Over the next several weeks, let’s talk about 6 steps to 6 figures, with 6 advantages

By ROBERT K. CUNNINGHAM, Personal Finance Coach/Consultant

RIGHT OUT OF THE GATE:  This blog/website and all its content is designed and produced for information purposes only.  No representation is made to guarantee the accuracy of any of the content contained on this website, nor should it be interpreted that specific investment recommendations are being made.  The reader assumes any and all risk for strategies which are acted on.

Last week, I introduced to you the revised focus of this website… which consists of a personal financial gameplan centered on Dividend-Paying Whole Life Insurance (DPWLI).

Now it’s time to lay out how I will detail this information, which will be formatted as six posts, explaining in specifics how to go about each of the six steps to achieve six figures of net worth.  I’d love to be able to announce that you can accomplish this six times faster than with traditional strategies, but there are two reasons that would be a false claim.

For one, the notion of six times faster than about 42 years — the timeframe from age 23 to 65 that many adults spend as income-earning professionals — would mean that I can get you to $100,000 in seven years.  Some might achieve that milestone in such short order, of course, but there’s no way I would propose to assist the masses in doing so.  Sorry, but this is about keeping it real.

Secondly, it would imply that “normal” or accepted methods of saving and investing typically buoy people to six figures.  I’m not sure that’s so, thus any claim related to that, including a comparison, would be moot.

Are ya with me so far?

I mentioned six advantages in the headline of this post.  In fact, there are more than six, but in the interest of being consistent the half-dozen are:  safety, liquidity, rate of return, tax-advantaged, living benefits, and a death benefit.

OK, without further adieu (and that’s as French as I get), here are the six steps with a brief explanation of each:

1) Summarize all your income and expenses.  Yeah, I know… this sounds painful, and boring as hell.  But it’s a must if you’re going to do this correctly.  Whether you do it on a computer, or you sit down with a pen and a legal-sized yellow pad, you need to be willing to account for all your net income (take-home pay, income from rent or other sources) and your monthly payments to others.

The idea behind doing this is two-fold:  A) Determining how much income, if any, that you have monthly to dedicate to saving/investing, and B) Form strategies on effectively cutting your current spending in order to increase A.

2) Establish a budget. The dreaded ‘B’ word.  Let me make something clear from the get-go.  There are certain financial authors (should I cite any specific examples, David Bach?), who will claim you can engage in savvy personal finance without a budget.  I’m not entirely sure what is meant by that — and I’ve read The Automatic Millionaire twice (it’s mostly a very good read) — but any strategy that doesn’t decipher income vs. expenses is either ill-advised or is wasteful of available resources, or both.

The need to be overly specific can be debated, but you have to not only know where your money is going and coming from, but also be willing to adjust based on those numbers for your own long-term benefit.

3) Begin ‘Paying Yourself First.’ This simply means that you dedicate x amount of money per month to saving/investing BEFORE you start paying bills and everyday expenses.  It’s the one piece of personal finance advice that, I believe, is universal.

In other words, EVERY so-called guru, expert, author, blogger, and wanna-be seems to agree on this principle. So should you.

4) Eliminate all unsecured debt. You can never truly start the journey toward six figures of net worth until you eradicate your debt.  Home mortgage debt and, in some instances, a car loan and school debt are acceptable, depending on the terms and circumstances.

Credit card debt, however, is only OK if you pay your balances in full each month, and so that is managed under expenses.  If you carry a balance, even just a few hundred dollars, a top priority for you is to pay it off as fast as possible. Because if you don’t, you’re wasting money on the astronomically high interest rates.  And even if you’re taking advantage of a low (0%?) promotional APR, it’s temporary and still interferes with saving and investing. It limits your ability to EARN interest rather than pay it.

5) Open a DPWLI policy.  A plethora of benefits, living as well as the other kind, and advantages over conventional strategies await you.

6) Borrow against your accrued cash value to buy a home.  Personal finance, like a typical college’s curriculum, has several stages… from introductory to intermediate to advanced.  Buying your first home often represents the culmination of a successful completion of fundamental financial principles.

And soon, you might be able to tap your resources for a car purchase… eventually, it will make sense for you to do so as you learn to take full advantage of the features of your DPWLI policy.  But we’ll get into that soon enough.

Meanwhile, in next week’s post we will break down Step 1 — exactly how to go about determining your income and expenses, and begin the process for using that information.

Until then, as always, thank you for reading.

For more specific information on DPWLI and related strategies, please go to www.spwealthadvisors.com, and let them know by any communication you choose to commence that you were referred to that site via www.buildwealthearly.com. 

DISCLOSURE:  If you decide to purchase a product(s) from spwealthadvisors.com, I will qualify for an affiliate commission.

Welcome to the newly-focused BuildWealthEarly.com

By ROBERT K. CUNNINGHAM, Personal Finance Coach/Consultant

RIGHT OUT OF THE GATE:  This blog/website and all its content is designed and produced for information purposes only.  No representation is made to guarantee the accuracy of any of the content contained on this website, nor should it be interpreted that specific investment recommendations are being made.  The reader assumes any and all risk for strategies which are acted on.

Alas, it’s the year 2018.  And with a new year comes several appropriate alterations… at least, where this financial blog is concerned.

Up until now, and beginning when this site was first established early last year, I had intended this to be a place where readers could reap the rewards of learning from my mistakes, soaking in various personal finance principles that can be counted on to assist you in building wealth over time.

Some of those principles are already fairly well known, and mostly accepted as fundamental in the industry.  But many of the strategies and recommendations made on this site would be considered by some as unconventional… going against the grain of what has been preached by numerous financial “gurus” for about as long as I can remember.

