Happiness Quotient

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.

Building Wealth

Wealth is not how much you make.
Wealth is how much you have accumulated. Big difference!

We have often talked about the various aspects of building wealth. Today I'll list some of those aspects so you may choose one or two for focus.

How to build wealth starting with THE MOST IMPORTANT:

!. Pay yourself first. Automatic savings, automatic 401k contributions, automatic 529 contributions all give you the advantage of not having to think about it. Build your emergency fund first; without a cushion all your wealth could dissolve with the first crisis.

2. Reduce and eliminate debt. Debt is the antithesis of wealth. It drains you emotionally and physically. Double up on your payments when you can. Or better yet, don't build up debt by using your credit cards wisely and paying them off in full each month.

3. Take full advantage of matching contributions in your 401k or 403b. Employer contributions are free money!

4. Create a plan for spending a windfall like an inheritance or tax return. This is not play money. This is not recurring money like your pay check. It happens rarely. Use it wisely. Plan to spend 10% for fun and use the balance to pay down credit cards, loans or your mortgage.

5. Know what you owe and what you own by creating a Net Worth statement at least once a year. You know your making progress when you compare the numbers year to year and see the growth: Debt (liabilities) diminishing, Assets growing.

6. Create a long-term strategy to build your wealth starting with measurable, attainable, short-term goals like building your emergency fund and paying off credit cards. Then add where you want to be in 5, 10 and 20 years.

7. Get professional help. If you are unsure about saving, investing or debt reduction take a course, read a book, hire a money coach. Your future is too precious to entrust to amateurs.

Be $ Smart - pick one, work to complete it in the next three months. Then pick another to keep you moving forward. You will be so proud of yourself!

Dual Purpose - Roth IRA

Saving for retirement can be tough while you are trying to build an emergency fund, pay off student loans, car loans and other expenses. But we all know the importance of saving early. The earlier you start saving for retirement, the faster your money will compound and grow.

Here is where a Roth IRA (Individual Retirement Account) can serve two functions. The principal (original money invested) may be withdrawn without penalty and taxes at any time making that money available for emergencies. (It's the earnings - dividends and interest - that would be subject to taxes and penalty if you are under 59 1/2.)

Aim for three months emergency fund in a savings account and three months in your Roth.

How to open a Roth IRA:
You may open an IRA at a bank, credit union, brokerage house (e.g. Fidelity, Vanguard, Merrill Lynch) in person or online.
Questions to ask:
- What is the minimum investment?
- What fees are charged for the account and for transactions?
- What investments are available? Stocks? Bonds? Mutual funds? Exchange Traded Funds (ETF's)?
- How may I arrange for monthly automatic transfer from my savings or checking account?

Your biggest stumbling block may be the required initial deposit. Some firms require only $500 where others $1000 or $3000. Subsequent investments may be as little as $25 or $50. If you are expecting a bonus or a tax return, it may be a good use of that money. Otherwise, keep the emergency money building in your savings account until you reach the required minimum amount then open the Roth.

Using the Roth as part of your emergency fund means taking NO big risks with the money. Choose a very conservative investment for the emergency portion. As your balance grows, start to invest the difference more aggressively.

Keep in mind a Roth IRA is not for everyone. Only those individuals with earned income may contribute. And individuals earning under $112,000 and couples under $178,000 may contribute $5500 (if over 50, $6500). Remember it's not all or nothing. If you cannot contribute the max, contribute some amount.

Be $ smart - use the flexibility of a Roth IRA to your advantage in building your emergency fund.

Local TV show - Money and Health

Recently I was invited to join my good friend and chiropractor, Dr. Louis Bisigoni on his TV show Healthy Horizons at White Plains Community Media.  Dr. Bisigoni and I discussed the many ways money affects your health - for good and for bad.

I thought you would appreciate viewing the topics we discussed:

http://wpcommunitymedia.org/#!mm-7255