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Financial Symmetry: Balancing Today with Retirement

When considering retirement, do you wonder what financial opportunities you may be missing? Busy lives take over and years pass without taking advantage. In this retirement podcast, Chad Smith and Mike Eklund unveil financial opportunities, to help you balance enjoying today so you are ready to retire later. By day, they are fiduciary fee-only financial advisors who answer questions about tax savings, investment decisions, and how to save more. If you’ve been putting off your financial to-do list or are just not sure what you’ve been missing, subscribe to the show and learn more at www.financialsymmetry.com. Financial Symmetry is a Raleigh Financial Advisor. Proudly serving clients in the Triangle of North Carolina for over 20 years.
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Now displaying: February, 2016
Feb 17, 2016

What if you could save an additional $1,500 each year? After 30 years you would have $119,000, assuming the money was invested and you got a 6% return. That $1,500 each year — just $125 a month — can add up to quite a bit of money.

Of course, to save more money each month you likely need to cut your spending. But if you are like most people, you probably don’t want to drastically change your lifestyle. Fortunately, there are smart and simple steps you can take to trim spending without a major overhaul.

Use the 72-hour rule for purchases

How many purchases have you made on Amazon or at the store that you later regretted? Limit your impulse purchases using what personal financial author Carl Richards has called the 72-hour rule. Instead of buying an item you want immediately, wait 72 hours to see whether you still want it. You’ll be surprised at how much less you end up deciding to buy. I find this works all the time with my kids. They think they can’t live without a certain toy, and then after 72 hours they forget it even existed.

Analyze big purchases

Major purchases may have the biggest impact on your spending and ability to save. I’m often amazed that the same person who will drive across town to save money on gas will buy a new expensive car without analyzing the implications. The same goes for housing costs or big-ticket vacations. Here are some tips on how to analyze and save on each of these purchases:

  • Car: The Internet has been a huge help for consumers in finding car deals. With online sales you often can negotiate through email, and sites like TrueCar provide transparency about what other car buyers have paid. But when buying a new car, it’s important to consider the ongoing costs and not just the upfront purchase price. For instance, many people prefer luxury cars, but premium gas and maintenance typically will cost more for these cars. Finally, a simple rule is that the longer you keep the car, the cheaper the cost.
  • House: Housing tends to be the biggest expense for most people. As a financial planner, I’m a fan of homeownership if you plan to live in your home for more than five years. However, the larger and more expensive the home you purchase, the more it limits your ability to spend within the rest of your budget. One family I work with, a couple with one child, decided to downsize because they just didn’t need the space. This was a good move financially because it gives them greater flexibility to save more, spend in other areas or retire sooner.
  • Vacation: Research locations and potential deals on sites like Kayak.com. If you can, be flexible when selecting travel dates to maximize savings. Also, compare multiple locations to determine the best fit for you and your family — and where you can get the most bang for your buck.

Rethink ongoing phone and cable plans

Most people look only at their monthly payments and often are shocked by how much they spend annually on cell phone and cable bills. When shopping for a phone plan, try MyRatePlan.com to compare plans based on the minutes, texts and data you need. Another option is to consider no-contract cell phones. The monthly cost is much lower, but you do have to buy the cell phone upfront.

With cable, the average monthly bill is $100, or $1,200 a year. “Cutting the cord” has become more popular recently as many people decide they don’t need the 100+ channels on cable. If you can do with a limited number of channels, then a streaming device and a good HDTV antenna for local channels may be all you need — and it can save you a lot of money.

Review your insurance policies

Many people are paying too much for property and casualty insurance. Every few years you should shop around your auto insurance and home insurance policies to confirm you are getting a good price. You also can see how your auto and home insurance providers rank based on consumer satisfaction by checking out the yearly report from market research firm J.D. Power.

Additionally, one way to lower premiums for home or auto policies is to raise your deductible if you have cash in the bank and you rarely make any claims. Larger deductibles typically range from $1,000 to $2,500, depending on the type of insurance you have. However, note that this does create risks if you don’t have money available or in an emergency fund if a large claim does occur.

Pick high-quality products that last

Sometimes it makes sense to spend a little more money for items you will use for a long time. A good example is men’s shoes. A high-quality pair of shoes will last almost forever and, though more expensive in the short term, will be a lot cheaper over the long run than repeatedly buying the cheapest pair. Think about the items in your life that you will use for a very long time and are worth the extra expense upfront.

Stick to a budget

First, automate your savings. It’s hard to spend what you don’t see, so automatically transferring money out of your checking account will help you keep spending down. Determine how much you should be contributing to or withdrawing from your accounts, and set up automatic monthly transfers. I like to call this forced scarcity, in that you can spend only what is in your bank account.

If this is not working and you start running up debt, try using online budgeting tools to help you create and monitor your budget. It may be more time-consuming, but you’ll know where every dollar is being spent. And if you are still having issues, consider working with a fee-only financial planner to help you develop and stick to a budget so you can reach your goals.

Hire a professional

Sometimes spending money can save you money. This can be true for home repairs, taxes, college planning and many other areas. For instance, I see many people miss important deductions or credits they could have claimed when they complete their own tax returns instead of working with a professional. And for me, it makes sense to pay someone to help when it comes to house repairs. I can try to fix the problem, but I only make it worse.

