windfall cash

Wise Ways to Use Windfall Cash

A windfall is considered as a rather substantial amount of money that you may have come into unexpectedly – some individuals may be fortunate enough to be heirs in a family will, while others may strike it lucky with their state lottery, for example. Regardless of how your windfall ends up in your possession, it will be wise to take the following steps so that you can make the most of the extra cash.

  1. Don’t Give up that Day Job Just Yet

While it’s certainly extremely tempting to ditch your day job after coming into a large sum of money, this may not be the wisest thing to do – especially not immediately. 

It’s too easy to underestimate the amount of money that will have to be invested to take the place of the income you’re currently earning. For example, to replace annual pay of $50,000, you’d require a nest egg of approximately $1.7 million – at a conservative estimate. 

Quitting your job will also cause contributions to your Social Security benefit to stop. In cases where your windfall investment experiences a downturn, you’d need to rely on Social Security to help cover that shortfall. If you’re genuinely unhappy in your job though, a windfall could provide you with the opportunity you need to take a short break and pursue a new career. 

  1. Set the Funds Aside Temporarily

Place your windfall cash into a relatively safe short-term investment option such as a savings account or CD. This will provide you with time to think and come up with a sound financial plan.

  1. Take Taxes into Consideration

In most cases, you’ll owe at least a portion of your windfall in taxes. It’s recommended that you consult with a qualified financial advisor before spending a penny, as this will help ensure that you won’t be faced with any nasty surprises from the IRS. A financial advisor will also be able to advise you regarding the best places to invest your money so that you get the highest returns possible. 

  1. Pay Consumer Debts and Set up an Emergency Fund

If you have credit card or student loan debt, it’s strongly recommended that you use windfall funds to help eliminate this – or at least reduce the amounts you owe substantially. This will help free up your income for other uses, such as investing into your IRA.

It’s also recommended that you set aside part of your windfall cash as an emergency fund – a minimum of three to six months worth of expenses should be covered in this account. 

  1. Treat Yourself

Make a list of items or experiences you and your family have wanted, but not been able to afford, and consider splurging on some of them. You only live once, so the luxury of a windfall can at least help you and your family to have a little fun after meeting your other financial obligations. 

Although coming into an unexpected sum of money can seem overwhelming, this need not be the case if you take some time to think and enlist the help of a qualified financial advisor. Contact us today to learn more about making the most of your windfall. 

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retirement-portfolio

Why your Retirement Portfolio must be Diversified

When a retirement portfolio is diversified, it simply means that your investments have been set up in multiple places to help minimize the risk of losing everything you have. This means that if one of your investments experiences a loss, you’ll still have the rest of your portfolio to fall back on – while still earning reasonable profit on the rest. While it can be challenging to correctly diversify your portfolio, it’s a crucial part of planning a successful retirement

The Main Aim of Diversifying a Portfolio

Although a number of individuals think that diversification is necessary to maximize their return on investment, the truth is that the main reason why it must be done is to limit the impact that a volatile market may have on a portfolio. For instance, if an entire investment is placed in bonds, a large enough return may not be possible to support a retiree’s lifestyle. Alternatively, if everything is invested in domestic stock, the stock market’s volatility could cause the loss of a large part of your nest egg. 

  1. Limit your Losses 

When investing for retirement, your main goal should be to keep abreast of market averages and ensure that you’ll end up with enough money available after you stop working. It will not only be necessary to focus on your gains; you’ll need to keep in mind that there’s always the possibility that losses will be experienced – a large loss can totally derail your retirement plans. As such, the more diversified your portfolio is, the less chance you’ll have of experiencing big losses. 

  1. Less Overall Risk

Some individuals show interest in investing in high risk places that can provide significant returns, but it’s important to keep in mind that equally large amounts of money can easily be lost this way as well. While it can be fun to watch your money grow at a quicker than average rate, it’s recommended that some of your funds be placed into safe investment options like an IRA or bonds. Doing this will allow you to take a chance or two, but not at the risk of losing everything. 

  1. Keeping you on Track

Another aspect that’s essential when diversifying a portfolio is rebalancing. This refers to the practice of allocating money between various types of stock to find the right balance between risk and investing conservatively. For example, you might choose to spend a quarter of your stock investment budget on real estate, 5% on foreign stocks etc. Thereafter, you go back once a year to see how your balance has performed – and speak with a financial advisor if any changes need to be made. 

Ensuring that you have a diversified retirement portfolio won’t only help you get the best possible return on investment; it will also prevent you from losing too much money if a portion of your investment experiences a loss. If you are keen to discuss your retirement portfolio with a professional advisor, call us to set up an appointment today. 