For example, most “experts” recommend that you invest as much as you can into your employer’s 401K Plan, citing that you can do so with pre-tax dollars (tax-deferred), and that the stock market always increases in value over the long term.

But what these folks fail to explain is that any program relying on investments into the market contains significant risk, and any specific block of time can result in losses that can set back personal funding and/or retirement plans exponentially.  And 401K Plans (as well as Individual Retirement Accounts and the like) are government-controlled setups with a host of inconvenient rules, such as not being able to access your own money before age 59 1/2, or five years after the account was opened (whichever happens second), unless you’re willing to pay a 10% penalty in addition to any income tax due.  Another example is being forced to begin withdrawals at age 70 1/2 – even if you prefer to leave the money alone – in the form of an annual RMD, the acronym for Required Minimum Distribution.  These are the law because they ensure the government receives its tax revenue in a timely fashion.

To be fair, 401Ks can have a place in our overall strategy – I recommend taking advantage IF the company offers a great incentive, such as a match of funds up to a certain percentage of your income.  The most common terms are a 50% company match on up to 5% of gross income.  If your company offers that, or something similar, go ahead and sign up, and authorize those appropriate with-holdings from your paycheck up to that 5% max.

But as a stand-alone solution to retirement savings, 401Ks are far surpassed by several other strategies, including the primary tool this blog is dedicated to:

Dividend-Paying Whole Life Insurance (DPWLI)

In the coming weeks, this blog will break down the process of implementing this strategy.  We will first discuss basic personal finance, and otherwise getting ourselves in the best possible position to fully take advantage of DPWLI’s plethora of benefits.  Then we’ll go into the specifics of how to obtain a policy (or policies), why you should, and how to best utilize it to achieve the four most important aspects of savvy money management:  Safety of principal holdings; liquidity of those holdings; earning a steady rate of return that can be counted on and planned for; and legally minimizing the required amount paid toward income taxes.

I sincerely hope your time spent on this site is educational, enlightening, and ultimately beneficial.  I don’t make any specific promises, but I can guarantee you that the strategies discussed on BuildWealthEarly.com are proven, and can help you actually build wealth more substantially and by an earlier juncture of your life than by attempting to do so via the more commonly promoted traditional avenues.

I will keep these Wednesday posts fairly short, and yet I will attempt to pack into each as much valuable information as I can cram into a maximum of 1,000 words.  In  the meantime, the Archives for all of the material published in 2017 is still available.  There’s a lot of good stuff there.  Please peruse the titles and find info that best pertains to your particular circumstances, although much of what I’ve covered in the last year will be reiterated in one form or another in the coming months.

For now, that’s a wrap.  Until next week, may the Forbes be with you (my apologies, I was desperate to get a Star Wars reference in before it was no longer timely…  What, it’s already too late?  Crap.)

Seriously, thank you for reading.

For more specific information on DPWLI and related strategies, please go to www.spwealthadvisors.com, and let them know through any communication you choose to commence that you were referred to that site via www.buildwealthearly.com. 

DISCLOSURE:  If you decide to purchase a product(s) from spwealthadvisors.com, I will qualify for an affiliate commission.

 

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We’re changing our focus in 2018

By BOB CUNNINGHAM

Since beginning this blog in March of this year, I’ve had a blast bringing to whatever audience I can attract, sound yet not always orthodox personal finance principles.  For every tried-and-true method for accumulating and saving money – “pay yourself first,” for example – there are perhaps twice as many myths that are promoted as the gospel.

I truly believe unearthing these things for you, and demonstrating why what I’m relaying to you makes more sense than commonly accepted strategies, are the most rewarding endeavors I have ever undertaken.

But it’s time for a switch in approach, a changing of what we emphasize on BuildWealthEarly.com.  This site will no longer be focusing on financial fundamentals, although we will certainly be confirming them along the way.  And I won’t be writing about unconventional strategies, except as they pertain to one specific approach to money.

Beginning with the January 10, 2018 post – I will be taking a brief hiatus until then – this blog’s primary purpose will be to illustrate how utilizing life insurance as your primary center of all things money is absolutely in your best interest.  The type of insurance in question, dividend-paying whole life, can literally guarantee you a prosperous future of saving for retirement, college education, expenses, big-ticket purchases, and more.

Up until now, the focus has been general with plenty of mentions of DPWL but not a great deal of detail. Beginning next month, that changes.  When you have this information available to you, and I’ve properly demonstrated the numerous advantages of this strategy, you will be asking why you ever allowed yourself to be duped into believing that the federal government actually had your best interests at heart.

Oh, don’t get the wrong idea. I love America.  Our government of democracy is the greatest in the world, without question.  But collecting taxes is a big part of how the USA does the things that it does outside of the normal scope of government.  Acting as if it is seeing to your prosperity has a lot less to do with promoting your well-being, and a lot more about helping the government appear as if it is doing so.

Thank you for your willingness to hang with this website.  I hope you have benefited from the variety of material I’ve provided.  If you have, fantastic.  It’s going to get even better and certainly more specific.

And if for some reason you haven’t gotten as much from this space as you would have liked, but you’re still reading, thanks for your patience.  I’m confident you will like the weeks and months to come.  Either way, be sure you’re commenting regularly – be genuine enough to tell me what I’m doing right as well as wrong.  That said, if you believe I deserve criticism or if you take exception with something I’ve written, let me know about it.

Until 2018 then, Merry Christmas and Happy New Year.  And thanks once again for reading.

