll be able to rent for a reasonable price down the road?

With that said we have a friend (who happens to be a realtor) coming over next weekend to give us some ideas of things we need to work on to get the house ready to sell. By that time I also should have a pretty good idea of what we’ll be able to list the house for.

Depending on how things play out, I’ll probably make this whole process an upcoming series and really delve into the financial ramifications, long-term and short-term, of a decision such as this.

Without further ado, here are the updated charts for April!

Filed Under: Finances, Homes & Mortgages, Our Journey

Carnivals, Mentions, & Weekend Reading #11

May 11, 2012 By 16 Comments

Carnivals

Mentions

Weekend Reading

Highlight of the Week

There were some really great posts that I read this week. It’s pretty hard to choose a winner, but considering that it’s Mother’s Day weekend I have to give the nod to Jeremy @ Modest Money for his post:

Career Lessons From My Mom

I firmly believe that much of how we handle things, our work ethic, and our ability to manage money well all comes from how we’re raised as children.

Having been raised by a single mother myself, I was really touched by Jeremy’s story about his mother and some of the valuable lessons that she was able to teach her children at a young age.

Happy Mother’s Day to all of the ladies out there!!

Other Great Weekend Reading

Filed Under: Finances

Book Review & Giveaway: Super Duper Simple Book on Money by Alan Akina

May 10, 2012 By 18 Comments

I know better than anybody that financial knowledge and understanding directly correlates to how you handle finances, and it ultimately determines whether you’re going to succeed or fail with money.

The vast majority of Americans need help with money in more ways than one, but I’ve found that nobody really knows where to start.

Knowing that topics such as balancing a checkbook, budgeting, living on less than you make, and investing for retirement aren’t common lessons taught in high school or college, where do you turn to find out this information?

After coaching hundreds of people and reflecting back on my own life, I think it’s abundantly clear that the majority of us learn to handle money by witnessing what our parents did as we grew up, AND by taking the monkey-see, monkey-do approach with our friends, co-workers, and relatives.

Unfortunately, this wonderful approach to money management leads to more hardship than it does success.

So, when I was contacted by Alan to review his new book, The Super Duper Simple Book on Money, I couldn’t help but be interested and seeing if it was something that could benefit my followers.

The Super Duper Simple Book on Money

What This Book Is:

This book is perfect for anybody that is looking to start with the basics of understanding how to handle money.

It took me about a hour to read and it brought me back to Money 101: understanding income, expenses, debt, and saving money.

If you’re getting started on your financial journey, or if you’ve been struggling with money for awhile, then this book is for you!

What This Book Isn’t:

While this book will certainly give you the basic principles of managing money well, it’s probably a little too simple for somebody that has their financial lives under control and knows more than the Average Joe.

However, that’s what I liked about the book! It’s so difficult for the average American to find a place to start. If MOST people want to find an investment advisor or seek a financial professional for help, the place that the professional typically wants to start is with ‘how much can you invest?’

The unfortunate reality is that most people aren’t ready to invest for their futures. They’re looking for a way to make ends-meet and get their financial lives in order so they can stop stressing how they’re going to make it through each month.

Highlights and What You’re Going to Learn:

  • The Basics of Financial Education. I loved this quote: “A proficient understanding of personal finances can be the difference between financial security and ruin for individuals and families. The economic hardships experienced by many people were not just caused by poor judgment on Wall Street, but also by a lack of financial understanding on a personal level.” – Thad Cocran and Roger Wicker

  • Understanding Income. The more you understand income the more you can have it coming in.

  • Understanding Expenses. As a financial coach I’m often surprised at how often people’s solution to their problems is to increase income. We NEVER want to cut back our lifestyles, but “understanding your expenses helps you keep them under control” as Alan says and writing everything you spend on paper is a very POWERFUL experience.

  • Understanding Debt. This was may favorite chapter in the book because it addresses some of the major issues and traps that I’ve seen people fall into. Alan really sheds some light on credit cards, student loans, and my favorite: MORTGAGES! Or…the “death pledge” as he refers to them.

  • Basics of Investing. Alan does a great job of breaking down terms such as stocks, bonds, and mutual funds. He also addresses owning businesses and investing in real estate!

