Monthly Archives: November 2016

The Financial Planning

While everybody’s financial situation is different, there are some options and strategies that can be used by all to get on the right financial path.

Financial Fundamentals

Develop a budget and stick with it: When making a budget it is important to develop a realistic one and stick with it. You need to decide how much you can afford to spend and what you should be saving each month. To be financially independent, it is important to start making wise choices early on in order to develop a habit of staying within your budget.

Figure out your credit score: Do you know what your credit score is and how much it can affect you in various areas of your life? How do you build credit in a responsible way to make sure there are no surprises down the road? There are ways for you to check your credit score. Visit one of the three reporting agencies for more information.

Money Saving Tips

Employee benefits: What benefits do you currently have and what benefits are offered at your job? Are you contributing enough to your retirement plan to get the full employer match? What other savings can you get by participating in the other benefits offered to you? Speak to your human resources department to make sure you understand all the benefits available to you.

Emergency fund: Do you currently have an emergency fund? Have you thought about what would happen if your car broke down tomorrow? What if it was something bigger? Most financial professionals recommend three to six months of your monthly expenses to be saved in a liquid account that you can access when you need it.

Pay back loans: When creating a budget, make sure you include any loans that you currently have. When looking at the amount to pay each month try to allocate a slightly higher amount than the required minimum payments. This could possibly save you money by lowering the amount of interest you could be paying.

Set up a savings account(s): Do you have a large purchase in your future? Think about setting up a separate savings account to start saving for any dreams or goals you might have. This helps to separate your money so you can see the progress you are making towards your purchase without tapping into your emergency fund. This can be beneficial if you are looking at purchasing a house as you will most likely need a down payment. (For related reading, see: 10 Ways to Effectively Save for the Future.)

Establish relationships with various insurance and financial professionals: In your 20s it is important to start developing these relationships because you will need various types of insurance and guidance to help you manage the risk that will be encountering on your own. Insurance professionals will ensure you and your possessions are covered, while a financial professional will help you with various financial strategies to help you achieve financial independence.

Set Long-Term Financial Goals

Start saving for retirement: Retirement might seem like a long way away, but it is never too early to start looking at the various retirement options you have. Taking part in the retirement options you have at work are a great start but for some people, it might make sense to look at alternative investments outside of work, such as a traditional IRA. If you qualify based on your income, a Roth IRA can be a great way to start saving for retirement outside of the workplace because it offers tax-free withdrawals during retirement.* You should talk to your financial professional about the different options that are available.

Develop goals and write them down: In your 20s everything can be changing so fast that you don’t know where to start. A great thing to do is sit down and start coming up with some goals. Break these down into short, mid and long-term goals. This helps by giving you some direction in your life. Focus on your goals and make sure what you are doing every day is keeping you on the right track to achieve them. (For more, see: Want to Be Financially Fit in 2017? Use These Tips.)

Guidelines to Achieve Success

Consider saving 30% of your income: This might seem like a lot starting out, but it is important to save for the various aspects of your life. Consider saving 10% for retirement, 10% towards your emergency fund and 10% towards any large purchases you might have coming up.

Have an emergency fund: It is extremely important to set up your emergency fund and not touch it unless needed for an emergency. This fund will help give you the peace of mind that if something were to happen, you can take care of yourself. Try to get six months of your living expenses saved up.

Minimize credit card debt: Credit cards can have high interest rates that can really cost you a lot of money in the long term. Try to pay off your credit cards every month or, if you have to carry a balance, try to keep it under your credit limit.

Buying a vehicle: When buying a car consider putting down a significant down payment. When financing the car consider doing so for no more than four years and spending no more than 10% of your gross income on car payments. If you are buying a new car, consider driving it for 10 years to maximize the car’s value and to limit the loss due to depreciation.

Buying a home: Like buying a car, put down at least 20% as a down payment on a new home. This will help you to lower the monthly mortgage cost, help your chances of getting a favorable loan and also make sure you don’t spend more on your home than you can afford. Some financial professionals will advise you to keep the total cost of your home under two or three year’s worth of annual income. (For related reading, see: Top 3 Secrets to Financial Planning.)

