You may have heard of the term wealth effect - it is the idea that when the value of stock portfolios, IRA's, 401k"s, rises due to escalating stock prices, investors feel more comfortable about their wealth, allowing them to spend more.
We now have the happiness quotient as determined by studies in the UK where a group of social scientists measured the "happiness" of bank clients through multiple surveys. They found that overall wealth was not the factor. What produced a true sense of happiness and well-being was the amount of available cash in personal checking or savings accounts.
Invested money or a pension felt either abstract or inaccessible whereas their large ATM balance evoked a sense of security and importance.
The thought of surplus cash not invested as losing value (due to inflation, lack of growth) misses the human psychology element. The premise is how you maximize your well-being over maximizing your financial benefit.
Ways to increase your happiness:
1. build your savings i.e. your emergency fund,
2. save for vacations before you take them,
3. live within your means (aka spend less than you make),
4. buy experiences not things,
5. give money to causes that feed your spirit.
Be $ Smart: Enlarge your cash buffer to increase your sense of personal power, security and happiness.
Showing posts with label assets. Show all posts
Showing posts with label assets. Show all posts
Saturday, October 1, 2016
Monday, June 8, 2015
Another Type of Diversification
Over the past few weeks we have talked about diversification within your portfolio. We use diversification to reduce potential risk. Another kind, tax diversification, occurs with the types of accounts in which you hold your assets and how withdrawals are taxed.
No matter how you make your money, Uncle Sam is waiting to take his share. You can structure withdrawals to be tax efficient and lower your tax burden. This is especially effective during retirement. For you to have income choices you must build these accounts prior to retirement, while you are young and in the "accumulation" phase of your life.
A well diversified portfolio will hold a mixture of assets - stocks, bonds, cash, real estate, precious metals, etc. Creating a tax-diverse portfolio means you hold assets in taxable, tax-deferred and tax-free accounts.
A trained advisor will scrutinize a retirement plan for tax efficiency. You want to minimize taxes by taking income from specific accounts.
Remember, money held in tax-deferred accounts (traditional IRA, 401k,etc.) is fully taxed as ordinary income on withdrawal paying both state and federal taxes.
If all your assets are tax-deferred, every withdrawal will count as income and could push you into a higher tax bracket. For example, say you need $60,000 a year for income, you must withdraw $72,000 to cover the 20% withholding. Add that to Social Security or pension income, you could bet bumped into the next tax bracket. But, if you could take $40,000 ($48,000 less 20%) from the IRA, $10,000 from your taxable account(paying some capital gains tax) and $10,000 from your Roth (tax-free), you maintain a lower taxable income.
Be $ Smart - build your savings in different types of accounts for tax efficiency.
Be sure to consult your tax advisor for specifics.
No matter how you make your money, Uncle Sam is waiting to take his share. You can structure withdrawals to be tax efficient and lower your tax burden. This is especially effective during retirement. For you to have income choices you must build these accounts prior to retirement, while you are young and in the "accumulation" phase of your life.
A well diversified portfolio will hold a mixture of assets - stocks, bonds, cash, real estate, precious metals, etc. Creating a tax-diverse portfolio means you hold assets in taxable, tax-deferred and tax-free accounts.
A trained advisor will scrutinize a retirement plan for tax efficiency. You want to minimize taxes by taking income from specific accounts.
Remember, money held in tax-deferred accounts (traditional IRA, 401k,etc.) is fully taxed as ordinary income on withdrawal paying both state and federal taxes.
If all your assets are tax-deferred, every withdrawal will count as income and could push you into a higher tax bracket. For example, say you need $60,000 a year for income, you must withdraw $72,000 to cover the 20% withholding. Add that to Social Security or pension income, you could bet bumped into the next tax bracket. But, if you could take $40,000 ($48,000 less 20%) from the IRA, $10,000 from your taxable account(paying some capital gains tax) and $10,000 from your Roth (tax-free), you maintain a lower taxable income.
Be $ Smart - build your savings in different types of accounts for tax efficiency.
Be sure to consult your tax advisor for specifics.
RoBo Advisors
In our wonderful hi-tech world you now have the option of having a robot invest for you! We have been invaded by a group of R2D2 automatons who will direct you and your money towards the future.
It is very tempting to have someone else be responsible for investing your money, especially when you don't know whom to trust. But these online automated investment platforms present their own problems. They ask a series of questions to determine your goals, level of investing experience and time horizon (just like any financial adviser would). It is still your responsibility to ask questions and know what you're getting into. Caveat emptor - let the buyer beware!
Here are some things to learn before you commit your hard earned dollars:
1. Terms and conditions? What is the time commitment, required minimum sum to be invested, and what are the fees?
2. Investment choices. From what universe are the investments drawn? May they choose funds from ALL companies or promote only their own?