***

DISCLAIMER:  This post represents the author’s opinions only.  In no way should any part of the content of this post be interpreted as official financial advice, nor does it represent an intention to solicit readers into a specific company or investment.  Results are never guaranteed.  Utilize the information as you see fit, make all money decisions at your own risk.

The most difficult financial challenge for young adults: Buying their first home

By BOB CUNNINGHAM

We can save and invest, eliminate all our debt – especially those nasty and unproductive credit card payments – and engage in activities to increase our income.

But when and how do we go about buying a house?

That’s pretty much what many young adults and families are asking these days. As personal finance education continues to be more and more commonplace, the one major component that is often missing is information about how – and when – to secure that elusive first abode.

Signing a rental agreement is easy.  Loan and escrow documents? Not so much.

I’d love to be able to write in this space that the process for buying a home doesn’t have to be challenging or complicated.  But in fact, it usually is because there are so many variables, from qualifying for a mortgage to saving for a down payment, to covering closing costs, and more.

It can be intimidating.

Still, millions buy their first homes every year, so it is certainly doable.  Here, then, is a summary of steps that can allow you to get from your apartment or parents’ basement to a residence you can legitimately call your own:

1) Commit to the process. You can’t buy a home “half-way,” or realistically just give it a try.  You have to want it, and even more importantly, understand what has to be done and sacrificed to get it.

While there are numerous first-time buyer programs that really do open barriers which otherwise might be nearly impossible to overcome (try being in your 20’s and having to save up 10% or even 20% for a down payment on a $150,000 home), it’s never going to be free to get into a home purchase.  The most common avenue, via the Federal Housing Administration (FHA) first-time buyer program, generally requires a 3% down payment and escrow closing costs.  On the aforementioned $150K house, you’re still looking at about $8,000 out of pocket before you pack a single box.

Hey, Mom and Dad… got a question for ya.  Oh, and have I said ‘I love you’ yet today?  I sure do!

Realistically, even if your parents are willing to help, you’re going to have come up with some scratch.  Let’s say you need $5K on your own.  At $300-400 a month saved, a lot for most people in this category, it will be well more than a year from when you first decide to go for it that you will be able to come up with enough.  Are you TRULY willing to be disciplined and save on that level in order to make this happen?  If not, keep on writin’ those rent checks.

2) Learn and understand what’s involved in owning versus renting, benefits and pitfalls. Sure, when you own you’re buying something that is yours, that typically appreciates in value, and that you can eventually sell.  You can also write off the mortgage interest on your income taxes (unless proposed tax code changes eliminate that – a step that is unlikely except perhaps for the largest jumbo mortgages). Rent money is, by most accounts, squandered money.

On the other hand… and there’s always an other hand… renting doesn’t require you to buy homeowners insurance or pay property taxes, the two of which often cost an additional 15-20% on top of the principal and interest on your mortgage.  And while it’s true that you can do almost anything to a home you’re buying in terms of improvements, if something breaks it’s up to you pay for the repairs.  When you rent, you can generally just call the landlord and the problem will (should) get resolved without any cost to you.

3) Avoid setting your sights too high on your first home.  Oh, but how it would be cool to have an extra bedroom for my man-cave, a pool and hot tub in back, and wrought iron fencing all around with gated entry.  Our palace!

Truth is, you’re probably looking initially at a cookie-cutter, tract 3-bedroom with few luxuries.  You have to crawl before you walk, and walk before you run, etc. I’m fascinated by the advice I read in nationally-recognized publications and websites that suggests finding a suitable home first, then locating the financing to make it happen.  That’s exactly backwards.

As a first-time buyer, you need to determine the maximum monthly payment that you can afford on your current budget, including principal and interest, taxes and insurance (PITI in real estate lingo), AND THEN SUBTRACT AT LEAST 10% FROM THAT FIGURE.  Give yourself some wiggle room.  If you feel like your budget allows for a $1,600 payment (on a traditional 30-year mortgage), limit yourself to a max of $1,440.  There are numerous unforeseen issues that can quickly drain your housing budget.

And make sure you’re realistic as you establish that initial budget.  If your current rent is $1,000 a month, for instance, and you’re unable to save more than $100 or so monthly, where the heck are you going to get that extra $340 every month when you buy?

(By the way, be sure you don’t attempt to qualify for a 15-year mortgage on this first home purchase, even if you can afford the big payment.  Yes, the interest rate for such a loan would be slightly lower, but you’d be backing yourself into the corner of a much larger minimum payment.  Get the 30-year loan, and if you wish and can swing it, pad your payments (check with the lender for the proper way to assure your extra money goes toward the principal balance and that there no pre-payment penalties) or make a half-payment every other week as a strategy to accelerate payoff.  This latter method results in the equivalent of 13 monthly payments in a year, not 12, and cut a 30-year term to less than 23 years.)

After… and only AFTER you determine what you can truly afford to pay monthly, do you set out to find a home.  Determine with your real estate agent (always use one to help you buy – the seller generally will cover his or her commission at the close of the sale) how much you can finance to wind up at the payment you seek.  Work backwards, remembering to factor in your initial up-front costs.  Ultimately, if done correctly, you’ll conclude that the most you can offer is, for example, $165,000.  STICK TO THIS MAX. DO NOT EXCEED.

4) Interview real estate agents and select one to represent you. Don’t just go with the first person you talk to.  Some buying agents really hustle and seek out the best home for your particular situation, while others will focus only on their own listings or those from another agent in the same office, trying to maximize their commission.