*Contributions to a Roth IRA may generally be withdrawn at any time without tax consequences. Earnings may generally be withdrawn tax free if the account is held at least 5 years and withdrawals are made after the account owner reaches age 59 ½. If earnings withdrawals are made before the 5-year period or age 59½, income taxes are due and a 10% federal tax penalty may apply.

Tyler J. Kruse, Registered Representative offering securities through NYLIFE Securities LLC, member FINRA/SIPC, A Licensed Insurance Agency, 330 Oak Tree Ln, Suite B, Dakota Dunes, SD 57049. Financial Adviser offering investment advisory services through Eagle Strategies LLC, A Registered Investment Adviser. Kruse Financial Group is not owned or operated by Eagle Strategies LLC, or its affiliates.  Neither Kruse Financial Group nor NYLIFE Securities LLC, nor agents or affiliates of either entity offers tax, legal or accounting advice.  For such advice, everyone should seek the counsel of their own professional advisors.

Make Better Budget

Can you have perfect abs in just six minutes a day? It’s hard to say for sure, but you can have a solid budget in six months. One of the challenges with proper budgeting is that it has to become habitual in order to be effective. You can survive without knowing how to budget if you manage to keep more money coming in rather than flowing out or have credit cards to cover the gap, but this won’t last forever. People often resort to budgeting after they’ve already been dealing with expenses and income in a back-of-the-envelope kind of way.

Emergency Fund

The crux of this six-month plan is the emergency fund. In general, traditional budgeting starts with tracking expenses, eliminating debt and, once the budget is balanced, building an emergency fund. To speed up the process, we are going to start by building a partial emergency fund. Ideally, everyone should have a minimum of a few months’ wages sitting in a liquid account for any unpleasant surprises. This emergency fund acts as a buffer as the rest of the budget is put in place, and should replace the use of credit cards for emergency situations.

You will want to build your emergency fund as quickly as possible. For someone who lives in a rented home and has only a modest amount of debt, an emergency fund of $600 may work fine. If you own a house, a car and other things that can unexpectedly require cash infusions, then your emergency fund will need to be bigger. The key is to build the fund at regular intervals, consistently devoting a certain percentage of each paycheck toward it and, if possible, putting in whatever you can spare on top. This will speed up the process and get you to think about your spending.

What’s an Emergency?

Here’s where it can get a little trickier. You should only use the emergency money for true emergencies: like when you drive to work but your muffler stays at home, or your water heater starts to hiss and spit green bile like Linda Blair in The Exorcist. Covering regular purchases like clothes and food do not count, even if you used your credit card to buy them. It may help to keep the account at another bank or, better yet, an online savings account, where you can’t access the money as easily and where it will get higher interest than a normal savings account.

While it’s true that you would save money if you used your emergency fund to eliminate credit card debt, the purpose of the fund is to prevent you from having to use your credit card for paying for the ugly things that life throws at you. With a proper emergency fund, you will not need your credit card to float you when something goes wrong.

Downsize and Substitute

Now that you have a buffer between you and more high-interest debt, it is time to start the process of downsizing. It is odd that the natural solution to “not enough money” seems to be increasing income rather than decreasing spending, but this backwards approach is very familiar to debt counselors. The more space you can create between your expenses and your income, the more income you will have to pay down debt and invest.

This can be a process of substitution as much as elimination. For example, if you have a $60 per month gym membership, cancel it and use half of the money you save to invest or pay down debt and save the other half to begin building a home gym in your basement. If you buy coffee from a fancy coffee shop every morning, you could just as easily purchase a coffee maker with a grinder and make your own, saving more money over the long term. Although eliminating expenses entirely is the fastest way to a solid budget, substitution tends to have more lasting effects. People often cut too deep and end up making a budget that they can’t keep because it feels like they are giving up everything. Substitution, in contrast, keeps the basics while cutting down the costs.