3. One size fits all. Garbage in, garbage out plays the same role here as it did in early computer programs. The robo adviser will only be able to make pertinent recommendations dependent upon what you tell it. Be as specific as you can to make sure your money is properly allocated.
4. Sensitive information. Keep your personal information protected! Be wary of scams that may trick you into providing confidential financial data.
5. The "In" thing. Know that as cool as hi-tech may seem, this may not be right for you. Before you send your money, check it out with friends and relatives. Read reviews.
R2D2 won't ask how your kids are doing nor talk about the latest sports or movies. You may miss the personal touch of a real-life adviser.
Be $ Smart - before you invest, protect your assets and research Robo Advisers (automated platforms) to learn the rules.
It is very tempting to have someone else be responsible for investing your money, especially when you don't know whom to trust. But these online automated investment platforms present their own problems. They ask a series of questions to determine your goals, level of investing experience and time horizon (just like any financial adviser would). It is still your responsibility to ask questions and know what you're getting into. Caveat emptor - let the buyer beware!
Here are some things to learn before you commit your hard earned dollars:
1. Terms and conditions? What is the time commitment, required minimum sum to be invested, and what are the fees?
2. Investment choices. From what universe are the investments drawn? May they choose funds from ALL companies or promote only their own?
3. One size fits all. Garbage in, garbage out plays the same role here as it did in early computer programs. The robo adviser will only be able to make pertinent recommendations dependent upon what you tell it. Be as specific as you can to make sure your money is properly allocated.
4. Sensitive information. Keep your personal information protected! Be wary of scams that may trick you into providing confidential financial data.
5. The "In" thing. Know that as cool as hi-tech may seem, this may not be right for you. Before you send your money, check it out with friends and relatives. Read reviews.
R2D2 won't ask how your kids are doing nor talk about the latest sports or movies. You may miss the personal touch of a real-life adviser.
Be $ Smart - before you invest, protect your assets and research Robo Advisers (automated platforms) to learn the rules.
Friday, February 13, 2015
Fafsa Tips to Help Pay for College
These are a few notes I took from a recent article Gateway to College Aid by Jerilyn Klein Bier. Please pass this information along to friends and family facing college tuition payments.
The author quotes Mark Kantrowitz, co-author the of book Filing the Fafsa and publisher of Edvisors.com, a website focused on planning and paying for college. The book may be downloaded for free in PDF format at Edvisors.com.
"It is very difficult to predict how much aid a student might get from year to year."
- one big factor is the number of siblings enrolled in college,
- another factor is the price of a particular school.
Make sure assets and income are positioned before the year your student is a Junior in the spring and a senior in the fall. Fafsa works on the calendar year Jan. - Dec. not the academic year.
He urges families to file as soon as possible after January 1 as many states and schools have deadlines in early 2015 and award aid on a first-come, first-served basis.
He encourages families to file the form online because of faster processing, built-in edit checks and the skip-logic functionality. This means respondents are not asked questions that don't apply to them.
One big change for 2015 is there is little differentiation for parent relationships. Parents who live together, married or divorced, or never married are now treated as married and both must report income and assets on the Fafsa.
Grandparent owned 529 plan distributions reported as untaxed income to the beneficiary (the student) can reduce need-based aid eligibility. A parent owned 529 is treated as a parent asset and is assessed, at most, by 5.64%.
If grandparents do hold 529 plans, it's best to hold off on withdrawing assets until the student will no longer be applying for financial aid - like their senior year.
For example, a $10,000 distribution from a grandparent owned plan could reduce aid eligibility by as much as $5000, while $10,000 in a parent-owned plan could reduce eligibility by a maximum of $564.
Parents of younger children should tune in. Understanding what goes into the expected family contribution and how schools consider this can help them position their assets and steer their kids toward institutions that may offer more attractive aid. It can also help families to better balance the triple threat of saving for education, a home and retirement.
No one will give you a loan or scholarship for retirement!
Be $ smart - plan well in advance to qualify for financial aid.
The author quotes Mark Kantrowitz, co-author the of book Filing the Fafsa and publisher of Edvisors.com, a website focused on planning and paying for college. The book may be downloaded for free in PDF format at Edvisors.com.
"It is very difficult to predict how much aid a student might get from year to year."
- one big factor is the number of siblings enrolled in college,
- another factor is the price of a particular school.
Make sure assets and income are positioned before the year your student is a Junior in the spring and a senior in the fall. Fafsa works on the calendar year Jan. - Dec. not the academic year.
He urges families to file as soon as possible after January 1 as many states and schools have deadlines in early 2015 and award aid on a first-come, first-served basis.
He encourages families to file the form online because of faster processing, built-in edit checks and the skip-logic functionality. This means respondents are not asked questions that don't apply to them.
One big change for 2015 is there is little differentiation for parent relationships. Parents who live together, married or divorced, or never married are now treated as married and both must report income and assets on the Fafsa.
