Rebuilding Your Financial Plan After Recession

Image by 401K via Flickr

The last recession has caused a reset to the spending and saving habits of most people. It has been a wakeup call not only for the folks nearing retirement but also the those still in their accumulation years.

If you're already in your retirement years you probably are already in balance with your income. Out of necessity your living expenses are in sync with your social security and pension fund benefits. Thankfully, Social Security benefits will rise 3.6 percent in 2012 and also many inflation linked pensions will rise also. Between 2007 and 2011 median household income for people 65 and up increased by 5.5 percent per year, while income for every other age group declined. In 2010, 9 percent of people 65 plus years old live in poverty compared to 13.5 percent for those 18 - 64.

Those with the most financial problems is the 50-plus group. Their investments took a big hit but are slowly recovering. Many lost their jobs and used up their savings just to make it through. An AARP survey found that 25 percent of the 50-plus adults used up their savings between 2007 and 2010. This group is the hardest hit because they have no retirement savings. Some are working hard to recover but sadly many never will.

What can you do?

Debt and high expenses are the curse the 50-plus group has to overcome. Many families still have children in college which diverts money away from retirement. The costs of a larger home, than would be necessary in retirement, only adds to the problem. So creating a plan is critical.

Housing is one of your most expensive costs. Having a plan to reduce costs should be at the top of your list. Downsizing is the quickest way to do this. Many real estate professionals say by the end of 2012 the bulk of the housing markets will be stabilized and start to see improved prices. Prepare for the rise in home prices by planning to sell in 2 - 3 years. Start today to prepare your home by painting and remodeling. Though you can't predict where we will be in 3 years, you still have to stay in budget, keep saving and investing at the same time.

Saving for retirement is still important and really the only way to get a decent return on your money. In a world of less than 1 percent savings instruments at your bank, an 8 percent return is possible with equities and bonds. A diversified portfolio and patience will take you to where you need to be. With stocks and their dividends providing a return of 5.3 percent a year for the past 15 years, it's important to not ignore equities.

Time of transition.

Most people were effected by the recession. But there were many who weren't. Why. They were prepared. They had a plan and a way of life where they are only slightly felt the effects of recession. We need to take a lesson from them. They lived with spending less than they made and saving the rest. They stayed away from debt and were ready for the storm. They were prepared.

5 Problems With Mixing Business and Friendship

Image via WikipediaIn our lives we find so many ways to mess up with our money. With mistakes in judgment we are able to lose large amounts of money and with the money sometimes we can lose our friends. The way we lose both is when we go into financial relationships with friends or relatives. It may be a spur of the moment idea or a well thought out plan. Either way things can go wrong and they usually do. I have listed 5 ways they usually go very wrong.

Co-Signing for a loan.
The reasons for co-signing a loan for a friend or relative are many. It all starts when out of the blue you are asked to take part on a loan because the person can not be approved for the loan on their own. So you are asked to co-sign to help out the person. All kinds of promises are made about how it will be no problem for the friend to pay the loan back. They make plenty of money, but their credit is bad, so a little help is needed. You feel a little pressured because if you don't help your friend, they will not be able to get the loan.

For the friend, the deal is a no-brainer. It's all good because they will be able to get the loan and whatever they need to purchase. For the co-signer it may not be so good because they are on the hook for the full loan amount if the friend doesn't pay. If the friend doesn't pay, you can be sued for the loan balance and your credit will be effected greatly. Remember, the loan company did not give credit to the friend, because according to a credit report the friend does not have the ability to pay the loan back. Sure there are instances when all will go well and the loan will be paid back on time. But the loan may not be paid back sometimes, too.

What is your relationship to your friend worth? Will it end if the other party bails on the loan and you're stuck paying it back. No relationship can survive such a terrible blow. The best thing to do is say no to the loan. Your friend may be mad at you for a while, but the friendship will stay intact.

Renting to a Friend.
The scenario is you own a rental unit. The tenant is moving out. Your friend or relative needs a place to stay. Do you rent to them? Is it a good idea?

If you weren't renting to a friend and you just had a regular tenant you would make sure the potential tenant has a job, an ability to pay, you would have a proper lease and deposits. It would be all very business like. The tenant would know what's expected and the landlord would know what's expected. But what if you rent to a friend or relative? Would the same business like relationship occur. Renting is a business and has to be run like a business. The friend has to know they will be treated just like anyone else.