  • Giving. Regardless of whether or not you’re a Christian and believe in tithing, I think it’s important for everybody to give and I’m glad to see that Alan added this as a part of his book. Some of the greatest moments of Holly and I’s life is when we’re able to bless others with what has been graciously given to us. If you’re always selfish with your money, then I think you’re missing out on a big part of life.

    • In addition to the valuable financial principles that Alan covers, the e-book also provides for a bunch of great links to budgeting tools and some great educational videos!

    Who Is This Alan Dude?

    Alan is married to his wife LeeAnn and they have 5 kids (Keanu, Kawika, Kiani, Kihei and Kiliana). He and his family live on the North Shore of Oahu, Hawaii.

    After years of struggling, researching, and learning the basics of finance, Alan Akina wanted to teach others. So, he followed his passion and started 101 Financial in Hawaii in 2002 with the goal to helping Americans get financially educated.

    Alan Akina and 101 Financial have received numerous awards including the Pacific Business News Top Forty Under 40 award, the BBB Business Ethics Award, Inc. Magazine’s INC 500 fastest growing companies in America, and Hawaii’s Fastest 50 growing companies for four years in a row.

    Alan also hosts the Financial Fitness and Watch Your Wallet Wednesday segments on Fox Affiliate KHON 2 Morning News. You can catch him every Monday and Wednesday morning on the KHON 2 Wake Up 2Day Show.

    Visit The Website and GET YOUR FREE COPY!

    The FREE giveaway ends on May 14th, so be sure to head over to Alan’s website and register for your free copy of his great book!

    Visit here to get your free download of the e-book!

Filed Under: Budgeting, Credit Cards & Debt, Finances, Giveaway, Homes & Mortgages, Investing

Carnivals, Mentions, & Weekend Reading #10

May 5, 2012 By 6 Comments

Carnivals

Mentions

The mentions last week were rather lackluster. Looks like I need to do a better job networking with my fellow bloggers. #Fail

Weekend Reading

Highlight of the Week

Toots and I are “DINKS”: dual income, no kids. Despite not having children we find it challenging to have a night – or better yet a day – where we can do NOTHING.

The majority of the problem is that I work some evenings and she is carrying a second job right now (soon to be ending), but still…even on weekends there doesn’t EVER seem to be time to do anything that is relaxing to us. There are friends, family, blogging, cleaning the house/mowing the yard, work, church activities, weddings, or some other social function.

While I usually enjoy most of our commitments it does become rather burdensome and it eventually builds up to where you get burnt out. What is relaxing and truly enjoyable to my wife and I may be something completely different than you or my friends/family.

I think Peter from Office Space sums up my thoughts on “doing nothing” quite well:


Lawrence: Well, what about you now? What would you do if you had a million dollars?
Peter Gibbons: Nothing.
Lawrence: Nothing, huh?
Peter Gibbons: I would relax… I would sit on my ass all day… I would do nothing.
Lawrence: Well, you don’t need a million dollars to do nothing, man. Take a look at my cousin: he’s broke, don’t do shit.

Oh my found memories of watching the movie Office Space…still love it!

With all of that said, reading Daisy’s post the other day reminded me about how important it is to prioritize. More importantly to prioritize our life, activities, and commitments based on what we enjoy and not based on other people’s ideals.

While I willfully acknowledge that I’m a rather self-driven person, and I often do my best to improve myself and be the best “me” that I can so in-turn I can add value to other peoples’ lives, and even try to please the masses at times, there is nothing wrong with wanting to do something for yourself or wanting to just have a break for once in a blue moon.

So, the highlight of the week most certainly comes from Daisy and her post Why Slacking Off is Sometimes Better: Letting Go of Ideals.

Great Weekend Reading

Filed Under: Finances

Why We Didn’t Sell Our Car on Craigslist

May 4, 2012 By 49 Comments

Last week I detailed why we considered buying a car through CarMax, and I wanted to do a follow-up on a service of theirs that we actually used.

Why We Didn’t Sell Our Car on Craigslist

Realizing that our ’99 Nissan Altima needed $1500-2000 in repairs, it didn’t take a lengthy conversation for us to determine that it was time to finally let it go.

