Savings

Staying Out of Debt Once You Get Out of Debt

As you reduce your liabilities, embrace the behaviors that may improve your balance sheet

Paying off a major debt produces a sense of relief. You can celebrate a financial milestone;

you can “pay yourself first” to greater degree and direct more money toward your dreams and

your financial future rather than your creditors.

Once you get out of excessive consumer debt, the last thing you want to do is fall right back

in. What steps can you take to reduce that possibility, and what missteps should you avoid

making?

Step one: save money. So often, an unexpected event can put you in debt: an auto

breakdown, a job loss, a trip to the emergency room or a hospital stay. If you earmark $50 or

$100 a month (or even $20 a month) for an emergency fund, you can create a pool of money

that may help you deal with the financial impact of such crises. Every dollar you save for these

events is a dollar you do not have to borrow through a credit card or a personal loan at

burdensome interest rates.

Step two: budget. Think about a 50/30/20 household budget: you assign half of your income

for essentials like housing payments and food, 30% to discretionary purchases like shopping,

eating out, and entertainment, and 20% to savings and/or paying down whatever minor debts

you must incur from month to month.

Step three: buy things with an eye on value. Do you really need a new car that will require

financing, one that will rapidly depreciate as soon as you drive it off the lot? A late-model used

car might be a much better purchase. Similarly, could you save money by eating in more often

or bringing a lunch to work? You could find some very nice goods at very cheap prices by

shopping at thrift stores or online used marketplaces. These are all smart consumer steps, net

positives for your financial picture.

You should also be aware of some potential missteps that could lead you right back into

significant debt, or negatively impact your credit rating. Some of them may be taken

consciously, others unconsciously.

Misstep one: spending freely once you are free of debt. If you get rid of consumer debt, but

retain the spending mentality that drove you into it, your financial progress may be short-lived.

If the experience of getting into (and getting out of) debt does not change that mindset, then

you risk racking up serious debt again.

Misstep two: living without adequate health, auto, or disability insurance. Sometimes

people are forced to assume large debts as a direct consequence of being uninsured.

Hopefully, you have not been one of them. If you must pay for your own insurance and the

premiums seem high, remember that they will likely be lower than the bills you could be forced

to pay out of pocket without such coverage.

Misstep three: getting rid of the credit cards you used to go into debt. You may think this

is a great way to quickly improve your credit rating. It may not be. Closing out credit cards

reduces the amount of credit you can potentially draw on per month, which hurts your credit

utilization ratio. Having more accounts open (rather than less) improves that ratio.1

The key is how you use the accounts in the future. When you use about 10% of your available

credit each month, that is a positive for your credit score. When you use more than 30%, you

potentially harm your score. For the record, the length of your credit history accounts for

about 15% of your FICO score, so if a card has more good payment history than bad, getting

rid of it could be a slight negative.1

Instead of closing these accounts, keep them open, and use the cards once a month or less.

Should a card charge you an annual fee, see if you can downgrade to a card from the same

issuer that does not.

If you can keep debt reined in, you will have an opportunity to make financial strides. Not

everyone has such a chance due to the weight of their liabilities. Earlier this year, total U.S.

credit card debt alone surpassed $815 billion.2

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This

information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee

of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is

advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and

may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment

or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular

investment.

Citations.

1 - cnbc.com/2018/01/19/why-you-should-keep-old-credit-card-accounts-open.html [1/19/18]

2 - usatoday.com/story/money/personalfinance/2018/08/15/simple-things-anyone-can-do-stay-out-debt/989168002/ [8/15/18]

Getting Your Personal Finances in Shape for 2019

Fall is a good time to assess where you stand and where you could be

You need not wait for 2019 to plan improvements to your finances. You can begin now. The

last few months of 2018 give you a prime time to examine critical areas of your budget, your

credit, and your investments.

