Get Financially Fit!
Archive for April, 2006
Your Financial Baseline
Apr 29th
by Loral Langemeier
Spring is finally here – the season of renewal. Take a page from Spring’s book and think about financial renewal as a goal in your life!
When thinking about your financial conditioning, you took a look at how you think about money from a psychological perspective, based on your personal and family background. When talking about your financial baseline, you now take a look at the reality of your present financial situation. Believe me, it is not as hopeless as it may seem!
In my years of coaching others to financial independence and wealth generation, I have worked with all types of people who come from various backgrounds and different financial “stations” in life. It is possible to bounce back from just about any financial scenario. The most important thing you can do right now is to take stock of exactly what your financial picture is. You need to start from somewhere, so the best advice I can give to you is: start TODAY, from exactly where you are right now.
It is critical to have an accurate idea of where you are now, so you know in which direction to head. In order to set up a strategy, you need to know the layout of what you have to work with effective today. It’s actually a pretty simple set of questions.
1) How much money do you currently earn?
2) How much money do you spend? How are you spending it?
3) Are you in debt? For how much, and to whom are you in debt?
4) Do you have anything set aside in savings?
Once you have the basics figured out for your current situation, you have a foundation from which to make educated choices about what to do next. It’s as easy as knowing what’s coming in, versus what’s going back out.
Answering these questions may make you doubt your abilities. Remember, what you did yesterday and last month and last year does not have to be indicative of what your capabilities are for tomorrow. The most important action you can take at this point is just that: decide to take action, and then, take action!
Also, while you are taking stock of your personal financial situation, you may want to take a look at how you keep and maintain your financial records. Do you have piles of paperwork on your desk, waiting to be filed? Do you even have a filing system set up? Believe it or not, being organized in how you keep your records can help you in handling your finances better. If you don’t know where things are, it’s the old adage, “out of sight, out of mind”. It’s time to put these things in your sights, and keep them on your mind. Organized paperwork will help you in knowing where you are, and you will have a good, clear picture of your financial baseline.
Won’t you get started today?
About Loral Langemeir
Born and raised on a farm in Nebraska, Loral Langemeier did not start out in this life with money or connections. Loral, a master coach and financial strategist, built her first business in high school and, by the time she was 34, she’d established a multi-million-dollar portfolio of properties, businesses, gas/oil and notes. Read more about Loral.
Becoming a Sophisticated Investor
Apr 26th
Reprint of original article posted on Zeromillion.com.
By Ryan P. Allis
There are many types of investors. There are traders and there are speculators. There are small-cap, mid-cap, and large cap investors. There are day traders and those that bet on the long term. There are those in mutual funds, those in public equities, and those investing in early-stage private companies.
In Rich Dad’s Guide to Investing author Robert Kiyosaki goes into the different levels of an investor. He notes that the most advantaged investors are those that are also business owners, for by building their business they are also investing, have more information than outside investors, are building an asset, and are learning everything they will need to know to invest in other companies.
In the book Kiyosaki lists thirteen characteristics of the ‘Average Investor’ and thirteen characteristics of a ‘Sophisticated Investor.’ I would encourage you to study the following chart in depth before you put any of your money into other companies.
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Source: Rich Dad’s Guide to Investing
About Ryan P. Allis
Ryan P. Allis, 20, is the author of Zero to One Million, a guide to building a company to $1 million in sales, and the founder of zeromillion.com. Ryan is also the CEO of Broadwick Corp., a provider of the permission-based email marketing software and CEO of Virante, Inc., a web marketing and search engine optimization firm. Ryan is an economics major at the University of North Carolina at Chapel Hill, where he is a Blanchard Scholar. Learn more about Ryan.
Make Your Money Work For You
Apr 25th
by Brion Lau
One of my favorite quotes from the Richest Man in Babylon is “…to put each coin to laboring that it may reproduce its kind… and help bring to thee income, a stream of wealth that shall flow constantly into thy purse.” In other words, don’t just work hard for your money, make it work even harder for you.