In fact, instruct your agent that you do not want to consider any homes which are listings from that agent or that office. If they agree without hesitation, you may very well have a keeper.  Otherwise, move on.  You can always relax that requirement a week or two later if you’re convinced the agent is truly working to represent your best interests.

If you can, try to avoid a buyer representatative agreement.  If you sign one, the agent will be eligible to receive a full share of the commission even if you end up finding the desired home on your own.  Understand, though, that if you find the home but utilize the agent to help you navigate the buying process, have the agent put in your offer, etc., that the agent is entitled to be paid if you, indeed, buy the home and close escrow.

When working with the agent, be specific (and realistic) about what you’re looking for, and stick to your guns.  Be open-minded, but direct.  If you inform your agent that the home must have three bedrooms, and he or she tries to steer you to a 2-bedroom because “it’s a steal,” inform the agent that you have set your parameters and you expect them to be met.

5) If you feel confident about the situation, go for it.  Otherwise, don’t.  Buying a home is, obviously, a major commitment.  If you have reservations about the home you’ve picked, or your agent, or any other variable in the process, take a step back and re-evaluate.  There’s no pressure here.  You’re in charge.

Once you’ve satisfied every facet, and you find yourself excited about the prospect of buying and moving into the home you’ve chosen, have your agent make the offer – ideally, 5-10% below the asking price or your pre-determined maximum price, whichever is lower – and, to repeat, stick to your game-plan.  NEVER let emotions affect your strategy, or be visible to sellers.

Follow these fundamental steps, and the result will be a truly satisfying process.  And if you have to soak in a blow-up kiddie pool in your new backyard until you can reasonably afford to move up in house enough to have a legit party pad with spa tub, accept that… and set your new goals for the upgraded digs, when the timing makes sense.

Once again, I thank you for reading.

***

DISCLAIMER:  This post represents the author’s opinions only.  In no way should any part of the content of this post be interpreted as official financial advice, nor does it represent an intention to solicit readers into a specific company or investment.  Results are never guaranteed.  Utilize the information as you see fit, make all money decisions at your own risk.

In money management, there’s a difference between automation and auto-pilot

By BOB CUNNINGHAM

My son is the worst about it of anyone I know.  You’d think that, being his old man writes about smart money management on a regular basis, he would be averse to such bad habits.  Nope.  Instead, he swipes or inserts his debit card to pay for things… and whatever balance his bank shows in his account at any given time – if and when he bothers to check – must be correct.

This folks, is referred to as money management on auto-pilot.  It’s not recommended.

In a neo-technical society, automation can be a great thing.  Banking apps are all the rage – just snap a photo of the check you want to deposit, complete a couple of clicks, and just like that you have made a deposit.  No need to venture out and walk up to an ATM, deal with a drive-thru, or (perish the very thought of it!) stand in line inside a branch.

But often, people confuse utilizing modern-day tools to assist noble efforts with a hands-off approach that, quite honestly, is just begging for problems.

You need to be on top of your money, gang.

So here is a quick breakdown of how you can utilize automation to your benefit, and what you should be willing to take the extra time required to do just to make sure you really are engaging in intelligent money management.

Use on-line banking…

Why wouldn’t you?  Like the trash-talking big guy proclaimed in the film, White Men Can’t Jump, to explain his sudden departure from the basketball court in the middle of a 2-on-2 tournament game he and his partner were dominating, “This is too easy!”

On-line banking allows you to quickly check your balance, see transactions, and the Bill-Paying feature lets you set up recurring payments on bills which are the same amount every month, such as your mortgage and car payments. You can also sign up directly with the vendor to get regular alerts for how much your bill is and when it’s due (ideal for utilities, for instance), go to your bill-pay page, and authorize payment in less than 30 seconds.

… But monitor it regularly

I go to my bank’s on-line site at least 3-4 times per week.  No, it isn’t because I’m obsessed with seeing a large balance.  Trust me, that isn’t applicable… not because my wife and I are poor – we’re doing fine – but because my regular bank account is used for paying bills and everyday expenses.  The bulk of our assets are located elsewhere, where they can earn a respectable rate of return.

I go there because I want to safeguard against two things – errors and oversights.  Errors are when someone charges you erroneously, or there is an error on the bank’s end (very rare, I have found).  Oversights are when it’s my fault – a charge I didn’t remember to account for, or perhaps a subscription auto-renew that I forgot about or didn’t want.

Simply put, I want to make sure the amount of money shown in our account is what should be shown.  Typically, the quicker mistakes are discovered, the easier they are to remedy.

Have your paychecks direct-deposited…

Many banks offer small incentives for agreeing to have your paychecks directly deposited regularly.  The perks can be fee-free basic accounts, discounts on loan rates, small cash-back considerations, even tangible gifts.  Nothing cozier than watching TV draped in a blanket with “Bank of Cucamonga” emblazoned.

Yeah, I’m kidding about the blanket.  Still, it is more convenient not to have to worry about physically possessing your check, getting to the bank to deposit it or cash it, etc.

…But know what’s being withheld from your net pay and why.

Don’t trust your employer with getting it right.  Be sure you concur with what is being withheld, how many hours you were credited with working, even the pay rate itself.  My other son recently took a new job, only to find out that he was being paid 75 cents an hour less than he thought he was promised.  And of course, he didn’t notice this until about a month in, making a correction (and retroactive reimbursement) more difficult to request and obtain.

Pay Yourself First:  Have money from your check sent directly to an investment account…

One of the oldest adages in personal finance, discussed numerous times on this site. “Pay yourself first” means that you set aside funds for savings before you pay any bills or cover any other expenses.  It assures you save, regardless of circumstances, which is especially critical when you are first starting out and have the maximum time to take advantage of the amazing principle of compound interest.