You could work on your emergency fund (or your rainy day fund). To clarify, an emergency

fund is the money you store in reserve for unforeseen financial disruptions; a rainy day fund is

money saved for costs you anticipate will occur. A strong emergency fund contains the

equivalent of a few months of salary, maybe even more; a rainy day fund could contain as little

as a few hundred dollars.

Optionally, you could hold this money in a high-yield savings account. A little searching may

lead to a variety of choices; here in September, it is not hard to find accounts offering 1.5% or

more annual interest, as opposed to the common 0.1% or less. Remember that a high-yield

savings account is intended as a place to park money; if you make regular deposits and

withdrawals to and from it and treat it like a checking account, you may incur fees that

diminish the savings progress you make.1

Review your credit score. Federal law entitles you to a free copy of your credit report at each

of the three nationwide credit reporting firms (Equifax, TransUnion, and Experian) every 12

months. Now is as good a time as any to request these reports; visit annualcreditreport.com or

call 1-877-322-8228 to order them. At the very least, you will learn your credit score. You may

also detect errors and mistakes that might be harming your credit rating.2

Think about the way you are saving for major financial goals. Has your financial situation

improved in 2018, to the extent that you could contribute a little more money to an IRA or a

workplace retirement plan now or next year? If you are not contributing enough at work to

receive a matching contribution from your employer, maybe now you can.

Also, consider the way your invested assets are held. What are your current and future

allocations? Some people have heavy concentrations of equities in their workplace retirement

plan, IRA, or brokerage account due to Wall Street’s long bull market. If this is true for you,

there may be some pain when the next bear market begins. Check in on your portfolio while

things are still bullish.

Can you spend less in 2019? That might be a key to saving more and putting more money into

your rainy day or emergency funds. If your pay has increased, your discretionary spending

does not necessarily have to increase with it. See if you can find room in your budget to

possibly cut an expense and redirect the money into savings or investments.

You may also want to set some near-term financial goals for yourself. Whether you want

to accomplish in 2019 what you did not quite do in 2018, or further the positive financial trends

underway in your life, now is the time to look forward and plan.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This

information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee

of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is

advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and

may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment

or insurance product or service, and should not be relied upon as such. All indices are un-managed and are not illustrative of any particular

investment.

«RepresentativeDisclosure»

Citations.

1 - thesimpledollar.com/best-high-interest-savings-accounts/ [8/31/18]

2 - ftc.gov/faq/consumer-protection/get-my-free-credit-report [9/6/18]

Your 2019 Financial To-Do List

Things you can do for your future as the year unfolds.

What financial, business, or life priorities do you need to address for 2019? Now is a good time

to think about the investing, saving, or budgeting methods you could employ toward specific

objectives, from building your retirement fund to lowering your taxes. You have plenty of

options. Here are a few that might prove convenient.

Can you contribute more to your retirement plans this year? In 2019, the yearly

contribution limit for a Roth or traditional IRA rises to $6,000 ($7,000 for those making “catch-

up” contributions). Your modified adjusted gross income (MAGI) may affect how much you can

put into a Roth IRA: singles and heads of household with MAGI above $137,000 and joint filers

with MAGI above $203,000 cannot make 2019 Roth contributions.1

For tax year 2019, you can contribute up to $19,000 to 401(k), 403(b), and most 457 plans,

with a $6,000 catch-up contribution allowed if you are age 50 or older. If you are self-

employed, you may want to look into whether you can establish and fund a solo 401(k) before

the end of 2019; as employer contributions may also be made to solo 401(k)s, you may direct

up to $56,000 into one of those plans.1

Your retirement plan contribution could help your tax picture. If you won’t turn 70½ in 2019

and you participate in a traditional qualified retirement plan or have a traditional IRA, you can

cut your taxable income through a contribution. Should you be in the new 24% federal tax

bracket, you can save $1,440 in taxes as a byproduct of a $6,000 traditional IRA contribution.2