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kids-saving-money

Why it’s Essential to Explain the Link between Work and Money to Kids

Financial experts agree that it is crucial for kids to learn about the value and appreciation of money from the earliest possible age, and the best place for them to obtain this information is at home from their parents. Children who have been taught the fundamentals of earning and saving money from a young age will be far more confident and successful as adults.

  1. Working Teaches Kids the Relationship between Money, Time and Possessions

It’s crucial for children to learn from a young age that money has to be earned. As such, parents or caregivers should discuss how important it is for them to work for their money, and one of the best ways to demonstrate this is to provide them with paid jobs that can be done around the house (not to be confused with regular chores though). For instance, younger children can be paid to clean baseboards or wash the family car. Older children can be encouraged to seek paid working opportunities like walking neighbor’s dogs or mowing lawns.

When children are working for their money, they will also realize that there is time involved with earning it. As they become more accustomed to working and earning money, they often realize that the plastic toy that they initially ‘had to have’ wasn’t worth the hours of labor they put in to buy it. 

  1. Teaching the Concept of Saving

Once children have earned money, they will usually be tempted to spend it right away. However, this is the right time for parents to teach them that they need to save a portion of each amount they earn. This can be done by implementing a rule stating that 20% of their earnings must be saved for a rainy day and a further 10% for charitable causes that they are passionate about. They should then be allowed to spend the remaining 70% however they like.

The above-mentioned percentages are merely a guideline – parents should adjust these accordingly if needed. Establishing this financial routine will help children learn to spend less than they earn, which will go a long way in preventing them from accumulating consumer debt as adults. 

  1. Part-time Jobs can Teach Time-management Skills

Many parents think that children should not have part-time jobs because ‘it will interfere with their education.’ However, many children’s schedules will allow for anything up to 10 hours of part-time work per week without it affecting their study time. 

Along with learning time-management, having a part-time job will also teach children valuable social skills, responsibility and work ethics – skills that are essential for them to succeed as adults. 

Teaching children the importance of working for their money from a young age will also help them deal with the discomfort of the fact that although not all work is pleasant, it simply has to be done. If you would like to learn more about investing for your child’s financial future, contact our team today.

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financial advisor

Questions to Ask your Financial Advisor while Planning your Retirement

Retirement planning is not something that should be taken lightly, which is why you should meet with your advisor regularly. If you’ve set up an appointment to chat with your financial advisor, chances are that you have a few questions to ask them. Below are some examples of questions you should be asking to help ensure that your retirement portfolio will be able to cater for your needs once you stop working.

  1. Can Debt Affect my Retirement?

Unfortunately, any type of debt will have a negative effect on your retirement, so this is something you should speak to your financial advisor about, If you’re saddled with high levels of consumer debt, you can work with your advisor to help find ways to reduce the amounts you owe as quickly as possible. It’s best to reduce or even eliminate debt before you stop working.

  1. Are my Retirement Savings on Track to Achieve my Goals?

Ensuring that you are keeping close track of your retirement savings plan is probably the most important thing to do – you won’t be able to retire as planned if you haven’t been saving enough money. As such, you must ask your advisor if the amounts you’re currently saving are sufficient or if any changes will need to be made to achieve your retirement goal. It’s also important to know how much interest your savings are accruing over time from compounding interest. 

  1. What Percentage of my Current Income can be Replaced when I Retire?

Most individuals have spent a few years or even decades earning a fixed paycheck, so it’s recommended that you ask your advisor if this will be changing after you’re no longer working. An adjustment to your income is serious business, so it’s important that you be prepared for when it happens. However, any reliable advisor will be able to let you know what your approximate income will be when you retire

  1. At what Age should I Take Social Security?

Knowing what it’s the right time to take Social Security forms an important part of a good retirement plan, and being aware of just how long to delay taking it will enable you to get the best benefit possible. Taking Social Security too early will have a negative effect on your retirement finances. 

  1. What Age will I Qualify for Medicare?

One of the biggest costs to take into consideration when doing retirement planning is health care. Although Medicare was established to help retired individuals cover medical bills, you’ll need to discuss with your financial advisor when the best time will be to sign up for it. 

Asking these questions will help ensure that you get the most out of an appointment with your financial advisor. These professionals address all aspects relating to retirement, so they form an essential part of your planning process. If you would like to learn more about being able to afford to retire comfortably, contact our team today.

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retirement

Why Debt and Retirement are Not Compatible

Retiring with any form of debt is considered to be extremely risky because it not only adds a level of stress that you definitely don’t need during this time of your life; it will reduce the amount of money you’ll have to live on each month as well – and Social Security will almost certainly not be enough to bridge the shortfall in your finances. 