…And monitor your  balance to assure full credit and growth

Again, don’t trust that the powers that be will get everything right.  I once had a life insurance policy, for which I sent in a contribution toward what is referred to as a “payed-up additions rider,” which allows for growing your cash value more quickly provided you stay within certain parameters.  The insurance company mistakenly credited the payment toward a small policy loan balance I had, that I had just taken and wasn’t yet willing to pay on.

The error wasn’t a big deal, and was easily corrected by the company, but had I not caught it, it would have ultimately cost me money in the form of lost compounding on the funds which never would have reached my desired destination.

By all means, utilize the great modern technology available to us whenever you can, and it makes sense to you.  But whether you go old-school or new-tool, be “accountable” every step of the way.  Pun intended.

Thanks, as always, for reading.

***

DISCLAIMER:  This post represents the author’s opinions only.  In no way should any part of the content of this post be interpreted as official financial advice, nor does it represent an intention to solicit readers into a specific company or investment.  Results are never guaranteed.  Utilize the information as you see fit, make all money decisions at your own risk.

Ultimately, it’s all about retirement

By BOB CUNNINGHAM

On this website, and hundreds of others like it that I read and monitor, we talk about practically anything that has to do with money/personal finance.  And we should… there’s a helluva lot to cover about the subject.

But what it all boils down to, whether you’re in your 50s or half of that, is preparing for the “Big R.”  What proactive steps are you taking, now and in the near future, to properly prepare for retirement?

So let me ask you, is that what we should really focus on ad nauseum?

While planning for the long-term future is certainly important, I contend that excelling in the short-term, including the ‘now,’ is at least equally vital.  In fact, one often facilitates the other.

Maximizing your efficiency in saving and investing now, logically, will result in you having more money to work with later.

Let’s take a quick look at why planning for retirement has become such big business, cliff notes version.  You ready?  It’s because virtually all private companies have deserted the traditional pension system in favor of a 401K/IRA-led way of saving for one’s own career conclusion.  And, many public and government agencies appear headed in the same direction.

Sure… just save some money with your company in its 401K, or do it on your own with an Individual Retirement Account, combine those with the scraps that are our social security payouts – assuming those rates stay where they are now – and you’ll be set.  Who needs a big, fat monthly pension check when the S&P 500 historically averages a 10% annual return?

I’m tellin’ ya, it’s bananas.  And yet our society has fully accepted this monumental shift in monetary focus.  But what people fail to properly gauge is that, while $500,000 in a retirement account may sound like a butt-load of money, it is in fact barely enough to keep a retired couple above the poverty line.

Undoubtedly, you’ve heard that experts traditionally recommend drawing down your nest-egg at about 4% per year, so that you can live while retaining the full balance of your primary account.  In other words, if you start with $500,000, and want to leave a legacy, you should take annual withdrawals from that account of no more than 4%.

Really?  Hmmm… let’s see how that might play out.

Let’s say you’re an average wage-earner in the U.S., about to retire.  Your household income, says Betterment.com, is about $68,000 a year gross.  That’s roughly $50,000 net spendable money after taxes.

If you expect to maintain the same standard of living you’ve become accustomed to, you would have to have about $1.25 million saved.  And that’s not even considering the erosion caused by inflation.  At a 3 percent inflation rate, $50,000 of net spending power becomes just $25,000 in about 24 years, which is roughly the average length of retirement nowadays.

Of course, you can always sacrifice your kids’ inheritance and spend down your money – in fact, I think you should because it’s your money.  But try making $500,000 last 24 years when you’re taking $68,000 withdrawals on a taxable account.  According to calculators on the BankRate.com website, do that and you will be out of money in less than 15 years.

Your retirement account is a Roth IRA?  Cool.  No taxation on the withdrawals.  But with $50,000 annual withdrawals and inflation, your investments had better return more than 14% each and every year if you expect to continue paying the bills 24 years later.

Also, we didn’t enter increased medical expenses or anything else into the equation.  Scared yet?  Ya should be at least nervous.

So what do we do?  If we’re smart, we utilize specific strategies that take the guesswork out of money, and we start doing them now… to benefit us now, a little later, AND into retirement.  We do things that allow us to live a better, smarter life RIGHT NOW and over the ensuing years, and not just obsess about what we’re going to do when we actually get old.

And I have a strategy that makes all of this relatively simple and definitively painless.  Beginning in 2018, this website will be dedicated to detailing this approach and its various advantages on a regular basis.  Yep… I’m going to make you wait for it.

But, if you’ve been reading this blog for any length of time, you already know what I’m talking about.  DPWLI… to know what this acronym stands for, refer to earlier posts, and let me know your reaction to the suspense.

Yes, admittedly, I’m messing with my audience a little here.  But teasers are good, and it won’t be long now before the info will be at your fingertips.

In the meantime…  thanks, as always, for reading.

***

DISCLAIMER:  This post represents the author’s opinions only.  In no way should any part of the content of this post be interpreted as official financial advice, nor does it represent an intention to solicit readers into a specific company or investment.  Results are never guaranteed.  Utilize the information as you see fit, make all money decisions at your own risk.

Some clarification is warranted on the importance of giving, and how to give

By BOB CUNNINGHAM

Wishing you a wondrous and fruitful Thanksgiving holiday from surprisingly scenic Palm Springs, Calif.  My wife and I are here on a brief get-away, and please accept my apologies for being tardy with this post.