What are the income limits on deducting traditional IRA contributions? If you participate in a

workplace retirement plan, the 2019 MAGI phase-out ranges are $64,000-$74,000 for singles

and heads of households, $103,000-$123,000 for joint filers when the spouse making IRA

contributions is covered by a workplace retirement plan, and $193,000-$203,000 for an IRA

contributor not covered by a workplace retirement plan, but married to someone who is.1

Roth IRAs and Roth 401(k)s, 403(b)s, and 457 plans are funded with after-tax dollars, so you

may not take an immediate federal tax deduction for your contributions to them. The upside is

that if you follow I.R.S. rules, the account assets may eventually be withdrawn tax free.3

Your tax year 2019 contribution to a Roth or traditional IRA may be made as late as the 2020

federal tax deadline – and, for that matter, you can make a 2018 IRA contribution as late as

April 15, 2019, which is the deadline for filing your 2018 federal return. There is no merit in

waiting until April of the successive year, however, since delaying a contribution only delays

tax-advantaged compounding of those dollars.1,3

Should you go Roth in 2019? You might be considering that if you only have a traditional IRA.

This is no snap decision; the Internal Revenue Service no longer gives you a chance to undo it,

and the tax impact of the conversion must be weighed versus the potential future benefits. If

you are a high earner, you should know that income phase-out limits may affect your chance to

make Roth IRA contributions. For 2019, phase-outs kick in at $193,000 for joint filers and

$122,000 for single filers and heads of household. Should your income prevent you from

contributing to a Roth IRA at all, you still have the chance to contribute to a traditional IRA in

2019 and go Roth later.1,4

Incidentally, a footnote: distributions from certain qualified retirement plans, such as 401(k)s,

are not subject to the 3.8% Net Investment Income Tax (NIIT) affecting single/joint filers with

MAGIs over $200,000/$250,000. If your MAGI does surpass these thresholds, then dividends,

royalties, the taxable part of non-qualified annuity income, taxable interest, passive income

(such as partnership and rental income), and net capital gains from the sale of real estate and

investments are subject to that surtax. (Please note that the NIIT threshold is just $125,000

for spouses who choose to file their federal taxes separately.)5

Consult a tax or financial professional before you make any IRA moves to see how those

changes may affect your overall financial picture. If you have a large, traditional IRA, the

projected tax resulting from a Roth conversion may make you think twice.

What else should you consider in 2019? There are other things you may want to do or review.

Make charitable gifts. The individual standard deduction rises to $12,000 in 2019, so there

will be less incentive to itemize deductions for many taxpayers – but charitable donations are

still deductible if they are itemized. If you plan to gift more than $12,000 to qualified charities

and non-profits in 2019, remember that the paper trail is important.6

If you give cash, you need to document it. Even small contributions need to be demonstrated

by a bank record or a written communication from the charity with the date and amount.

Incidentally, the I.R.S. does not equate a pledge with a donation. You must contribute to a

qualified charity to claim a federal charitable tax deduction. Incidentally, the Tax Cuts and Jobs

Act lifted the ceiling on the amount of cash you can give to a charity per year – you can now

gift up to 60% of your adjusted gross income in cash per year, rather than 50%.6,7

What if you gift appreciated securities? If you have owned them for more than a year, you will

be in line to take a deduction for 100% of their fair market value and avoid capital gains tax

that would have resulted from simply selling the investment and donating the proceeds. The

nonprofit organization gets the full amount of the gift, and you can claim a deduction of up to

30% of your adjusted gross income.8

Does the value of your gift exceed $250? It may, and if you gift that amount or larger to a

qualified charitable organization, you should ask that charity or non-profit group for a receipt.

You should always request a receipt for a cash gift, no matter how large or small the amount.8

If you aren’t sure if an organization is eligible to receive charitable gifts, check it out at

IRS.GOV/Charities-&-Non-Profits/Exempt-Organizations-Select-Check.