Below are just some of the reasons why you should do everything possible to enter retirement debt-free.

Interest Payments could be Used to Fund Living Expenses

The last thing you need to deal with during your golden years is having to throw money away in the form of interest payments and finance charges – which is what you’d be doing if you’re still carrying consumer debt by the time you stop working. 

It’s strongly recommended to pay all consumer debts – and preferably mortgages as well – in full by the time you reach your late 40s or early 50s at the latest. This will give you enough time to start putting additional funds away that will come in handy once you’ve stopped working.

Your Income could be Severely Limited

Many seniors are disappointed to find that they will have to live on a fraction of the funds they were used to enjoying while they were employed – which will only be more difficult to do if you’re still trying to pay off debt when you retire.

Eliminating consumer, mortgage and student loan debt before retirement will help provide you with just that little bit extra to get by with each month – which will be crucial if you haven’t been able to save a lot of money for this period of your life.

This is Not the Time of your Life to Stress over Finances

Your golden years are not the time to be stressing over how you’ll make the mortgage payment or repay that car loan you took out while you were still working. Retiring debt-free will not only provide you with an increased sense of financial security; dealing with less financial stress will allow you to focus your time and efforts on the more pleasurable activities such as traveling, engaging in a new hobby or even enjoying a few extra meals out every so often.

Get your Budget and Investments Sorted before Retirement

Before you can even think about retiring, it’s essential that you’ve inspected your budget and investment or savings portfolio to ensure that you’ll have enough money to live on once you’re no longer employed. Setting up an appointment with an accredited financial advisor will help you determine where you are on your financial journey and whether any adjustments will need to be made with regards to your savings and investment plans. 

If you would like to obtain additional information about ensuring that your retirement years will be as financially stress-free as possible, contact our advisors to schedule an appointment with one of them today. We look forward to helping you plan the best retirement possible.

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staying-active

Too Much Free Time After Retiring? Give these Boredom Busters a Try

Most individuals worry about the financial stresses associated with retirement such as covering the cost of healthcare, dealing with unexpected expenses such as home or car repairs or even paying property taxes. However, emotional and mental issues can quickly become all consuming during this time of a person’s life as well. 

Many seniors find themselves becoming restless and bored within just a few months after retiring, meaning that up to 40% of them end up experiencing bouts of depression. This can be alleviated though, by engaging in some of the following activities.

Learn Something New

Retirement can provide you with the perfect opportunity to expand your intellectual horizons. If you have a few hours to fill in the day, consider visiting your community college to see what classes are on offer for older residents. You could find yourself learning about botany, ancient history or virtually any other subject that interests you. Alternatively, some museums also offer free educational programs.

Start a New Hobby

Starting a new hobby need not cost a lot of money. In fact, activities such as baking, painting, cooking, fostering pets for your local animal shelter or even learning a new language can be enjoyed extremely affordably, and you’ll often be able to find classes to learn more about your new found interest before delving in completely.

Consider becoming a Volunteer

If you don’t have a need to work part-time during retirement to keep busy, volunteering for a cause that you strongly believe in can help keep you active – even for one or two days a week. In most cases, all you’ll need to do to volunteer is approach the organization you’d like to work with and let them know of your intentions. Most charitable organizations will welcome any assistance they can get.

Stay Active

Just because you’re no longer working full-time, it doesn’t mean that you should go home and assume the position of a couch potato – a lack of exercise during your golden years has been shown to encourage the development of many mental and physical ailments.

It’s recommended that you get some exercise at least three times a week for approximately 30 minutes at a time. Even a gentle stroll around your neighborhood will go a long way in helping to alleviate boredom and keep that brain matter active.

Keep those Social Connections Active

Although many retirees lose touch with several of their social connections after they stop working, this need not be the case. Ensure that you keep in contact with family and existing friends as much as possible – it also wouldn’t hurt to make a few new friends along the way during this time. 

Your retirement years can be extremely gratifying if you have planned for it correctly ahead of time. Ensuring that you find ways to beat the boredom blues as much as possible will help you enjoy what should be the most relaxing time of your life. 

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consumer-debt-trap

Crawling Out of the Consumer Debt Trap

The average American currently carries between $10,000 and $15,000 in consumer debt, and this includes credit cards, store cards, auto loans, personal loans and any other amounts owing that don’t include mortgage payments. If only the minimum required payment is made on debt of this amount, it would take a whopping 13.5 years to repay it in full – and this is if no additional debt is accrued during this time.

