You may be surprised to learn that it's not the big-ticket items that are likely to blow your budget. The real culprit is the gradual increase in your spending habits on the little, almost unnoticeable, things in life. Here are four common causes of "expense creep," which can easily add up to more than $5,000 a year.
1. The $1,000 Cup of Coffee
If you’re “treating” yourself to coffee out every day, you might as well be drinking it out of a gold cup. According to a survey of American workers by Accounting Principals (2014), Americans who regularly buy coffee throughout the week spend an average of $1,092 on coffee annually. Start brewing your joe at home and you could reduce your monthly budget by just over $90 per month.
2. Hidden Costs on Your Cellphone Bill
When was the last time you closely reviewed your cellphone bill? You'll want to make sure you haven't been incurring any data overage fees, and that you aren't being charged for parental controls you no longer need. And if data overages are plaguing you, consider an unlimited data plan, or make sure your settings only allow you to stream music, videos, and games when you're on Wi-Fi.
3. Unused Monthly Services
If you signed up for a gym membership back in January in an effort to reach your New Year's goals, chances are you opted in to an automatic credit card deduction. But if you haven't stepped foot on a treadmill in months it might be time to cancel that membership. An unused gym membership could be costing you $700 a year.
Also check your online subscriptions. It's easy to sign up for an online monthly membership or for a service and not pay much attention to the fact that your $15/month online subscription is costing you $180 per year.
4. Carrying a Credit Card Balance
Look for zero percent balance transfer offers to reduce interest spending immediately (assuming you can pay off the balance before that zero percent offer expires). In the meantime, start using cash exclusively so you don't incur additional debt.If you've gotten out of the habit of paying off your credit cards in full each month, you may need to either rethink your spending or cut down on credit card use. Why? Because carrying a balance and paying interest could be setting you back more than $2,500 annually.
Managing costs like those I've listed above will help you ensure that you keep as much as your hard-earned money as you can. When your money is not sneaking out the back door of your financial house, you don't need to have as much coming in the front door.
Even if you've been saving and planning carefully for retirement, these unforeseen issues can disrupt and delay your retirement:
1. A Medical Crisis
Medical bills are the leading cause of bankruptcy in the United states. An injury or chronic illness can drain your financial reserves. You can protect your income with disability insurance which replaces a portion of your income if you can't work.
Also, the development of Alzheimer's or Parkinson's can drastically impact your retirement savings.
These exceedingly challenging diseases take their toll emotionally on spouses, family members and care-givers. But the cost of long-term care for chronic illnesses can also completely 'blow up' even the best retirement plans.
The solution? Long-term care insurance can protect your retirement savings by covering the expense of care for you and/or your spouse - whoever needs assistance.
2. Spouse Dying Without Life Insurance
Sadly, it's not uncommon for people to die without providing a "safety net" to those that are left behind. Common thinking says that once your children leave home, you don't need life insurance anymore. But this just isn't true.
Think carefully about how much of the household income will be impacted if the major earner dies. Be prudent and plan accordingly to protect those you love.
3. Aging Parents
There are some pretty sobering statistics out there on caring for aging parents (Ref: 2015 National Institute on Aging "Health and Retirement" Study):
If you are faced with caring for aging parents, check out the resources at the National Council of Aging at www.benefitscheckup.org for more information.
4. Adult Children Returning Home
Parents who support adult children are more likely to postpone their retirement. Plan now to teach your children about finances and set the expectation for financial self-sufficiency.
If a crisis does land your adult child back home, discuss an exit strategy. Be clear that you're a safety net, not a long-term solution.
Chances are that at least one of these situations/scenarios will happen to you.
Now is the time to take steps to make sure that you have a realistic plan in place to cushion the impact of these threats to your to retirement.
Time to take inspiration from the fitness expert, Jack Lalanne.
A self-described emotional and physical wreck while growing up, Mr. LaLanne began turning his life around after hearing a talk on proper diet at age 15. Mr. LaLanne started working out with weights when they were an oddity. In 1936 he opened the prototype for the fitness spas to come - a gym, juice bar and health food store.
At the time, doctors advised their patients to stay away from his health club, a business totally unheard of at the time. Patients were warned that, "LaLanne was an exercise 'nut' whose programs would make them muscle-bound and cause severe medical problems."
It's amazing to look back now and consider how the prevailing experts were wrong about the effects of exercise and fitness.
It's also worth considering that much of the prevailing financial advice you hear from TV financial gurus or other "experts" may not be complete or correct either.
You're not going to create a financial strategy for yourself that is flexible, responsive to change and that will work in both a strong and weak economy by doing what everyone else has always done. And just like Mr. LaLanne, it makes sense, at times, to challenge the status quo and step outside the box of conventional thinking.
You have far greater financial flexibility, creativity and strategy available to you than just following the predictable, common-place and incomplete advice you hear every day:
I work with you to develop your skill and financial knowledge. We discuss your life choices, values, and overall personal, family or business situation and outlook.
Then together we choose appropriate financial products that fit into and support your customized, personal, lifetime financial strategy.