The problem with renting to friends is they sometimes think they can take a little advantage because of the friendship. They may be late on the rent or not pay a proper security deposit. They may not keep the place up as well as other tenants do. The possibility of misunderstanding is increased because of the blur of the friend/landlord line.

It is possible to have a good experience when you rent to a friend but the odds are, something will go wrong and you could suffer a falling out. Why take the risk?

Selling a used car to a friend.
This is an example of a disaster waiting to happen. You have a used car that you want to sell because you want to buy a new one. A friend or relative is need of a car. It's a perfect match. It's good for the seller because you are going to quickly sell the car. For the friend they have a car they know something about and may have already driven in the past. It's good for both parties, or is it?

Soon after the car is sold the transmission or brakes go out. What do you do now? If you sold it to a stranger you may get away with not paying for requested repairs. But with the friend, you are obligated out of friendship to make things right. If you don't the friendship could be destroyed.

What's the odds of a used car breaking down? I think the odds are pretty high something will break. Why take the chance of damaging a friendship. Sell the car to someone you don't know. If you do sell to a friend then be ready to make things right, just in case. The friendship is worth more than the cost of car repairs.

Going into business with a friend.
You and your best buddy have a incredible business idea. You decide to form a business. Good idea or bad? In a partnership, many expectations are formed by both parties. Also many questions need to be answered like who does what? Where does the money come from to operate? Who holds the check book?

This relationship is the hardest of all the examples listed. When things are going well in the business nobody complains. Difficulties arise when thing don't go so well. They may occur when one partner loses interest or thinks they are doing all the work. There are many ways for one or both partners to become disgruntled. This can ruin a business and destroy a friendship.

Sometimes partnerships work if all specifics are spelled out. But it can be almost impossible to keep each party happy. In this case everyone loses.

If you must be in business with a friend it's best to lay out all the details of the business and as much of the contingencies as possible. Having a 50/50 partnership doesn't have to be the way to proceed. It's better to make the stronger business person owner of the company and make the other person on a profit sharing plan or other agreed upon compensation plan. This way both parties are able to walk away from the company if they want. It's better this way because a friendship is worth more than any business.

Buying a vacation home together.
It usually starts with a couple of old friends going on vacation and discovering a great vacation home. Separately they can't afford the purchase but together they can. They purchase the home by either getting a mortgage together or using cash. Just like the business example, they are legally locked in together. It's like a marriage. And like a marriage it sometimes ends up in divorce. Suppose one of the friends doesn't use the home as much as the other or doesn't help in the maintenance or expense. These and many other reasons cause problems where one party wants out. It's difficult to divide the house in two and separate.

An alternative would be for one party to buy the house, if they can afford it. Then with the other party figure out some type of compensation for using the home. The stronger party with interest in the home should be the one to own the home. So when either party loses interest or the friendship breaks up no harm is done. The one that owns the house can sell and the other with no legal links to the home can just walk away.

With any joint venture all details must be worked out between the two parties. It's always better to make one partner the legal owner of the items in question and the other having a favorable compensation plan. Plan your business and plan to keep your relationships strong.

Larry E. Swedroe's - Investment Mistakes Even Smart Investors Make and How to Avoid Them - Review

Investing in the stock market is no easy task. To track down a good stock or mutual fund you must do the research, talk to advisers, and study the fundamentals. Even after all that there is no guarantee your choice will perform. Still the making of mistakes is a common problem. Even seasoned investors make mistakes. Watching out for these mistakes is so important for your portfolio to grow.

Larry Swedroe has written a book called "Investment Mistakes Even Smart Investors Make and How to Avoid Them". It's a detailed check list of common and some uncommon mistakes all investors make. He has listed 77 mistakes that you need to be aware of. Many of the mistakes, you and I will undoubtedly recognize, as poor choices we have already made.

The mistakes are really nothing the average investor hasn't seen or heard of before. They are mainly problems we have with investing. You can divide them up between poor investment behavior, being to greedy, following the herd, or misunderstanding how the market works. It seems our own human nature gets us into the most trouble.

Each chapter addresses one mistake by either relating a story or showing the evidence of it's error. A lot of these mistakes can be critical to the success of your portfolio. Mistake 42, is one example that addresses the importance of starting early with a savings plan. Swedroe shows how someone who starts their saving at 34 years old must continue to save for the rest of their work life while a 24 year old that saves $5,000 a year till 34 years old and stops will have have more money at retirement, all because of the magic of compound rate of return.