Open an HSA. If you are enrolled in a high-deductible health plan, you may set up and fund a

Health Savings Account in 2019. You can make fully tax-deductible HSA contributions of up to

$3,500 (singles) or $7,000 (families); catch-up contributions of up to $1,000 are permitted for

those 55 or older. HSA assets grow tax deferred, and withdrawals from these accounts are tax

free if used to pay for qualified health care expenses.9

Practice tax-loss harvesting. By selling depreciated shares in a taxable investment account,

you can offset capital gains or up to $3,000 in regular income ($1,500 is the annual limit for

married couples who file separately). In fact, you may use this tactic to offset all your total

capital gains for a given tax year. Losses that exceed the $3,000 yearly limit may be rolled

over into 2020 (and future tax years) to offset ordinary income or capital gains again.10

Pay attention to asset location. Tax-efficient asset location is an ignored fundamental of

investing. Broadly speaking, your least tax-efficient securities should go in pre-tax accounts,

and your most tax-efficient securities should be held in taxable accounts.

Review your withholding status. You may have updated it last year when the I.R.S. introduced

new withholding tables; you may want to adjust for 2019 due to any of the following factors.

* You tend to pay a great deal of income tax each year.

* You tend to get a big federal tax refund each year.

* You recently married or divorced.

* A family member recently passed away.

* You have a new job, and you are earning much more than you previously did.

* You started a business venture or became self-employed.

Are you marrying in 2019? If so, why not review the beneficiaries of your workplace

retirement plan account, your IRA, and other assets? In light of your marriage, you may want to

make changes to the relevant beneficiary forms. The same goes for your insurance coverage. If

you will have a new last name in 2019, you will need a new Social Security card. Additionally,

the two of you, no doubt, have individual retirement saving and investment strategies. Will

they need to be revised or adjusted once you are married?

Are you coming home from active duty? If so, go ahead and check the status of your credit

and the state of any tax and legal proceedings that might have been preempted by your

orders. Make sure any employee health insurance is still in place. Revoke any power of attorney

you may have granted to another person.

Consider the tax impact of any upcoming transactions. Are you planning to sell (or buy) real

estate next year? How about a business? Do you think you might exercise a stock option in the

coming months? Might any large commissions or bonuses come your way in 2019? Do you

anticipate selling an investment that is held outside of a tax-deferred account? Any of these

actions might significantly impact your 2019 taxes.

If you are retired and older than 70½, remember your year-end RMD. Retirees over age

70½ must begin taking Required Minimum Distributions from traditional IRAs, 401(k)s, SEP IRAs,

and SIMPLE IRAs by December 31 of each year. The I.R.S. penalty for failing to take an RMD

equals 50% of the RMD amount that is not withdrawn.4,11

If you turned 70½ in 2018, you can postpone your initial RMD from an account until April 1,

2019. All subsequent RMDs must be taken by December 31 of the calendar year to which the

RMD applies. The downside of delaying your 2018 RMD into 2019 is that you will have to take

two RMDs in 2019, with both RMDs being taxable events. You will have to make your 2018 tax

year RMD by April 1, 2019, and then take your 2019 tax year RMD by December 31, 2019.11

Plan your RMDs wisely. If you do so, you may end up limiting or avoiding possible taxes on

your Social Security income. Some Social Security recipients don’t know about the “provisional

income” rule – if your adjusted gross income, plus any non-taxable interest income you earn,

plus 50% of your Social Security benefits surpasses a certain level, then some Social Security

benefits become taxable. Social Security benefits start to be taxed at provisional income levels

of $32,000 for joint filers and $25,000 for single filers.11

Lastly, should you make 13 mortgage payments in 2019? There may be some merit to

making a January 2020 mortgage payment in December 2019. If you have a fixed-rate loan, a

lump- sum payment can reduce the principal and the total interest paid on it by that much

more.