Regardless of the type of debt you’re carrying, there are steps you can take that will help you get out of the consumer debt trap once and for all.

Pay More than Minimum Required Installments

One of the best ways to eliminate consumer debt as quickly as possible is to pay more than the required minimum balances on any outstanding amounts. This will not only reduce the amount of time you’ll need to pay a bill in full; you will also save a significant amount of interest while repaying your debt.

Consider Using the Debt Snowball Method

This process involves paying as much as you can on your smallest consumer debt, while ensuring that minimum repayments are still being met on the others that still need to be repaid. 

Start by listing all of the consumer debts you’re currently carrying, from the smallest amount owing up to the largest. Do everything you can to pay as much as possible off on your smallest debt each month. Once the smallest debt has been fully repaid, take the amount you were paying towards it and include it on the minimum amount you were paying on the next smallest outstanding debt. 

An alternative approach here can be to get the debts with the highest interest rates paid first – this will help save a lot of money over the long term.

Stick to a Tight Budget

After deciding that you want to eliminate your consumer debt, you’ll need to examine your budget carefully – if you don’t have a budget outlined, now is the time to address this issue. 

Start by collecting bank account statements and carefully check each line item – this will allow you to see how your hard-earned cash is being spent each month. While those drive-through coffees and $10 lunches may not seem like a lot of money, they quickly add up, especially if it becomes a regular habit to indulge in them. 

Subscriptions to the fastest internet packages (slower options usually get the job done just as effectively but for a fraction of the price), online streaming, club memberships, monthly box deliveries and any other recurring expenses that aren’t genuine essentials should be eliminated from your budget until your debt is fully repaid. 

Once your debts have been paid in full, you’ll be able to re-examine your budget to determine how much money can be set aside for discretionary expenses. 

Although you may think that you’ll be depriving your family of the ‘nice to haves’ while you’re dealing with your outstanding consumer debt, the truth is that your whole family will enjoy far greater peace of mind in knowing that you’ll now be able to start saving for a rainy day instead of stressing about trying to make ends meet each month. 

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credit-cards-retirement

Are you Really Benefiting from those Credit Cards?

These days, a number of rewards-based credit cards are available to consumers and incentives such as air miles, discounts on store-specific purchases have never been easier to obtain – or so it seems. While many of these cards may seem to provide extremely attractive incentive options, it’s crucial to read the fine print associated with each of them before signing up.

Those Rewards Likely come with High Fees and Interest Rates

Accumulating rewards may seem awesome initially, but you’re totally defeating the object if your card comes with fees that actually outweigh the benefits you think you’re getting. 

In most cases, the average reward redemption value on these credit cards is around 1% of what you’ve paid to earn it. This means that if your interest rate is higher than 1% on the card, then the credit card company is the one who is really benefiting from this arrangement – and not the cardholder. 

Another thing to keep a close watch on is any annual fee that may be charged – these can often be quite exorbitant on rewards credit cards.

You’ll be Encouraged to Spend More

Basic human psychology suggests that when someone is offered anything that seems like a good deal, most people will be tempted to purchase it – even if they don’t need it. As such, companies that offer reward credit cards take full advantage of this type of thinking.

Before putting any purchase on your reward credit card, do the math to see how much you’ll really need to spend before you’ll qualify for any decent type of incentive. For example, it’s not worth spending an extra $1,000 on credit just to get a reward of $10.

Rewards may come with Limitations

That long list of potential rewards that can be earned with your credit card may seem tempting, but it’s crucial to read and understand all of the terms and conditions associated with using these cards. For example:

  • Rewards may expire – some credit cards rewards may expire after a predetermined period of time, so ensure that you’ll be able to redeem them before this happens
  • Rewards may be limited – some credit cards reward programs limit the amount of incentives that can be earned in a quarter or during a year, so you may not end up getting as much of an incentive as you’d initially thought
  • Beware of redemption thresholds – Unless your credit card offers cash-back rewards, you’ll have to convert accumulated reward points into something useful such as a gift card or even airline ticket. However, keep in mind that many reward programs require a minimum number of points to be accumulated before you’ll be allowed to redeem them for a reward – and this could mean that you’ll have to spend thousands of dollars before being able to take advantage of rewards you’ve earned

In most cases, consumers will benefit from using standard credit cards that charge lower interest rates and don’t charge annual fees of any sort instead of signing up for rewards-based options. Always ensure that all fine print is fully understood before signing up for any type of credit card – whether it’s reward-based or not. 