Mistake 60 shows how not having proper diversification in your portfolio can sabotage performance. Swedroe doesn't just give his opinion or experiences. He gives proof from academic research and trusted resources.

Swedroe is also a fan of index fund investing. Many instances of his affection for these instruments is evident. He's cautious to state the S.& P. index fund does not a portfolio make. He is an advocate of diversification through a broad range of index funds that cover large cap, small cap, and international.

Most people do not like to be told they are making mistakes. Especially the more mature investor that has been on the job for many years. Swedroe's puts all these mistakes between the two covers of this book. He shows us the common mistakes we make and how it can eat into the performance of our investments. Even though some mistakes are small when multiplied over the life time of investing their results can be devastating.

The one mistake Swedroe leaves out of his book is that the guy in the mirror can be one of the biggest mistake makers in doing the right thing with your savings. Teach that guy what he is up against buy letting him or her read this book.

Investment Mistakes Even Smart Investors Make and How to Avoid Them

Five Ways to Pay Down Your Debt Before Retirement

Image via WikipediaIf you’re close to retirement and still in debt, have hope. With smart financial planning, there is still time to get you on track.

Ashyia Hill from CreditDonkey, a credit card deals website, shares five tips on paying down your debt before retirement.

1. Start paying more than the minimum.

You should always pay more than the minimum amount required every month. The minimum amount due is usually between 2% and 5% of your balance, and paying that little will just keep interest charges building up against you.

Instead, pay as much as you can afford each month, aiming for at least double the minimum balance. This might mean canceling your cable and entertaining yourself with YouTube videos for a while or picking up microwavable meals instead of going out to eat, but it will be worth the relief you’ll feel when you’re finally debt-free.

2. If you have multiple credit cards, consider moving your debt over to a credit card with a low interest rate and 0% balance transfer fee.

OK, let’s say you have three credit cards and you owe $1,000 on each. One credit card has a 20% interest rate, the second has a 16% interest rate, and the third has a 14% interest rate. You could save money by transferring the $2,000 you have on the higher-interest credit cards to the lower-interest credit card.

That’s where 0% balance transfers come in handy. If you qualify for a card like this with a low interest rate, you can move your debt over and save money.

However, the fine print on some credit cards can make this tricky. Some cards charge hefty balance transfer fees that could make this method more trouble than it’s worth.

3. Leave $1,000 in your savings account and use the rest to pay your debts.

Chances are, your bank isn’t paying you the kind of interest for the use of your money that the folks you owe are charging you to use their money. So, although it’s scary, you might want to scrape out all but an emergency $1,000 from your savings account and use it to speed up the process of debt repayment.

But why $1,000? Well, this is the amount that Dave Ramsey, a successful financial author, radio host, and motivational speaker, recommends. Considering that Dave Ramsey built a real estate portfolio worth millions by the time he was 26, lost everything when his borrowing habits led him to file for bankruptcy after failing to pay $1.2 million of short-term notes, and then worked his way back to being debt-free, this author gets the feeling he knows what’s he talking about.

A thousand bucks should be enough to keep your head above water in most emergency situations until you figure out what to do.

4. Get a second job.

That’s right, I’m recommending that even people close to retirement consider a second job to get out of debt.

Honestly, the economy is bad for everyone right now and a lot of people are doing it. Part-time, freelance, seasonal, and temporary work is becoming more common and widely-accepted everywhere.

This is the method recommended by Jeffrey Kosola, a father who found himself owing $101,000 to creditors back in 2008 and realized this kind of debt was preventing him from supporting his family the way he wanted to. Getting a part-time job delivering pizzas started him on the journey to becoming debt-free.

Even if you can only manage a small second job, such as working one day per week at a mom and pop store, putting all of the money you earn at that job toward paying off your debt is sure to help.

5. Renegotiate with creditors.

If you don’t think you’ll be able to pay off your debts, reach out to your creditors. Let them know that if you can’t renegotiate your terms, you’ll have no choice but to file for bankruptcy.

Your creditors would rather get some money than no money at all, which is why they are often willing to bend on their terms. Ask for a lower interest rate as well as an easier repayment schedule.

This could really help you in your quest to get out of debt, and besides, it doesn’t hurt to ask.