As we enter the holidays, I thought it would be prudent to briefly discuss the ‘giving thanks’ aspect of the season.  I believe it’s an important subject to touch on, because many so-called personal finance ‘gurus’ talk about the importance of charitable giving as part of a savvy overall money management strategy.

I support the notion of giving to those in need 100 percent, but I am skeptical of the implications by some that you can tangibly benefit from donating to causes, worthy and otherwise.

The great thing about giving is the intangible positives you derive not only from doing so, but from being in a position when doing so generously makes sense.

Here’s the deal from my standpoint:  You should always give if you want to give.  You should give to whomever you wish, for whatever cause you deem just and appropriate.  But it’s naive to believe that all giving is the same, and for me, getting the most out of each donation – and having the right people benefit from it – is the name of the game.

I know a great many well-meaning folks who give something to everyone, just for the asking.  And I mean everybody.   From the charitable trust that saves two turkeys from slaughter each Thanksgiving, instead of one, to handing a buck or two to that guy named Chuck who frequents the corner gas station in his dented-up ’93 Honda Accord, always in need of “enough gas to get home” without having even once bought so much as a dram of unleaded with what he’s given.

These people who give are generous souls, and of course it is absolutely their right to give any time they damn well please.  But is it the best use of their charitable dollars and cents?  Not really.

I’m not saying some charities are more worthwhile than others… well, OK, I confess I am sort of implying exactly that.  You may very well disagree, and I respect that.  My point is that $10 or $20 sent to, say, St. Jude Children’s Hospital (my favorite charity) or the Wounded Warrior Project (second favorite) is likely to benefit more genuinely deserving people than giving a dollar each to ten folks who are “down on their luck” and working freeway off-ramps.

For one thing, the donations to official charities are much more likely to be used toward the cause they represent.  Secondly, those donations are tax deductible if you make enough of them.  Helping Willie get a burger… and a beer or, worse, a fix in many cases unfortunately… simply isn’t as wise a choice.

Now, obviously, there are exceptions.  There’s a gentleman not far from where I live who is a double-amputee.  I see him a lot at the same intersection, and if the light is red when I arrive there, I often give him something.  Yes, this contradicts what I just wrote in the preceding paragraph, but the guy has no legs from just above the knees.  I figure he needs a break, and the government assistance he is getting is probably far shy of what he realistically needs to live a basic quality of life.

And, truth be told, I made sure his wheelchair doesn’t have curtains to hide underneath the seat.  There are con-artists in all forms out there.

Generally, it is savvier and more helpful overall to focus on legitimate organizations.  In addition to the two I named above, I like the American Red Cross, American Cancer Society, and the Salvation Army, as well as numerous others.

Before I wrap this up, I have one more point to make:  If you’re young and just getting a foothold financially… the type of reader this website is geared towards… I would like to offer the following suggestion:

Don’t give to any charities – not yet, anyway.

Huh?

What I mean is, in the long run you will be able to do a lot more good and assist a great many more worthy causes if you first take care of your own situation the best you can.  It’s like the oxygen mask that falls from overhead during emergencies on commercial flights.  Regardless of the airline or the type of plane, the instructions for its use are always the same for folks who have children with them:

Please secure your own mask first, then assist your child with theirs.

Why?  Because the effort to help the child first could result in suffocation for both, if the adult passes out and the child panics.

With charitable giving, put on your own financial mask first.  Make sure it is snug and secure… that way, you might be in the position to not only help the child (or other worthy benefactor) in the seat next to you, but any needy individuals on the entire airplane…

… So to speak, of course.  Thank you for reading.

***

DISCLAIMER:  This post represents the author’s opinions only.  In no way should any part of the content of this post be interpreted as official financial advice, nor does it represent an intention to solicit readers into a specific company or investment.  Results are never guaranteed.  Utilize the information as you see fit, make all money decisions at your own risk.

Do you have to take risks to make a return on your money? Emphatically… No!

By BOB CUNNINGHAM

Greetings, all.  I’m tapping out this post from the Rio Hotel & Suites in Las Vegas.  I’m here to attend a convention – so it seems appropriate to discuss what some call the “Wall Street Casino.”

Essentially, what we’re talking about is the subject of risk.  More specifically, we want to ascertain why it has become common “knowledge,” that in order to get good returns, you have to be willing to take some risk.

There is some truth to that notion when you look at it from the risk perspective.  There are investments out there that are highly speculative. No one knows what’s going to happen, and folks don’t even have a decent idea of what’s going to happen even if they pretend they do.

And I’m not talking about investments that have a reputation as being risky, such as options trading, day trading, commodities, or even collectibles.  No, sir, I’m referring to that mainstream investment called the S&P 500 Index.

You may have heard of it.

Obnoxiousness aside, financial experts of all kinds will have you believe that investing in the stock market is the only legitimate way to earn good returns, and that if you do it right by conducting proper due diligence, diversify your portfolio, consult a professional, etc., you will most certainly be fine in the long run.

These know-it-alls love to cite that the S&P, which stands for Standard & Poor, has returned an average of about 10% annually since The Great Depression.  I’ve read multiple articles on-line and in print magazines, of late, suggesting you shouldn’t be wary of the potential for a sharp decline in the market such as what we experienced in 2008 and 2009 – even though we’re nearing a record-duration bull market as I write this – because even if it does drop sharply at some point, the market inevitably comes back and then some…

Pish posh.

Folks who saw their investment account balances drop 40% or more nearly a decade ago are just now catching up.  A few are showing a slight gain from pre-2008 levels, but projected as an annual return most would have been better off keeping their money under their Serta Perfect Sleeper.