Talk with a qualified financial or tax professional today. Vow to focus on being healthy and wealthy in 2019.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This

information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee

of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is

advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and

may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell

any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any

particular investment.

«RepresentativeDisclosure»

Citations.

1 - forbes.com/sites/ashleaebeling/2018/11/01/irs-announces-2019-retirement-plan-contribution-limits-for-401ks-and-more [11/1/18]

2 - irs.com/articles/2018-federal-tax-rates-personal-exemptions-and-standard-deductions [11/2/17]

3 - irs.gov/Retirement-Plans/Traditional-and-Roth-IRAs [7/10/18]

4 - forbes.com/sites/bobcarlson/2018/10/26/7-ira-strategies-for-year-end-2018/ [10/26/18]

5 - irs.gov/newsroom/questions-and-answers-on-the-net-investment-income-tax [6/18/18]

6 - crainsdetroit.com/philanthropy/what-donors-need-know-about-tax-reform [10/21/18]

7 - thebalance.com/tax-deduction-for-charity-donations-3192983 [7/25/18]

8 - schwab.com/resource-center/insights/content/charitable-donations-the-basics-of-giving [7/2/18]

9 - kiplinger.com/article/insurance/T027-C001-S003-health-savings-account-limits-for-2019.html [8/28/18]

10 - schwab.com/resource-center/insights/content/reap-benefits-tax-loss-harvesting-to-lower-your-tax-bill [10/7/18]

11 - fool.com/retirement/2018/01/29/5-things-to-consider-before-tapping-your-retiremen.aspx [1/29/18]

Is Generation X Preparing Adequately for Retirement?

Future financial needs may be underestimated

If you were born during 1965-80, you belong to “Generation X.” Ten or twenty years ago,

you may have thought of retirement as an event in the lives of your parents or grandparents;

within the next 10-15 years, you will probably be thinking about how your own retirement will

unfold.1

According to the most recent annual retirement survey from the Transamerica Center for

Retirement Studies, the average Gen Xer has saved only about $72,000 for retirement.

Hypothetically, how much would that $72,000 grow in a tax-deferred account returning 6%

over 15 years, assuming ongoing monthly contributions of $500? According to the compound

interest calculator at Investor.gov, the answer is $312,208. Across 20 years, the projection is

$451,627.2,3

Should any Gen Xer retire with less than $500,000? Today, people are urged to save $1

million (or more) for retirement; $1 million is being widely promoted as the new benchmark,

especially for those retiring in an area with high costs of living. While a saver aged 38-53 may

or may not be able to reach that goal by age 65, striving for it has definite merit.4

Many Gen Xers are staring at two retirement planning shortfalls. Our hypothetical Gen Xer

directs $500 a month into a retirement account. This might be optimistic: Gen Xers contribute

an average of 8% of their pay to retirement plans. For someone earning $60,000, that means

just $400 a month. A typical Gen X worker would do well to either put 10% or 15% of his or her

salary toward retirement savings or simply contribute the maximum to retirement accounts, if

income or good fortune allows.2

How many Gen Xers have Health Savings Accounts (HSAs)? These accounts set aside a distinct

pool of money for medical needs. Unlike Flexible Spending Accounts (FSAs), HSAs do not have

to be drawn down each year. Assets in an HSA grow with taxes deferred, and if a distribution

from the HSA is used to pay qualified health care expenses, that money comes out of the

account, tax free. HSAs go hand-in-hand with high-deductible health plans (HDHPs), which

have lower premiums than typical health plans. A taxpayer with a family can contribute up to

$7,000 to an HSA in 2019. (The limit is $8,000 if that taxpayer will be 55 or older at any time

next year.) HSA contributions also reduce taxable income.2,5

Fidelity Investments projects that the average couple will pay $280,000 in health care

expenses after age 65. A particular retiree household may pay more or less, but no one can

deny that the costs of health care late in life can be significant. An HSA provides a dedicated,

tax-advantaged way to address those expenses early.6

Retirement is less than 25 years away for most of the members of Generation X. For

some, it is less than a decade away. Is this generation prepared for the financial realities of life

after work? Traditional pensions are largely gone, and Social Security could change in the

decades to come. At midlife, Gen Xers must dedicate themselves to sufficiently funding their

retirements and squarely facing the financial challenges ahead.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This

information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee

of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is

advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and

may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment

or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular

investment.