Trying out these tips will mean changing your lifestyle, but making some sacrifices now could mean enjoying the debt-free retirement you’ve always dreamed of in the future. We wish you the best of luck.

New Years Financial Resolutions: Save on Insurance

New Years is a great time to access your finances and start taking the steps necessary to improve your financial position. You should map out a plan for the year to raise your income, lower your expenses, and avoid traps such as splurging if you receive a healthy tax refund. This can really set you back in the long run.

Insurance costs are a major expense. Whether it is insurance for your home, your car, your health, or life, or other types of insurance, these costs can really add up. This is especially true as health insurance rates rise for many Americans. Cars are also a major insurance expense. Based on a survey commissioned by insure.com, the average American driver spends more than $1,500 annually on auto insurance.

Comparison Shop Regularly for the Lowest Rates

When you are purchasing insurance, it is important to get quotes from different companies so you can compare rates. There are insurance matching websites that allow you to compare multiple rates. You want to get the best car insurance you can for the money without compromising the amount of coverage. But price alone should not be a deciding factor.

Just because your policy is for 6 months or 1 year doesn’t mean that you can’t change it during that premium to another that offers a lower price. Prices fluctuate regularly and there is no penalty for canceling before your policy term expires. You could save hundreds of dollars on your policy by just taking a few minutes of time to research companies and check rates.

Also, think about what coverage you really need. Each state has different laws on the minimum requirements but there are certain types of auto insurance you may be able to skip out on such as gap, collision, or comprehensive, depending on your vehicle and your particular situation.

Consider Claims Service, Financial Strength and Discounts

In the case of auto insurance, be sure to examine the company’s level of claims service and A.M. Best Rating. These are important factors beyond just their rates. You want your company to quickly and reliably process your claim. Also be sure to see what discounts you qualify for as many insurance companies offer a wide range of rate reductions.

These discounts include having anti-theft devices, being a “good driver”, good student, being in the military, car safety features, taking a mature driver’s improvement course, insuring multiple cars, and having multiple policies with the same company, but vary by company and by state. These savings can really add up and help improve your financial health for the new year.

This guest post was provided by financial writer Jason Nelson.

3 Questions to Ask Yourself Before You Retire

Retirement is an important milestone in a person's life that ironically approaches much faster than people expect, largely because it always seems so far away. But whether your retirement is two years away or twenty, it's never too late (or too early) to start seriously thinking about and planning it. A little planning is always better than no planning, and unless you want to work until the day you die, retirement is something that requires planning. 

The problem for most people when thinking about retirement, even if it's imminent, is that they don't know where to start. The basics of retirement planning start with three questions about your ideal retirement; the answers to the questions should provide a schematic you can follow to help you get there. Granted, you might have to make adjustments and compromises depending on your current situation, but the questions will get you thinking and planning, which is the most important part.

When?

The first questions you need to answer is when you want to retire. If you dream of retiring at or before 60, that will drastically affect the time you have to save and invest, especially if you are already past 40 or 50. An early retirement also means that you'll have to save more so that you can provide for yourself for 20 or 30 years without working.

Knowing when you want to retire will tell you how you need to spend your remaining years before retirement. If you're still young, you'll know that you can regularly contribute a moderate amount to a savings fund and set yourself to hit your target date; if, however, you are older, you might have to push your date back, or find a way to frequently make larger contributions to your retirement fund.

How long?

While similar to the first question, this question is more concerned with how long your retirement will last — in other words, how long you expect to have to provide for yourself without working. Most banks planning to live to 95, just to be on the safe side. It's always better to have more money than you need, rather than not enough, especially when you are over 80.

How much?

This is where numbers are important: how much money will you need? To answer this question you'll need to know a few other things as well:

• Where do you plan to live? 
• Do you plan to travel? How frequently? 
• Do you want to live in luxury? 

The kind of retirement you want will determine how much you'll need, as does your target retirement date. Obviously you'll need to save more if you want to move to an upper-class neighborhood, travel the world for years, and do it all first-class. A standard figure is 80% of your pre-retirement income, but you will have to decide for yourself exactly how much you'll need, based on your ideal plan.

Other factors that you need to consider are your current savings and investments, as these will grow over time and give you cushion. The main idea is to figure out how you want to live after you retire so that you know how you need to live before you retire.


This guest post is contributed by Angelita Williams, who writes on the topics of online courses. She welcomes your comments at her email Id: angelita.williams7 @gmail.com.