And with retired people who are counting on taking an income from their investment assets, a volatile market can literally make them queasy because they’re not sure if they’re going to have enough money to do the things they want to do in their golden years.

By the way, that aforementioned 10 percent annual S&P growth is before taxes and fees, and your actual return isn’t 10% because you can only earn that if the market were to return exactly that percentage every year.  We’ve demonstrated multiple times on this site how average returns are a far cry from actual returns.  Here’s another quick example:

(Start with $1,000 account balance.  Earn 60% the first year, lose 50% the second. Your average annual return would be 5% (60 – 50 = 10, divided by 2 years), but your actual return is a 10% annual LOSS ($600 gain first year = $1,600 in account, 50% loss the second year = $800 loss – net result is $1,000 + $600 – $800 = $800 balance in account after the second year.  $1,000 – $800 = $200 loss is 20%, divided by 2 years = 10% loss per year).

Wouldn’t it be nice if there was a financial instrument in which you could store money safely, and still earn a respectable annual rate of return with virtually zero risk?  How sweet to fund it and forget it, knowing that you have a better chance of being struck by lightning – twice – than of losing with that account!

Dividend-paying whole life insurance.  Yes, we have introduced this product on this site, and I’ve written on it numerous times.  And in the coming weeks and months, this blog will adjust its focus from a general personal finance educational approach to a site dedicated to teach as many folks as will take the time to learn, the numerous benefits of utilizing life insurance “living benefits.”

It has to be the right kind of insurance, set up by properly trained agents representing carriers who have been established for more than a century.  But when you use this tool to hold your nest-egg, you will get the following:  Safety of principal and gains, a guaranteed rate of return that can be even higher depending on annual dividends, a structure that legally allows you to access your funds tax-free whenever you want, and a system available by some companies (but not all) that allows you to borrow funds from your cash value – without qualifying – and yet your full cash value continues to earn returns and grow as if you never took a loan at all.

It’s all about educating people.  Our public school system falls far short of any legitimate teaching about money or investments or retirement savings, so it’s up to citizens like myself who are passionate about people of all ages succeeding financially, for the short- and long-term.

Keep reading this space every week, friends.  We will continue to shed light on what is not only a desirable alternative to the gambling that investing in Wall Street and the money markets is, but also a critical undertaking we need to be aware of… NOW.

Thanks for reading.

***

DISCLAIMER:  This post represents the author’s opinions only.  In no way should any part of the content of this post be interpreted as official financial advice, nor does it represent an intention to solicit readers into a specific company or investment.  Results are never guaranteed.  Utilize the information as you see fit, make all money decisions at your own risk.

It may seem as if buying with cash is best, but don’t forget about opportunity cost

By BOB CUNNINGHAM

It is a common misconception that you should always pay cash on purchases.  Old-school thought on this is simple and straight-forward:  If you don’t have enough money on hand to pay the price, you can’t afford it and should save until you do.

Well, I’m here to tell ya that cash isn’t always king.  In fact, many times it is detrimental to your personal finances to pay cash for purchases.  And few people are as old-school as I am… or at least, as I like to think I am.

When you pay cash, there is this frequently overlooked factor called “opportunity cost.”  On small purchases, like a combo meal at Wendy’s, the opportunity cost is pretty doggone small.  But there is still an opportunity cost.

How does that work? Well, what if you use a cash-back credit card to buy your burger and fries? If the card pays 1% cash back, doling out a five and two ones instead of using the card just cost you about seven cents.

That’s $.07.  Not much, of course.  But if you buy lunch using the cash-back card five days a week, in a month you would have earned yourself $1.40, assuming you pay the credit card balance in full before the grace period of roughly three weeks expires.  That adds up over a year to nearly $17 – enough for two free lunches, super-sized.

It should be obvious by now that I’m not calling your attention to this for such small fried potatoes.  Instead, I’d like you to consider your next car purchase.  Let’s say the ride you want costs $25,000.  And for the sake of this discussion, let’s suppose you happen to have $25,000 saved and available.  It’s invested in a stock market index fund inside at an online brokerage account and has earned about 7% since you’ve had it.

Very smart of you to put that money to work, by the way.

Meanwhile, the car dealership is offering 2.9% financing on that sweet-looking sedan.  You have enough money to just pay cash for the car.   Your parents have always told you to pay cash.

Listen to your folks?  Or go into debt?

In my opinion, it’s a no-brainer… with all due respect to Mom and Dad.

If you opt to pay cash, you will have no car payments.  And that is, of course, a good thing.  It merits consideration, to be sure.  But that $25,000 is now tied up, and thus can’t be used for anything else unless you immediately turn around and sell the car (which if you did, you’d be lucky to get $20,000 because new cars depreciate as much as 30% the minute you drive them off the lot according to KBB.com).  So you’ve not only tied up the cash, but done so in a depreciating asset.

On the other hand, if you qualify for and accept the financing, and keep the $25K in the investment account, it would earn about $1,750 if it maintains a 7% rare of return (ROR) annually.  The spread of a 7% return over a 2.9% interest debt is a net positive 4.1%.  Mathematically, when the new car is paid off in five years, you will have netted a positive 20.5% (4.1% multiplied by 5 years).

Plus, you will still have the $25,000-plus if you need it for something else. It won’t be tied up in the formerly new wheels.

But hold on, you say.  What if we need to make the $449 per month car payment from that same $25,000 account?  OK… $449 times 12 = $5,388 in payments each year, with $388 of that being interest (we arrive at that by knowing the $25,000 cost of the car divided by five years equals $5,000 to principal per year, with the remainder being interest).  So in the first year, and the subsequent four years, you pay $388 in interest every 12 months.