«RepresentativeDisclosure»

Citations.

1 - businessinsider.com/generation-you-are-in-by-birth-year-millennial-gen-x-baby-boomer-2018-3 [4/19/18]

2 - forbes.com/sites/megangorman/2018/05/27/generation-x-our-top-2-retirement-planning-priorities/ [5/27/18]

3 - investor.gov/additional-resources/free-financial-planning-tools/compound-interest-calculator [11/8/18]

4 - washingtonpost.com/news/get-there/wp/2018/04/26/is-1-million-enough-to-retire-why-this-benchmark-is-both-real-and-unrealistic [4/26/18]

5 - kiplinger.com/article/insurance/T027-C001-S003-health-savings-account-limits-for-2019.html [8/28/18]

6 - fool.com/retirement/2018/11/05/3-reasons-its-not-always-a-good-idea-to-retire-ear.aspx [11/5/18]

Investing Means Tolerating Some Risk

That truth must always be recognized.

When financial markets have a bad day, week, or month, discomforting headlines and data can

swiftly communicate a message to retirees and retirement savers alike: equity investments are

risky things, and Wall Street is a risky place.

All true. If you want to accumulate significant retirement savings or try and grow your wealth

through the opportunities in the markets, this is a reality you cannot avoid.

Regularly, your investments contend with assorted market risks. They never go away. At

times, they may seem dangerous to your net worth or your retirement savings, so much so that

you think about getting out of equities entirely.

If you are having such thoughts, think about this: in the big picture, the real danger to your

retirement could be being too risk averse.

Is it possible to hold too much in cash? Yes. Some pre-retirees do. (Even some retirees, in fact.)

Some have six-figure savings accounts, built up since the Great Recession and the last bear

market. They may feel this is a prudent move with the thought that a dollar will always be

worth a dollar in America, and that the money is out of the market and backed by deposit

insurance.

This is all well and good, but the problem is the earning potential. Even with interest rates

rising, many high-balance savings accounts are currently yielding less than 0.5% a year. The

latest inflation data shows consumer prices advancing 2.3% a year. The data suggests the

money in the bank is not outrunning inflation and may likely lose purchasing power over

time.

Consider some of the recent yearly advances of the S&P 500. In 2016, it gained 9.54%; in

2017, it gained 19.42%. Those were the price returns; the 2016 and 2017 total returns (with

dividends reinvested) were a respective 11.96% and 21.83%.

Yes, the broad benchmark for U.S. equities has bad years as well. Historically, it has had about

one negative year for every three positive years. Looking through relatively recent historical

windows, the positives have mostly outweighed the negatives for investors. From 1973-2016,

for example, the S&P gained an average of 11.69% per year. (The last 3-year losing streak the

S&P had was in 2000-02.)

Your portfolio may not return as well as the S&P does in a given year, but when equities rally,

your household may see its invested assets grow noticeably. When you bring in equity

investment account factors like compounding and tax deferral, the growth of those invested

assets over decades may dwarf the growth that could result from mere checking or savings

account interest.

At some point, putting too little into investments and too much in the bank may become a risk

– a risk to your retirement savings potential. At today’s interest rates, the money you are

saving may end up growing faster if it is invested in some vehicle offering potentially greater

reward and comparatively greater degrees of risk to tolerate.

Having an emergency fund is good. You can dip into that liquid pool of cash to address

sudden financial issues that pose risks to your financial equilibrium in the present.