Upon further reflection, I believe this quote is promoting two key concepts–leverage and investing. Either of these concepts alone will help increase your wealth. Together, however, they become an even more powerful combination.
Leverage is particularly interesting because there are many ways we can use money to make money. Some basic examples that should be familiar include:
- Bank – loans to purchase income producing properties or start/finance your business venture
- Investors – loans from private investors, family, and/or friends
- 401K – free money from your company in the form of dollar matching
- Roth IRA – tax free dollars invested provided you meet specific conditions
- Employee Stock Purchase Programs (ESPP) – discounted stocks that can be resold at fair market value.
The more ways you can finance your investment streams, the faster you’ll be able to build and accelerate your personal wealth. This brings me to the second concept.
Smart investing also comes into play when you find ways to “fund” your investments. For instance, if all you do is park your money in a high-yield bank account or CD, you’re not really accelerating your wealth. At best, you’re trying to keep up with the pace of inflation which is a losing proposition.
Instead, when I started out, I kept enough reserves in cash to cover contingencies (i.e. if we suddenly lost our job or had a personal emergency). Then, we started to invest our money so that it could start working for us. Some initial ideas to consider include:
- Blue chip stocks that pay an attractive dividend (and reinvest those dividends to purchase more shares rather than spend the proceeds)
- Real esate investment as a triple play (depreciation, appreciation, and income)
As you become more experienced with leverage and investing, you’ll probably discover even more sophisticated vehicles to further accelerate your wealth. By then, your money will be working harder for you rather than the other way around.
Here’s to your wealth and personal financial success!
Understanding Social Security
Apr 22nd
by Eric Heckman
The Social Security retirement program has been a basic part of American life since 1940. The program is the foundation of many people’s retirement income. It’s unlike any other income because you can’t outlive Social Security benefits and benefits won’t lose their value. Social Security can’t lose its value because it’s always adjusted to keep up with inflation. The amount of your retirement benefits are based on three things: how much time you spent in the workforce, how much money you made and the age you start receiving benefits.
Most people understand the basics of Social Security, but many are surprised by one thing or another when they start receiving it. And it’s usually not a pleasant surprise. There is a lot of speculation of what will happen to the future of Social Security and a lot of talk can be confusing.
Many believe the Social Security program will be unable to provide benefits for those who have contributed to it over the years. The fact is Social Security funds are solvent and they’re taking in more revenue annually than they need to pay out in benefits. According to AARP, Social Security will be able to pay 100 percent of promised benefits until 2042. At that point, incoming tax revenue could still cover more than 70 percent of promised benefits.
Although many people aren’t aware of this, Social Security can also provide benefits when someone retires, becomes disabled or dies. A spouse or children may receive benefits based upon the eligibility of the deceased person. Widows and widowers who collect survivor benefits can switch to their own retirement benefits as early as age 62. In many cases, they can begin receiving one benefit at a reduced rate and then switch to the other benefit at an unreduced rate at full retirement age. However, they will only be paid the higher of the two benefits, not both.
Another fact that’s not widely known is some people have to pay federal income taxes on benefits. This usually happens only if you have other substantial income. This is based on rules set by the Internal Revenue Service (IRS).
It’s important to understand more than just the basics of Social Security. Besides learning more about the benefits, you can also take measures to ensure you get everything you deserve. The following are five tips that will help you prepare for the largest source of retirement income:
1. Make sure you get full credit – As you read your statement, double-check the years you have worked. If you think there is a mistake, check your own records or contact a former employer for information.
2. Compare figures – Look at the amount of benefits you will receive at age 62 compared to your full retirement age.
3. Know what you will receive – Understand that you don’t necessarily get out of Social Security what you put into it. The system places a percentage of your average lifetime earnings that were subject to Social Security tax. And ironically, the less you contribute to the system, the better the investment is and the greater the replacement percentage may be.
4. Don’t forget about Medicare – If you’re getting Social Security benefits when you turn 65, your Medicare Hospital Benefits start automatically. If you’re not getting benefits at that age, you should sign up for Medicare close to your 65th birthday.