Focus on Rewards

If you are constantly looking at what you have to cut and give up, the very act of budgeting will become distasteful. A mixture of long- and short-term goals will help keep you motivated. This can be as simple as saving for a small luxury, or even something bigger like buying a car with cash. Some of your long-term rewards may just be benchmarks on the way to your overall goals. For example, you may want to sock away $10,000 in a retirement account before you turn 30 or be debt-free in five years. Watching these goals slowly but surely become a reality can be very satisfying and provide further motivation to work harder at your budget.

Find New Sources of Income

Why isn’t this the first step? If you simply increase your income without a budget to handle the extra cash properly, the gains tend to slip through the cracks and vanish. Once you have your budget in place and have more money coming in than going out (along with the buffer of an emergency fund), you can start investing to create more income. It is better to have no debt before you begin investing. If you are young, however, the rewards of investing higher-risk, high-return vehicles like stocks can outweigh most low-interest debt over time.

Much like the disclaimers that come with exercise tapes promising to make you look like a body builder in just six minutes a day, it is possible that it will take you more than six months to get your budget balanced out. This all depends on your situation, including how much or what kind of debt you have. On the upside, just like people who begin exercising for the first time tend to see results sooner than regulars, you may find that your improved budget has immediate benefits for you. Even if it does take you longer than six months to get your budget turned around, it is time well spent.

Tips Improve Your Financial Health

Your financial well-being is equally important to the traditional “new body, new you” goals that are rampant after the holiday season. Whether you’ve overindulged in food or spent a bit more than intended for gift giving, it’s natural—and healthy—to seek suggestions on how to scale back on the excess. Perhaps you’re headed for retirement and desire to focus on increased savings for the post-work years. Or home buying is slated as your prime objective.

By now the onslaught of New Year’s resolution posts has died down, and all prominent voices in the financial industry have levied their “financial fitness for the new year” advice. Rather than sifting through an endless stream of data on the matter, I’ve curated the top tips for improving your financial health in 2017. The following is applicable for all generations:Boomer, Generation X, Millennial and everyone in between.

Pay Off Credit Cards or Consumer Debt

It’s true that debt can be leveraged to help when you’re in a financial bind—car troubles, sudden health related emergencies and so forth. However, the interest rates are an additional expenditure that slows the process of stashing cash in other, more lucrative places.

Rather than paying the interest rates, that money can be transformed into a financial work partner by placing the amount in savings or, if you’re inclined, an investment portfolio. Certainly, maintaining a healthy credit rating is part of the money management system. Yet, if you’re the type who can’t pass up a sale and whip out your credit card to pay for more stuff, then credit card consolidation is a resolution for you to seriously consider. Pay yourself, not the credit card companies.

Maintaining a Budget Is Crucial

All items on this list lead back to budgeting. It’s easy to become enraptured in the constant stream of subscription entertainment or online instant gratification purchasing. Five-dollar cups of coffee or weekly dinners at your favorite restaurant can be included—though removing them for a month, or three, isn’t exactly deprivation. At the very least, monitor your spending for a week to determine where your money is going. Then begin to scale back on small things within each budgeting category.

Save, Save, Save

Though saving and budgeting are intertwined, this category warrants its own emphasis. While you set up your budget and scale back on the nonessentials in each budget category, make sure that you include a target amount to save per month. Your target savings amount is what you’d need for three to six months of expenses in the event your income stream is disrupted. Yes, it’s that simple. The challenging part will be curbing former spending habits. However, with diligence and focus, you can retrain your brain to stay on course with your intention. Remember intention flows to where our attention goes.

Investment Engagement

As with everything on this list, choosing an investment instrument is a highly personal endeavor. There are plenty to choose from. Every investment opportunity is balanced against a certain amount of calculated risk and given the variety of financial products available, there’s a sector for every risk level. A significant initial financial outlay is not always required to put your money to work for you. Indeed, instead of spending money on your credit card debt or restaurant dining, that money can be what Kevin O’Leary refers to as a soldier you send into battle every day to bring you back your fortune. Even if all you do right now is transfer $50 per month into a savings account, which is a small initial investment step (and you’re investing in yourself, ultimately), then you’re cultivating a habit that can provide far greater security long-term security than that daily $5 latte.