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emergency funds

Why an Emergency Fund is Crucial

Nobody wants to spend time thinking about the various things that can occur unexpectedly in daily life, such as job losses, vehicle breakdowns and sudden medical emergencies. However, if you aren’t financially prepared for emergencies such as those mentioned here – or any other unexpected event that will cost money to rectify – you won’t only have the stress of the situation itself to deal with; you’ll also have the additional worry of wondering how you’ll be able to cover these unexpected expenses. 

How much should be Saved for Emergencies?

While there’s no hard and fast answer to this question, many experts recommend having an emergency fund consisting of at least $500. This will often be sufficient to cover an unexpected repair or expense that wasn’t part of your originally planned budget. 

Once you’ve managed to save $500, it’s recommended that you continue to build your savings in this account until such time as you have funds available to cover at least three to six months worth of regular expenses. If you’re a freelancer or seasonal worker, you may need to consider saving a bit more to cover the times when you’ll be out of work. 

How to Build an Emergency Fund

While you may think it will be impossible to build an emergency fund, there are often random expenses in a budget that can be trimmed or even eliminated – even temporarily. Here are some ways in which you can get the savings ball rolling:

  • Cancel subscriptions. While items such as Amazon Prime, Netflix and Hulu are nice to have, they aren’t genuine necessities. Halting these for even a month or two can help give your emergency fund the boost it needs
  • Save that stimulus check or tax refund. Although it’s tempting to blow that stimulus check on a vacation, new clothing or other treats, you’ll enjoy more peace of mind over the long term if you know there’s money set aside to cover an emergency. Consider treating yourself to something small and saving the bulk of that check
  • Redirect your small change. Nowadays, there are several apps available that can help you save by rounding up purchase amounts and putting those few pennies, dimes and quarters into your emergency fund account
  • Pay yourself first. If your employer offers direct deposit on payday, they may be able to divide your paycheck in such a way that a small portion of it goes automatically into your emergency fund account. Not seeing those funds in your main checking account will make it less tempting to use them
  • Sell unwanted items. Have your hobbies/sports/interests changed over the years and you’re now sitting with unused equipment relating to them in your garage, basement or attic? If so, consider placing ads to sell these items online. Funds obtained from this can then be placed into your emergency fund as well

It’s recommended that your emergency fund be a savings account that offers a good rate of interest, but that is also relatively easy to access. This will help ensure that while it can be obtained in an emergency, it won’t be too tempting to dip into it for non-emergency expenses. 

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Millennials-retirement

When Should Millennials Start Thinking about Retirement?

Research is revealing that although several millennials are making wiser financial choices than individuals of earlier generations, there are still a number of these younger folk who aren’t giving their retirement years nearly as much consideration as they should be. 

Many of the younger generation think that they won’t have to worry about saving too much for their retirement because of Social Security being available. However, the amount they will receive from this will not be nearly enough to cover their living expenses by the time they stop working – which is why now is the right time for them to start planning financially for their golden years. 

The Right Time is “Right Now”

As many as 50% of millennials have revealed that they don’t have any form of 401(k) and a mere 30% have mentioned that they have started to plan for and save money towards their retirement. However, the general consensus among the younger generation is that they want to enjoy themselves right away, meaning that they end up delaying saving towards retirement for as long as possible. 

It’s essential for millennials to understand that “right now” is when they need to think about saving and start taking the required action to do so. 

Learn about the Power of Compounding Interest

Several younger people aren’t aware of how compounding interest works and that it will be most effective when taken advantage of during their 20s and 30s. For instance, a 20 year old who invests a $1,000 lump sum and adds just $100 to it each month with a 4% interest rate will end up with more than $70,000 after 30 years. However, a 50 year old who invests the same amount, adds the same amount monthly, and gets the same 4% interest will only have about $15,000 saved after 10 years. 

Halt Unnecessary Spending 

A number of employers have the option for employees to contribute to various sponsored retirement funds, with the most common option being that of a 401(k). While the 3% match that most companies offer might not sound like much money, the truth is that it will accumulate substantially over time – thanks again to compound interest. 

Most employers off the 401(k) contribution match as a voluntary option, meaning that millennials who don’t enroll as soon as they’re eligible to do so will effectively be losing out on a 3% raise on their earnings. This is one situation that can be classified as obtaining free money, which is why it’s crucial for millennials to take full advantage of an offer like this. 

While it is often tempting for the younger generation to spend their earnings on the latest vehicles, gadgets, and other “nice to have,” the truth is that this will all come at the demise of their retirement. If you are a part of the millennial generation and you’re concerned about having enough funds to retire at some point in your future, schedule an appointment with our advisory team today.

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