After looking up the Private Resale value of our car on Kelley Blue Book, we discovered that our Nissan Altima was worth somewhere between $2300 and $3000.

With that knowledge in hand, and understanding it needed quite a few repairs, I went into the selling process knowing that we’d accept anything over $1000!

Past Craigslist Experiences

I’ve sold a handful of cars through Craigslist and in the majority of situations I think it’s the best option to maximize your profit.

However, ALL of the cars we’ve owned have been high-mileage, older vehicles. They’re typically not in perfect condition and there are a myriad of things wrong with them. In this situation, if you were to sell your car on Craigslist, the seller can choose to do one of two things:

  • 1. Inform the potential buyer of any issues with the car – this will likely reduce the offer you’re going to receive (which is the reason most people don’t go this route)
  • 2. Lie and hope that the potential buyer doesn’t discover any of the problems

Ethics and Morality Get in the Way

After talking things through with my wife, we determined that IF we were going to sell our car through Craigslist we were going to be honest with the potential buyer and inform them of all of the issues with the car and the impending repairs. I can’t say this is how I’ve handled selling cars on Craigslist on the past. Sorry to those people that happened to buy my old cars – I know, I’m a jerk.

We realized that a person looking to buy a car in the range of $1,000-$3000 probably doesn’t have much money. It’s also likely that this person is struggling to make ends-meet and has a family that they’re trying to provide for.

With that in mind, we simply didn’t want to be dishonest (for the sake of maximizing our gain) while hurting someone in the process that likely needed the money more than we did.

With that being our primary motive there were a few other things I disliked about the possibility of selling our car on Craigslist:

  • You get bombarded with emails and phone calls

  • You have to set up individual appointment times for people to come see the car

  • Said people may show up and they may not, thus wasting your time

  • You can invite the people to come to your house to view the car, but with the world that we live in today, it’s typically safer to meet them at a random location – again, wasting time

Consider Selling to CarMax Next Time You’re Looking

Knowing that we had already planned to test drive cars at CarMax, we also decided it wouldn’t hurt to allow them to give us a bid on our Altima.

For those of you that are unaware, not only does CarMax sell cars, but they’re also willing to buy anybody’s car!

Without really knowing what to expect, here are a few things that I discovered:

1. It didn’t take long – it took around 20 or 30 minutes for them to fully look over my car and give me an offer on it. Considering I place a high value on time, I thought this was pretty good!

We were able to test drive 3 cars and by the time we returned I also had an offer in hand for them to buy my current vehicle!

2. I’m still unsure of how well they inspect the car – our ’99 Altima had been in a pretty serious accident about 4 years ago and they definitely spotted the new paint that was (professionally) used to touch up the hood of the car, but beyond that I’m not really sure if they looked at anything.

They claimed our tires were in good shape – which they weren’t.

Furthermore, and much to my surprise, they claimed that the car had no other problems and that it was in good condition.

3. I didn’t have to lie – the thing about the CarMax car buying process is that you don’t really talk to the mechanic that’s looking over your car.

While it probably isn’t morally correct, I wouldn’t have felt bad about bending the truth when telling a large corporation about what was (or wasn’t) wrong with my car. Regardless of what I wouldn’t have told them, they never asked, so I didn’t have to lie! Or ‘bend the truth.’

4. Their offer was fairly competitive – knowing that the Kelley Blue Book value on my car was $2,300-$3,000, CarMax gave me an offer for $2,000!

It didn’t take me long to agree to sell the car, especially considering I’d already determined I’d part ways with it for anything over $1000!

A few other things about Selling Your Car to CarMax:

  • The process couldn’t have been easier – once we brought the car back in to officially sell it, it literally took 10-15 minutes to sign a few pieces of paper and for them to hand over the check.

  • It saved me a ton of time – I didn’t have to field phone calls and emails. I didn’t have to schedule inconvenient appoints with random people. And I didn’t have to worry…at all.

Next time you’re looking to sell your vehicle, I’d encourage you to check out your local CarMax and allow them to give you an offer. Hopefully it’ll go as well for you as it did for us!