5. Research – Visit the Social Security Administration Web site for publications and online resources to help you understand your benefits, how to apply for benefits and the history of the Social Security program. You can also apply for benefits online at http://www.ssa.gov.
About Eric Heckman
Eric Heckman is president of Heckman Financial & Ins. Services, Inc. Eric is a CFP®, ChFC, CLU brings a wealth of knowledge and over 13 years of experience to the field of financial planning. Contact him at (408) 297-9800.
10 Ways to Get Off the Investment Roller Coaster
Apr 16th
By Eric Heckman
Remember your first ride on an amusement park roller coaster? I will never forget mine. The painfully slow climb, the anxiety-building wait at the top and the inevitable terrifying plunge into the abyss. The exhilarating speed and the unexpected turns that flung me headlong into that black tunnel of unknown length was the worst part. The rushing highs and lows, the fun, the fear and the panic, all of these emotions are all created by a complex structure under the control of someone else.
Today’s stock market is a lot like that roller coaster ride, the same ups and downs, the same terror. The difference is the stock market ride never ends and the stakes are far greater. Many retirees have lost a portion of their retirement savings in the stock market during the past few years. In the aftermath of Sept. 11, many took a swift ride they’ll never forget and for some, may never recover from. We all remember the Fed’s eleven interest rate cuts in 2002, which reduced some retiree’s incomes by as much as 90 percent. Interest rates on savings and CD accounts have never been lower.
The good news is it’s possible to get off that financial roller coaster and enjoy the confidence that comes from stepping back onto solid financial ground. It’s not difficult and it’s a lot less risky than staying in the “you never know” stock market game. Here are 10 simple steps for getting off that roller coaster quickly and regaining control:
1. Assess your situation. What are your assets? Gather all your financial documents including: your stock certificates, bank statements, brokerage statements, tax returns, social security information and insurance statements and documentation on all other assets you may have. Make a list of each asset.
2. Evaluate your investments. Review and determine the true rate of return on each investment in your portfolio. Rate the return for each asset as high, medium or low.
3. Determine your state of risk. Review how risky your investments are. What percentage of your overall savings is in conservative investments and what percentage is at risk? Rate the risk factor for each asset as high, medium or low.
4. Review your needs. Are you already retired, close to it or far away? Do you have sufficient monthly income? Rate each asset as yes or no.
5. Investigate other investments that would better support your goals and help provide the security you need. If your portfolio over-emphasizes high risk investments, consider balancing it with conservative alternatives.
6. Reallocate. If you find better options, then act. Don’t be afraid to make adjustments.
7. Establish or update your estate plan. If you have a plan, review and update it. If you don’t, then evaluate your need for one. Anyone with any assets should protect them through an estate plan.
8. Activate your estate plan. Ensure you have the proper estate planning tools in place and utilize them. Your assets should be protected from probate taxes, estate taxes and other taxes that can reduce their value.
9. Remain “savvy” and avoid scams. The fact is financial scammers are everywhere. Remember the following points whenever approached: Reputable financial firms don’t solicit you. Companies should always have available references. Banks don’t send representatives door-to-door. Credible financial professionals have no vested interest in a particular product. And if it sounds too good to be true – it is!
10. Check in regularly with a financial advisor you trust.
The worst move you can make is to wait. The stock market rollercoaster is unpredictable. Yes, it will go up and come down, but no one knows when. If you’re like most retirees, you don’t have the time or money to make that gamble. Retirement is about enjoying life. Besides, the only roller coasters you should be on are the ones at Disneyland.
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Bonus: Financial Fitness Pro Readers can now request a free CD ROM on financial planning or a free consultation. In addition, Heckman Financial is also offering 60% off ($600 savings) a year of planning between now and June 30, 2006.
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Eric Heckman is president of Heckman Financial & Ins. Services, Inc. Eric is a CFP®, ChFC, CLU brings a wealth of knowledge and over 13 years of experience to the field of financial planning. You can contact Eric at (408) 297-9800.