Top Six of Mindless Money Wasters

Despite the benefits of putting some money away, most people take a passing interest in actually doing it. If you’d like to make regular saving a part of your life, read on to find out how to conquer the first step: finding that extra money.

You can begin by paying attention to these top money wasting activities.

Convenience Stores

Many people don’t think about the markup they pay for convenience store items. Here’s a hint: it’s huge. This is because, unlike grocery stores, convenience stores don’t purchase food in large quantities, and also because they make you pay more for the convenience they provide. So, unless it’s an emergency situation, avoid shopping at convenience stores.

The premium you pay for convenience is not worth the assumed convenience you get. For example, a bottle of Coke at a convenience store might cost you around two dollars, while you can go to Amazon and buy a 12-pack for $16. If you tend to pull over for a drink, buy a 12-pack and keep it in your car. If you visit convenience stores often, the annual savings of cutting out these visits can be tremendous.

Cell Phone Plans

Take the time to check your monthly cell phone bill – you may be paying more than you need to. If you are using fewer minutes than your monthly plan allows, switch to a lower-rate plan. If you are using more minutes than your monthly allotment, then upgrade to a higher minute plan.

Before making any changes to your plan, sit down with a list of your cell phone company’s offerings and compare and determine which plan provides the most value based on your needs. You should also scan through your cell phone plan for added features like text messaging and mobile internet. If you aren’t really using these features, get rid of them – they’re costing you money each month!

Soft Drinks

This one is a sneaky money waster. Not only does ordering beverages along with a restaurant meal boost your total expenses, but soft drinks also have one of the highest markups of any restaurant item, and thus provide lower value for your money.

Consider a typical family of four that eats out twice a week at fast casual restaurants. Assuming an average price of $1.50 for a fountain soft drink, that totals $12 a week, $48 a month, $624 a year. Just cutting out this one item from your meal could mean significant savings that could go into something much more productive, such as a retirement savings plan. If you invest $624 at a 9% rate of return year every year, you would have almost $32,000 at the end of 20 years. So dine out, but opt for water!

Unnecessary Bank Fees

Many people unknowingly pay a lot to their banks in the form of fees. If you don’t know what fees your accounts are subject to, spend a few minutes finding out. Some banks charge ATM fees for using another bank’s ATM, for example. These can be as high as $3! This amounts to a 15% one-time fee for a $20 withdrawal. The key with this type of fee is simply knowing about it. You would be better off using a credit card to make the purchase.

Go back and examine the rules governing your checking and savings accounts. Also consider consolidating bank accounts, as often one account with a larger minimum can eliminate numerous fees that might otherwise exist.

Magazines

If you’re the type of person who likes to occasionally pick up your favorite magazine from the local grocery store or newsstand, consider getting an annual subscription. Even if you don’t want the magazine every month, a couple of issues at the newsstand are enough to cover the entire annual subscription.

Annual Credit Card Fees

Unless you have a poor credit history, there is no reason to pay annual credit card fees. A host of Visa, MasterCard and Discover cards have no annual fee, yet many people pay $100 or more a year for the privilege of holding a premium credit card. Unless you’re an ultra-wealthy, exclusive holder of an elite-level credit card with exclusive perks, most people should not be paying annual credit card fees.

And speaking of credit cards, make sure you make a payment on time every month, even if it’s the minimum. Many credit cards charge high monthly late fees, charges which accrue interest along with your existing balance.

Be Proactive

Spend a couple of hours and go over the above categories along with any other regular habits you may have accumulated over the years. The time will be well spent as it could mean hundreds of dollars of recurring annual savings.

The Bottom Line

Shopping at convenience stores, wasting money on magazines, and high credit card and bank fees are easy ways to waste money. Taking some time to go over your spending habits could be well worth your time.