Filed Under: Cars, Finances

How to Retire Comfortably: Start With the End in Mind

April 30, 2012 By 60 Comments

I hope you enjoy the 4th post of my ‘Understanding Retirement Planning & Investing’ series! If you’ve missed the first three posts be sure to check them out!

The Average American’s Retirement Philosophy

A few weeks ago Joe was driving through the state of Kansas and noticed a large barn on the side of the road. It wasn’t the barn that caught his eye, rather it was the 3 targets painted on it that had arrows sticking out. All the arrows were perfect bullseyes!

You see, Joe had grown up hunting with his father and had recently become fascinated with archery. He’d been practicing for months and while he was getting better he surely wasn’t capable of hitting one bullseye, let alone 3 in a row!

Picture by kongsky

With his curiosity getting the best of him, Joe pulled up the farmers driveway, parked, and knocked on the door.

The farmer opened the door and Joe said, “sir, I’m sorry to bother you but I was driving down the road and noticed the targets on your barn with 3 perfect bullseyes! I’ve been practicing archery for months now and I simply must know how long it took you to become that good?!“

“Well,” the farmer replied, “I got a bow for Christmas and had never really shot before. So, in all honesty, those were my first three shots of my life.”

A little appalled and embarrassed Joe stammered, “Are you serious? I’ve shot hundreds of times and I’ve only been able to get 1 bullseye.”

Seeing that Joe had gotten it all wrong the farmer responded, “No son, you misunderstood. You see, I took the new bow out, shot three arrows, and then painted the targets around the arrows. I didn’t really shoot those bullsyes. I just wanted it to look like I did.”

I heard this joke from one of my co-workers a few months back. While it’s funny, it’s the reality of how most people plan for retirement.

We don’t plan ahead and our lives in retirement are simply molded (“painted” in my analogy above) around the assets and income sources that we have when it’s time to ‘hang up the boots.’

The truth for the Average American is that life in retirement will never look like so many of us dream. We fail to save properly which has caused retirement to become an act of survival instead of ‘living the dream’ that so many originally hoped for.

How to Retire Comfortably

One of the main reasons I became a financial advisor was due to the fact that I became increasingly concerned with my generation’s ability to save for retirement.

With the recent news that Social (In)Security is projected to run out of reserve funds by 2033, it’s never been more important in the history of our country for people to start saving, properly, for retirement.

Did You Know: 53% of working Americans have never thought about, or
calculated, how much they’ll need in retirement?

First Step to Figuring Out How You Can Retire Comfortably

If you want to retire comfortably then YOU MUST START WITH THE END IN MIND.

What do I mean by that?

Well, the question you must answer if you want to retire is “how much MONEY do you need to live?” NOBODY, should retire without knowing that number.

For our clients we help them come up with two income figures and we have them figure this out in today’s dollar:

  • Survival Income – utility bills, house payment, insurances, groceries, debt payments (hopefully you won’t have any by then), etc.

  • Desired Income – an amount in addition to survival. Maybe some for traveling, spoiling grandchildren, etc.

2nd Step to Retire Comfortably

Once you have a monthly dollar amount (in today’s dollar) that you’ll need in retirement, there are a few things you must take into consideration:

1. Inflation – the reality of inflation is that prices for goods double, on average, every 20 years. Assuming a 3.5% average rate of inflation.

2. Age – how much longer do you have until retirement?

Example: Let’s say Joe and his wife are 35 years old and they have two young children. They plan on being debt free by retirement (excluding the house) and both of their children will be graduated from college around that time as well. Their dream is retiring by 65 so that they can enjoy their remaining “younger” years and also hope to have time to spend with their eventual grandkids.

Understanding what their monthly expenses are today, and acknowledging a few costs will be gone once the children are grown, they determine they’re going to need $3,000/month in retirement to survive.

Adjusting that number for inflation (3.5%) they’re able to determine that by age 65, Joe and his wife will need $8,420 per month in order to ensure all of their monthly bills are being paid.

WOW! The affects on inflation are scary! Maybe that’s why nobody wants to take the time to calculate what they’re going to need in retirement?