But how much did the index fund money earn you?  The answer,  considering the dwindling balance as we make those monthly car payments, ends up at about $1,400.  That’s better than $1,000 more (the first year) to keep the cash and use it to make the payments as we go.  We aren’t considering income taxes in our figures, because you’d have to pay taxes on the gains of the $25K at withdrawal, whether all at once or a little at a time.

The major key to the comparison is the 4.1% separation between the interest rate being paid on the car loan and the ROR on the investment account.  Whether it’s the first year or the fifth, or anywhere in between, that spread is going to average out the same.*

*I’m not saying you can count on your cash to make a 7% return precisely, each and every year.  Of course that isn’t the case.  It might lose one year, but it also might make 30 percent gains the next.  Determining which strategy is the best requires us to use constants (averages) where they don’t typically exist.  If the investments in the account lose money in every one of the five years, then paying cash would have been better because we’ve lost that aforementioned spread.  But five straight losing years is extremely unlikely. Historically, four of the five will be gains with two of those being at least 10 percent. (source – Morningstar.com)

Finishing with our example utilizing a 7% annual return on the investment account, in five years using the auto financing to pay off the car in full, we would still have about $1,900 remaining in the account (according to BankRate.com calculators) to go with a paid-off car that is now worth roughly 10-12 grand.  Paying cash, you would still have a $10,000-$12,000 car… but the investment account would be fully depleted – immediately.

Look, nineteen hundred bucks versus zilch is a huge difference.   So remember – opportunity cost is a big factor to look at when considering whether or not to pay cash for a purchase.  For fast-food lunches, go ahead and use cash or your debit card.  But on the larger purchases, be sure to take advantage of credit IF the rate of return on your saved money exceeds what the creditor charges to loan you the funds.

As always, thanks for reading.

***

DISCLAIMER:  This post represents the author’s opinions only.  In no way should any part of the content of this post be interpreted as official financial advice, nor does it represent an intention to solicit readers into a specific company or investment.  Results are never guaranteed.  Utilize the information as you see fit, make all money decisions at your own risk.

Small savings here and there can add up to surprisingly significant amounts

By BOB CUNNINGHAM

My family and friends often give me a hard time about being frugal.  When I first revealed to them that I had a personal finance blog, they asked if I had written a post yet on cheap eats or the wonderful world of coupon clipping.

It’s not that I don’t enjoy spending money, or that I’m not willing to splurge on occasion.  I am, and my wife and I do.  What I don’t like is feeling as if I have wasted money.  Spending $500 or more on the latest cellphone, for instance, just seems like a bad investment when I can go out and obtain a perfectly functional phone – for talking, texting, and taking basic photos – for less than $100.

My adult kids, ages 27 and 24, want the fancy phones.  Like the old fart in those Consumer Cellular ads, I’m happy with my basic phone.

Either way, there are numerous ways to save small amounts of money on a consistent basis… and when you do these consistently, I believe you will be genuinely surprised by how the little discounts, rebates, and cash back add up.

I do clip coupons, but I’m not obsessed.  Mainly, I look for discounts on grocery brands I buy, and restaurants we frequent.  I also constantly am asking for discounts.  When I recently had the oil changed in my car, I requested “the best deal you can give me. Been a customer here a long time,” and got a discount for a coupon I didn’t have and was afforded an additional  10% senior discount despite being ‘only’ age 53.  If I hadn’t asked, I’d have never received either courtesy,

Also, I’m a big believer in taking advantage of cash-back credit cards.  The process is really quite simple – apply for and (hopefully) get approved for a credit card that offers either a flat cash-back rate for all purchases, or quarterly “specials” with as high as 5% back on certain categories, or both.  The categories, usually featured for three months at a time, include restaurants, grocery stores, gas stations, or department stores among others.

The idea is to use the card each and every time you shop – for virtually all of your weekly purchases.  Concentrate solely on what you would spend anyway.  Don’t spend more just to utilize the card.  Defeats the purpose.

Then at the end of the month, you use your checking account funds to pay off the card.  You never want to carry a balance on the credit card, because you will then be wickedly guilty of stepping over dollars for dimes.  After all, how much sense does it make to get 5% back on groceries, but pay 20% or more interest monthly to carry a balance for those very same trips to the store.

None, of course.

Do this right, by using credit cards as the point-of-sale tool and your bank account to pay the credit card balance in full each and every month, and those 5% purchases here, and 1.5% there (and elsewhere) start to add up nicely.

Although it certainly isn’t recommended for younger adults who are trying to establish themselves as financially healthy long-term, my wife and I like to eat out.  We rarely do fancy dining, but we like Applebee’s, El Torito, Panera Bread, and the like several times a month.  Currently, our Chase credit card pays 3% cash back on all our restaurant purchases (including fast food, although we don’t do much of that).  Generally, in two months we have accrued enough cash that we get a dinner on Chase courtesy of a gift card to most any chain eatery we choose.

Over time, you can acquire a few cards, each of which might be dedicated to a different part of your overall budget – one for dining, one for groceries, one for gas, and one for miscellaneous.  The common denominator among all of them remains paying the balances in full each month, thereby NEVER paying interest on these purchases.

It’s like earning a rate of return on your expenditures, rather than just your investments.  Best of both worlds.

Thanks for reading.

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DISCLAIMER:  This post represents the author’s opinions only.  In no way should any part of the content of this post be interpreted as official financial advice, nor does it represent an intention to solicit readers into a specific company or investment.  Results are never guaranteed.  Utilize the information as you see fit, make all money decisions at your own risk.