Throughout our lives we focus on our income and maybe sometimes our "net worth." But not many of us pay attention to the ways our money flows away from us and out of our household. I'm not talking about larger expenses like groceries, insurance, home and car repairs, etc. I'm referring to money that leaks out of your financial system without you even being aware. I've already emphasized the importance of managing your tax strategy, but other expenses that might be impacting your financial reserves more than you realize include:
By controlling these expenses, you can save a great deal of your money. Think about a slow leak in a swimming pool. By simply plugging the leak, you don't drain your pool nearly as quickly. It's the same with your financial reserve. By reducing the amount of money that flows away from you, you don't need to have as much money coming in.
4. Guarantee Part of Your Retirement Income
The wealthy stay wealthy by having a variety of sources from which they obtain their retirement income. They don't just have their money in mutual funds in a 401(k). While they most certainly will have investments, they also rely on other financial products to balance their stock market and investment risk.
The wealthy also think about cash flow and how quickly they can access their money.They think about and plan for regular monthly income in addition to their other financial assets.
Consider this: You can have your house and car paid off, but if you have no cash coming in every month, what will you live on?
If your only retirement strategy is rationing your annual income to 4% of your total financial reserves, then you don't have much of a plan to handle a stock market drop (and capital loss in your 401(k)), inflation or a sudden need for cash, be it for house repairs or money for medical expenses.
You need guaranteed income in retirement. Social Security benefits can provide some of this income. But consider other financial products that provide life-long guaranteed income to supplement your at-risk mutual fund income distributions.
Retirement should be fun and enjoyable. Stressing about money is a sure way to take the enjoyment out of life.
By implementing these simple money management tips, you can go a long way toward ensuring that your retirement will be financially worry-free.
You might have seen Wednesday's front page headlines from The Wall Street Journal and The USA Today:
"Markets Reel in Global Selloff"
"1,000 Point Sell-Off Rocks Stock Market."
Here we are again. Volatility, worry and advice: Sell! Buy! Don't sell! Don't buy!
It's easy to feel like you need to react and "do something" when the markets are turbulent and you're bombarded with advice. Often folks react in ways that hurt them financially more than help them.
This is what the stock market does: it goes up and then it goes down. Sometimes a lot. And sometimes very quickly. If you have a lot of retirement money in the stock market, it's hard not to be scared by these wild swings. But panicking isn't a good way to deal with your worry.
Use this market correction to evaluate your situation.
If you aren't comfortable with the stock market swings, or you can't afford to lose any of your retirement money in the short term, then the stock market is probably not a good fit for you.
You can't get financial peace of mind if you are emotionally and financially tied to riding market highs and lows.
When the market takes a nose dive the common and predictable advice is: "Stay in the market for the long-term." This advice may work if retirement is 10-20 years away. But it doesn't work for someone who wants to take a distribution from their 401(k) this month or in the near future.
As you think about your retirement needs, make sure that you can weather a stock market downturn with your retirement funds and still retire.
You do better financially when you have diversification. Many people talk about diversified stock market portfolios. But this is not what I'm talking about.
My clients sleep better at night when they have a financial strategy that captures the upside that the stock market can offer, while limiting and, in many cases, eliminating the downside of a stock market plummet.
There are a number of ways to accomplish this.
For example, you may want to keep some retirement funds in the stock market to capture growth while placing other funds in different products that focus on safety.
My point is - there are lots of financial products that will fit into a well-conceived lifelong financial strategy. Take advantage of them.
One final thought - stock markets respond to world events and politics. Scary headlines and worrisome world events do affect your 401(k) and its long-term value. Ask yourself how much you want your retirement money tied to unpredictable and uncontrollable world events.
There are other options. I'm here to help you understand and implement them. Even in tumultuous times, you can have financial peace of mind.
I mentioned last month that there are straight forward strategies you can use to help ensure you don't end up outliving your retirement funds.
In May, we covered the first strategy:
1. Start Planning for Your Retirement Tax Situation NOW!
This month, I want to talk with you about Social Security. The second strategy is to focus your attention on Social Security:
2. Avoid Missing Out on Thousands of Dollars in Social Security Benefits
Social Security is an incredibly important program because it offers you two valuable benefits.
However, according to the Social Security Administration, over 74% of people who apply for Social Security benefits leave money behind.
Because many people think that you apply for Social Security benefits and then you just "get what you get." Not true. With Social Security, there are important strategic decisions that affect the amount of money you can receive from this program.
Three key strategies that will grow your Social Security payments:
1. Delay Claiming
You can increase your Social Security checks by delaying when you sign up for Social Security. When you delay payment until age 70, the monthly payment is 32% higher than it would be if you had started to take benefits at age 66. Your payment at age 66 is 33% higher than at age 62.
2. Take Advantage of Spousal Benefits
Married couple are entitled to claim Social Security benefits worth up to 50% of the higher earner's benefit. And when one spouse dies, the surviving spouse receives the higher earner's benefit.