So how do you decide whether to hire a professional or go it alone? If the risk of mistake is greater than the cost to hire someone, it is worth the investment. Of course, if you don’t have the time or knowledge to take care of the task at hand, it makes sense to get help, too. If you’re not sure where to look, ask for referrals from friends or co-workers, or check Angie’s List for service providers and the National Association of Personal Financial Advisors for fee-only financial planners.

Spend wisely

Ultimately, the goal is not to disrupt your lifestyle dramatically, but to make sure you spend your money wisely and efficiently. In short, it’s important to think about what you are spending your money on and what you really get out of it.

Perhaps even more important than drastically cutting your spending is thinking about the non-monetary value of your money. In a longitudinal study following 268 men for over 70 years, researchers for the Grant Study found that good relationships are key to leading a long and happy life — not how much money you have, the newest tech gadget or a certain high-profile job, but the people in your life.

Instead of spending money on more stuff, why not spend it on personal experiences with your friends and family?

Feb 3, 2016

So many of us get charged up and rattle off an impressive list of goals but then struggle to follow through.

The disconnect between creating and accomplishing is where life change gets stuck. Months pass and we realize our lives are no different.

Where did progress stop (or never begin)?

Often, it's when life's curveballs throw us off our game. Even though we know the surprises will come, we're not prepared when they show up.

I thought about this recently on a Saturday morning, when my mind drifted to how enjoyable it would be to extend our screened porch. Wait, did this just become a goal?  What about the 10 year anniversary trip we want to take next year? We also know one of our cars will need replacing in a few years.  If we do all three of those things, will we be able to hit our charitable and retirement savings targets as well?

That’s just it. Financial goal planning is a fluid process.  You have to place a value on how important that thing on your mind right now is to the list of other priorities you've thought about on other Saturday mornings.

Without prioritization of goals, we allow our impulses to rule our decision-making.  This thought process ignores your plan, pushing the things that aren't as much "fun" to the bottom of your list.

Having an effective monitoring process increases your odds that follow through will happen.

Recording Your Goals

Many of us don't keep a running list of things we want to accomplish.  This is why when asked about our goals, we freeze and find it hard to get specific other than "to assure we are maximizing our investment returns."

Knowing why you want to get the best investment return helps keep the focus in the right direction.  It also helps identify quantifiable steps that will help you get there.

Goal setting begins with recording.  So often, I will be talking with someone that triggers an idea I want to pursue. If I don't get it down quickly, the idea is forgotten.

One of the most practical digital tools for this is Evernote.  This helps create a central location of all the ideas that are up next on the to do list.  From small goals to large goals.

Having a list, helps compare the newest goal to all the other goals you have in the queue.  For example, is the next home project more important than maxing your 401k this year? Depends on the person and what your long-term plan is. If retiring early is important to you, then 401k savings matters more now than a kitchen remodel.

We also know our desires can change quickly, which is why prioritizing regularly is vital.

This is why we encourage setting a few different lists.

  • Immediate - now to 3 months
  • Short-Term - within 2 years
  • Longer-Term - 3+ years

Some people like to add a lifetime category which helps shape more vision type of actions.  Are you doing the small (and sometimes mundane) things today that get you closer to the lifetime goals?

Assigning time-frames and dollar amounts helps you measure success.

Once you create the ideas of where you want to go, we discuss the best way to implement goals. Even though we all are incentivized differently, a process keeps us moving forward.

Monitoring

Some things are easy to implement and can be done very quickly (setting up Roth IRA contributions for example). But not every goal can be tackled quickly.

If your main goal is lowering spending, then it’s more of a gradual process that takes tracking and regular review. While a future large purchase requires diligence in hitting saving targets.

Consequently, we set up our systems so the top goals for each client are displayed each time we interact with them.

Some examples include next car purchases, home projects, inheritances, or retiring early.

But setting the goals is not enough. It requires consistent accountability partners. This is why we have automated follow ups along with scheduled phone calls to follow up. Checking in after 2 weeks, 2 months, 6 months and a year keeps the focus front and center.

Adjustments

Goals that are not measurable tend to fizzle out.

So after recording and monitoring, if a goal was too vague, it's time for an adjustment.

Personally, I like to revisit my goals every 90 days, which allows for any adjustments as changes arise.  At a minimum, reviewing your objectives at least annually will allow you to refocus any goals that are growing stale.

How Did You Do?

The end of a year presents a great opportunity to look back and see where you stand. Seeing progress motivates you to continue progress.

Personally, this process starts during the year.  I keep a document in Evernote, that is called “Key Accomplishments.”  During my quarterly review, I take a moment to record all the things I can think of that were steps forward.

This list includes it all (small and big accomplishments).  From wakeboarding for the first time to reading a book I've wanted to read.  You'll be surprised how fulfilling it is to look back after a year and see all you've done.

For next year, I plan to set a few stretch goals (from Steve Sanduski's podcast "Between Now and Success").  Goals that I know I won't meet but will motivate me to try.  I'm betting I will be surprised by the progress.

So what goals will you focus on this year?

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