Grandparent owned 529 plan distributions reported as untaxed income to the beneficiary (the student) can reduce need-based aid eligibility. A parent owned 529 is treated as a parent asset and is assessed, at most, by 5.64%.
If grandparents do hold 529 plans, it's best to hold off on withdrawing assets until the student will no longer be applying for financial aid - like their senior year.
For example, a $10,000 distribution from a grandparent owned plan could reduce aid eligibility by as much as $5000, while $10,000 in a parent-owned plan could reduce eligibility by a maximum of $564.
Parents of younger children should tune in. Understanding what goes into the expected family contribution and how schools consider this can help them position their assets and steer their kids toward institutions that may offer more attractive aid. It can also help families to better balance the triple threat of saving for education, a home and retirement.
No one will give you a loan or scholarship for retirement!
Be $ smart - plan well in advance to qualify for financial aid.
Thursday, July 17, 2014
THE Important Conversation
Too many families are avoiding THE important conversation. No, not the one about the birds and the bees; the one about estate planning. Estate means what you own and planning means how it will be used in the future. You don’t have to own much to do some estate planning.
Maybe you are young and have not built your estate yet but chances are you have parents who have accumulated a few things. You need to know what they have done about estate planning. It then becomes tricky. You hesitate to ask your parents about their retirement or estate plans. You might not want to appear greedy or eager to see them pass on. Your parents are reluctant to share this information with you for fear of giving you hopes (or disappointment) about inheritance. So everyone is in the dark!
Not having “the important conversation” can lead to misconceptions. Who will care for your aging parents? You? Your sibling? Or are you hoping your parents will have the resources to move into an assisted living facility? Won’t you be surprised when they decide to move in with you! Or better yet, take your inheritance and buy a fancy home in St. Thomas.
Do your parents have sufficient income to stay in their own home? Will they need both physical and financial help from you along the way? Maybe they have sufficient assets to live a long and comfortable life. How will you know, as they age, if they have participated in some scam that could drastically reduce their assets unless you know what assets they have?
At first it might feel awkward. Start with a few simple questions like: how are you and dad doing? What are your plans for the future? How will you make that happen? It might take two or three tries but eventually they will open up and you’ll all feel better.
If you are the parent, make time to have THE conversation with your children or loved ones.
Be $ smart - give yourself and your parents peace of mind. Have THE conversation.
Maybe you are young and have not built your estate yet but chances are you have parents who have accumulated a few things. You need to know what they have done about estate planning. It then becomes tricky. You hesitate to ask your parents about their retirement or estate plans. You might not want to appear greedy or eager to see them pass on. Your parents are reluctant to share this information with you for fear of giving you hopes (or disappointment) about inheritance. So everyone is in the dark!
Not having “the important conversation” can lead to misconceptions. Who will care for your aging parents? You? Your sibling? Or are you hoping your parents will have the resources to move into an assisted living facility? Won’t you be surprised when they decide to move in with you! Or better yet, take your inheritance and buy a fancy home in St. Thomas.
Do your parents have sufficient income to stay in their own home? Will they need both physical and financial help from you along the way? Maybe they have sufficient assets to live a long and comfortable life. How will you know, as they age, if they have participated in some scam that could drastically reduce their assets unless you know what assets they have?
At first it might feel awkward. Start with a few simple questions like: how are you and dad doing? What are your plans for the future? How will you make that happen? It might take two or three tries but eventually they will open up and you’ll all feel better.
If you are the parent, make time to have THE conversation with your children or loved ones.
Be $ smart - give yourself and your parents peace of mind. Have THE conversation.
Tuesday, November 29, 2011
Welcome to My Blog!
Hi! My name is Eileen Hawe . I’ve been working in financial services and personal finance for almost 30 years. It’s an industry that’s rife with conflict of interest. I witnessed it first hand and understand the need for basic, clear, unbiased information.
Have you ever had to make an important decision, looked for help or direction and didn’t know whom to trust? Or, while sitting across from a financial adviser heard that little voice in the back of your head wonder “what’s in it for him/her?”
I will answer your questions, even the “dumb” ones, clearly and simply. I will guide you through the rough times, get you back on your feet and help you realize that personal finance is not rocket science.
I love what I do. I have a skill which I am happy to share with you. It makes me feel good; we both benefit.
Follow my blog where I will post important financial facts on a regular basis.
For example: are you familiar with The Rule of 72?
Take the interest rate you are earning on an investment (a CD earning 2%).
Divide that number into 72 to show the number of years it will take to double your money. (72/2=36) Thirty-six years. An investment with a higher return of 6% would double your money in 12 years. (72/6=12) Twelve years. Higher returns may have higher risk.
Also, IRA Conversion: did you know that this year might be a good time to convert your regular IRA (individual retirement account) to a Roth IRA? Many portfolios have lost money in the second half of 2011 so the taxes due on the conversion may be less.
If these tips have helped you, contact me to schedule a meeting and I will guide you to financial security.
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