3. Maximize your income now
Your Social Security payment is figured using a complex calculation based on your 35 highest contributing earning years. Each year's wages are indexed for inflation before being averaged. By understanding that your earnings directly impact the Social Security benefits you can receive, you can strategize now. For instance, you may choose to work a year or two longer, to ensure that all 35 years show income.
I've listed three important strategic factors in planning for Social Security. But there are other strategic considerations with Social Security and it's important to get it right.
Understanding your personal situation and how it integrates with Social Security can mean a difference of hundred's of thousands of dollars in retirement income over your lifetime.
You paid into the Social Security program your entire working life. With planning and some forethought, you can get what you have earned.
Your approach to retirement planning may be costing you money. A LOT of money.
Instead of thinking of your retirement fund as a "pile of cash," plan for the monthly income you want to have for the rest of your life.
Common financial advice encourages you to to save money and then ration out 4-5% from your 401(k) or qualified plan each year to fund your retirement.
But this strategy treats your money and your financial resources as if you were dealing with a pile of bricks. Based upon this approach, if you collect 100 bricks for your retirement; then no matter what happens to you or your family, you can only allow yourself 4-5 bricks per year to live.
But the wealthy don't treat their money and financial reserves this way. The wealthy understand that the key to financial control and independence is based upon how they manage the flow of their money through their financial system.
The wealthy think about "cash flow" instead of a pile of "cash." They think about how to make their money work for them by managing both the inflow and the outflow (i.e., taxes, interest, fees and service charges, and other expenses).
The wealthy also integrate money coming in from various sources (e.g., Social Security benefits, 401(k) distributions, investments, annuities, property, inheritance, etc.) with their tax situation. They stagger their how much money they receive each month in order to optimize their monthly income, minimize their tax liability and to have the financial resources to managed unexpected events.
Consider this. You can have your house and car paid off, but if you have no "retirement paycheck" or cash flow coming in every month, what will you live on?
If your only retirement strategy is rationing your annual income to 4% of your total financial reserves , then you don't have much of a plan to handle a stock market drop (and capital loss in your 401(k)), inflation or a sudden need for cash, be it for house repairs or medical expenses.
There are financial strategies that will preserve your wealth in case of unexpected health expenses, inflation, stock market fluctuations and unexpected life events.
You don't have to be Warren Buffett to enjoy your retirement, but you do need to plan ahead. Make sure you have a "retirement paycheck" that will provide for you and your family.
Ever been on a team that is working well together?
When you're on a strong team, be it a sports team or a business team, the unique gifts and strengths of the individual members contribute to the success of the whole.
In fact, on a strong team, like say, the Seattle Seahawks, while the strengths of each individual member are obvious, it's the team working together that gets to the Super Bowl.
Let's apply this same team approach to your financial strategy.
Instead of thinking of your financial resources as isolated financial products, think of each financial product you have as a individual player on your financial team.
For example, don 't think about your bank account, 401(k), real estate, life insurance policy, certificate of deposit
(or any other product) as isolated money in "separate buckets."
Instead, consider how your different financial products might actually work together to make your financial situation stronger.
When you develop a lifetime financial strategy that factors in the strengths and weaknesses of each financial product, along with your life values, then you create a winning financial team.
Your retirement strategy should take into account your life values and needs and potential life events - both planned and unplanned.
Then, each financial tool or product should be evaluated as to how it will contribute to your financial team and enable you to achieve your goals.
Pete Carroll, the Seahawks Coach, looks for defensive players that fit his strategic vision. He bids farewell to highly capable players that don't fit his long-term goals or whose strengths don't match his needs.
Think about your financial products in the same way. Choose each financial player carefully with your retirement needs and goals in mind.
You don't have to build your financial team alone. We know Pete Carroll looks to his management and coaching staff for expertise.
And that's why I'm here. Together, we can build a winning financial team that provides you with a secure retirement.
Syndicated columnist Chuck Jaffe, in his January 26, 2015, Seattle Times column entitled, "Your Funds" recently made this statement about mutual funds:
"...But investors are pretty well versed in the evils of mutual funds. Funds can be expensive, tax inefficient, underperforming, opaque, hard-to-understand investment vehicles that seldom perform as expected no matter the market conditions.
Most investors know that, and they should."
Is this the performance you expect from your mutual funds?
I know I don't run into many individuals, families or business owners who want this type of performance from their mutual funds.
You want growth from your mutual fund. Enough growth and security to be able to retire.
Mutual funds are the common "go to" financial product. But often, they are not the best or the only product that is optimal for your financial situation. Still, it's amazing to me that this is the only financial option offered to you again and again in articles by financial "experts."
There are financial products and strategies out in the market today that will capture market growth without the risk of loss.
With today's financial products and the right financial strategy, there's no need to ever lose money or place your money in what Chuck Jaffe describes as "hard-to-understand investment vehicles that seldom perform as expected."
Choose to look and think beyond the common. It will be worth your while.
It's fun to be at the Circle of Wealth Conference. I'm enjoying connecting with friends and colleagues. And I'm in one of the few parts of the country (Florida) that is escaping the polar vortex!