Having a retirement fund is even better. When you have one of those, you may confidently

address the risk of outliving your money in the future.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This

information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee

of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is

advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and

may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment

or insurance product or service, and should not be relied upon as such. All indices are unmanaged and cannot be invested into directly.

Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any

investment.

«RepresentativeDisclosure»

Citations.

1 - valuepenguin.com/average-savings-account-interest-rates [10/4/18]

2 - investing.com/economic-calendar/ [10/11/18]

3 - money.cnn.com/data/markets/sandp/ [10/11/18]

4 - ycharts.com/indicators/sandp_500_total_return_annual [10/11/18]

5 - thebalance.com/stock-market-returns-by-year-2388543 [6/23/18]

Let's Think "Outside the Box" Ways to Save

Tip #2

Get Out of Debt.

It's time to stop borrowing, pay off debt and regain control of where your money goes. Without car, student loan, credit card and installment loan payments that likely total $800-$2,000 per month, it would be easy to save for purchases and a secure retirement.

Start now. It won't happen overnight, but you can be debt-free and financially secure - regardless of your current income and debt levels.

If you have adequate equity in your home, you may want to consider refinancing your mortgage and using the equity to eliminate the other debt. The interest rate is likely much lower, and mortgage interest is tax deductible. If this is not a viable option for you, the following debt elimination strategy is effective. First, save $500-1,000 in an emergency fund so you have a small safety-net during the debt-elimination process. Second, tackle debt using the "snowball" approach, as follows: 

 

  • List all debts in ascending order, from smallest balance to largest. (You may also order them by highest to lowest interest rate, if you prefer.)

  • Commit to pay the minimum payment due on every debt.

  • Determine how much extra can be applied towards the smallest debt. (The more you can commit, the faster you will be out of debt.)

  • Pay the minimum payment on the smallest debt, plus the extra amount, until it is paid off.

  • Once a smallest debt is paid in full, add the amount you were paying on the first debt to the minimum of the second smallest debt, plus any extra you can afford.

  • Repeat until all debts are paid in full.

By the time the final debts are reached, the extra amount paid toward the larger debts will grow quickly, similar to a snowball rolling downhill gathering more snow. 

Let's Think "Outside the Box" Ways to Save

Tip #1

Change Your Tax Withholdings.

Are you giving the federal government an interest-free loan every year? If you get an annual refund from the IRS, the answer is yes. Your employer deducts federal income taxes from each of your paychecks based on the number of “allowances” you claim on your W-4* (the form you filled out when you were hired). Many people claim zero allowances—having the maximum amount of taxes taken—and then file their return with exemptions and other deductions to receive a tax refund. Essentially, they are overpaying their income taxes. Why not pay an amount closer to your actual taxes and increase your weekly discretionary income and have more to save and invest?

People love getting a tax refund. Who wouldn’t love having $1,000, $2,500 or even $5,000 deposited into their checking account each spring? Many even argue that their tax refund IS their savings account. They use their annual refund for larger purchases, vacation, to pay off holiday debt, etc.

But here’s the brutal truth: It’s not smart savings and if you are not in a position to handle an unforeseen circumstance, you don’t need to be going on a vacation or buying a big screen TV. Above and to the right is an actual example of how one person began investing over $6,000 per year without feeling a strain on her day-to-day living or monthly budget.

By simply changing the allowances on her W-4 from zero to two, she was able to start investing 10% of her income ($166.67 bi-monthly), but her take-home pay only decreased by $45. Plus, her company—like many companies—matches her contribution up to five percent. Hence, her actual annual investment is $6,000.

*This example is intended as an illustration only and does not reflect the performance of any specific investment and should not be considered financial advice.

What are the Elements of a Healthy Financial Plan?