3rd Step

Determine the amount of investible assets that you need in your nest egg to produce $8,420/month of income:

1. Multiply by 12 to get the annual income amount. $8,420 x 12 = $101,040

2. Divide that annual number by .04. $101,040 / .04 = $2,526,000

While this topic is widely debated, generally a good rule of thumb is to assume that a person can withdrawal 4-4.5% of their assets on a yearly basis, AND NOT HAVE TO WORRY ABOUT OUTLIVING THEM. In step 2 when I divided by .04, that is how we work backwards to figure out the 4% part. 4% of $2.526M = $101,040

Did You Know: 67% of Americans over the age of 44 said they fear
outliving their assets more than they fear dying?

Bringing it All Together

Once you’ve figured out “the number”, then you must create a plan to get there!

This is where the majority of us fall short. We see this HUGE, insurmountable, ginormous number ($2.5M) and we freak out. Well, sticking your head in the sand doesn’t do anybody any good!

Pushing it off ‘to another day’ also doesn’t help the situation. If you keep saying that ‘I’ll eventually get there, or I’ll start saving when “xyz” happens’, then I promise that YOU’LL NEVER GET THERE!

In the scenario above, Joe and his wife would need to start saving approximately $1,400 PER MONTH* in order to reach $2.5M by the time they turn 65. *assuming a 9% average rate of return and assuming they didn’t have any other prior retirement savings.

While initially this may look daunting and you may be wondering how in the world to save $1,400 per month, there are some things this doesn’t include:

  • Social Security
  • Pensions
  • Inheritances
  • Future raises- if you get paid more over time, hopefully you will be able to save more

    • Simple Man’s Guide: Figure Out How to Retire Comfortably

    1. Determine monthly income need (in today’s dollar) – it’s easier for most to know their monthly need as opposed to figuring out an annual number.

    2. Adjust for inflation based on your age and projected retirement date – I like to use 3.5% as my inflation rate.

    3. Convert monthly amount into annual figure – multiply your inflation-adjusted monthly income number by 12.

    4. Divide the inflation-adjusted annual number by .04 – this will give you a lump sum number that you need to have by your retirement date.

    5. Determine and develop a course of action to get you to “your number.”

    Now, many of you can see why I’m scared for my generation. These numbers aren’t make-believe…THEY’RE REAL! What is going to happen WHEN Social Security runs out? Will people EVER be able to retire if they’re solely reliant on the assets they’ve saved?

Filed Under: Finances, Retirement, Social Security

Save Money Saturday April 2012 #2

April 28, 2012 By 8 Comments

#SaveMoneySaturday

FREE Giveaways

Unfortunately I couldn’t find many giveaways this week, but make sure to head over to DollarVersity and register to win that 100 bucks!

DollarVersity is giving away $100 cold hard cash!

I Am 1 Percent is giving away $50.00 Amazon Gift Card or Paypal!

Mother’s Day is Coming!

While I don’t have any great Mother’s Day offers that I’ve found, don’t be like most guys and wait until the last minute to buy something. 1-800-Flowers has a few good deals so be sure to check them out if your wife/mom is into that kind of thing!

Use promotion code: MOTHERTEN to save $10 off of orders of $59.99 or more!

Coupon Extravaganza

$1.35 off when you buy any ONE Stopain® product

$1.00 off when you buy (3) NESTLÉ® Fun Size or Miniatures Bags (9.2 – 12 oz) Printable Coupon

$1.25 off when you buy (2) WONKA® Candy (12 oz or larger) Printable Coupon

$1.10 off when you buy any ONE Sundown Naturals® product

$1.10 off when you buy any TWO Stouffer’s® Farmers’ Harvest™

80¢ off POST Honey Bunches of Oats NEW Fruit Blends

$20.00 off when you buy Philips Norelco SensoTouch Razor 3D

$2.25 off EAS® Lean 15™ Powder or Recovery Protein

$2.00 off when you purchase any PEOPLE® Magazine

Filed Under: Finances, Giveaway

Carnivals, Mentions, & Weekend Reading #9

April 27, 2012 By 18 Comments

Carnivals

Mentions

Weekend Reading

Due to a ridiculously busy schedule as of late, I’m not taking the time to point out the ‘highlight of the week.’ Sorry…we’ll return to your regularly scheduled programming next week.

Great Weekend Reading

Filed Under: Finances
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