One of the most important things you can do for yourself and your family is to develop and stick to a financial plan. In doing so, it is strongly recommended that you consult an experienced financial planner who can help you understand your current situation, identify your goals, and put strategies in place to reach those goals. Regardless of your individual goals-whether to live a comfortable retirement, educate your children, travel the world, live a debt-free life, or leave your loved ones a significant inheritance-the foundation of any healthy financial plan must encompass strategies for building wealth and strategies for protecting your wealth.

 

Strategies to Save and Build Wealth

There are two distinctive types of savings to which a healthy financial plan gives consideration.

Cash Reserve - Establish a cash reserve for larger purchases, vacations and emergency situations, e.g., job loss, car/house repairs, etc. Your cash reserve is the money by which you live. A fully-funded cash reserve-approximately three month's salary-gives you the ability to handle unforeseen expenses and plan for the things you want to buy and do, without threatening your monthly expenses or investments. A financial planner can help you establish a cash management plan to maximize your discretionary income (after bills), prepare for emergencies, and save for the things you want.

Investment Portfolio - The second type of savings plan is an investment portfolio-the money by which you grow. An investment portfolio is absolutely essential to your meeting your long-term financial security goals. There are many factors that should be considered when establishing an investment portfolio, including how much you will need to retire, how much you expect your pension and/or Social Security to contribute, how many years until your retirement, and so on. With this information, your financial planner will help you make the right kind of investments.

 

Strategies to Protect Savings and Investments

A new transmission for your car or having to replace a leaky roof will probably not put you into financial ruin, especially if you have a fully-funded cash reserve. However, disability and death have the potential to wipe out your entire savings and retirement income very quickly. In addition to the standard insurances that most people carry, e.g., health, auto, homeowners, etc., the following types of insurances are critical to a healthy financial plan.

Life Insurance - Life insurance protects those who depend on your income - your spouse, children, etc. Upon your death, your life insurance policy will pay your beneficiary a lump sum that can replace your lost income, pay off outstanding expenses (house, car), cover funeral expenses and/or provide an education for your children. The various types of life insurances will be explored in a future article.

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Disability Insurance - Disability insurance is often one of the most overlooked forms of insurance, but is extremely beneficial when needed. Disability insurance replaces a portion of your lost income if you become unable to perform your job because of injury or illness. Many companies offer disability insurance as an employee benefit, but typically it only covers 60 percent of base salary, minus taxes. Discuss whether you may need additional coverage with your financial planner.

Long Term Care Insurance - Seven in 10 people will need some type of long term care. There are two ways to pay for long term care - either out of your own pocket or with long term care insurance. Neither personal health insurance nor Medicare will cover many long term care expenses, as many of the needed services (bathing, dressing, and eating) are not medically necessary in nature. Medicaid is the government program that covers long term care expenses, but as the payer of last resort, you will not be eligible for Medicaid until you have nearly depleted all of your income and savings.

How Much Do I Need in Cash Reserves?

Industry experts say that 3 to 6 months of your fixed and variable expenses should be in your cash reserve. At Beacon Financial Group, we believe that it depends on your comfort level, and that is something that is going to be different for every client. Some people want $5,000 - $10,000 liquid, knowing that they have other sources to go to, and others want $50,000, no matter what.

As Beacon Financial Group advisors, our job is to show clients how to possibly increase the rate of return on the investment, without taking unnecessary risks, and to find ways to reduce the amount of taxes they are paying on their investments. Inflation is a part of life. There is not much we can do about it, but we can come up with strategies to help outpace inflation and get the money working harder.

Everyone needs to have a cash reserve, and they need to decide on the amount. Excess money sitting in that position is not a good idea.

For example: If someone has $50,000 sitting in a checking or savings account, and they have determined that they only need to keep a $15,000 cash reserve, then they have $35,000 earning $0 while being eaten by taxes and inflation.

Financial planning means putting all the pieces together-- starting with cash reserve and excess liquid money.

Where will you invest your excess cash reserve?


For more information, contact Beacon Financial Group to speak to an experienced, licensed advisor: (888) 769-4333 or info@beaconfinancialgroup.net.