buy term

Buy Term and Invest the difference

Many people struggle over which type of life insurance makes the most sense for their situation…term insurance or permanent insurance. The difference between the two comes down to cost. Some experts will say why pay for an expensive permanent policy, when you could buy term (which is way more affordable) and invest those savings into a mutual fund, annuity, stocks, bonds or some other investment vehicle. The idea is that investing that “difference” (premium savings) would replace or exceed the cash value accumulation of permanent insurance.

If you are deciding if this strategy is right for you, you need to seriously consider what best suits YOUR personal objectives and circumstances. Think about this:

  • You may not have the discipline to actually invest the difference.
  • If you need to renew or reapply for your term policy, the cost may become prohibitive as you get older of if you develop health problems.
  • If health problems occur, you could become uninsurable and not even be able to purchase term insurance when it comes time to renew.
  • You need the discipline not only to invest the difference, but also to invest early while the difference between the amount of your term insurance premium and the amount of the premium for your permanent insurance is the greatest. You will need to make up for the dramatic increase in the cost of term insurance at later ages.
  • The investment you choose may not perform as you hoped.

Please make sure to carefully weigh knowledge about your habits and self-discipline along with the benefits, risks, product features, and any current or future charges associated with any insurance and/or investment product before deciding how to address your particular needs. When in doubt, schedule some time with a professional because they can help you sort through all your options and ultimately make the decision that will be in your best interest.


All IRA’s Are Not Created Equally

The individual retirement account (known as the IRA) was created to allow people to stash away money for retirement on a tax favorable basis. There are a variety of IRA’s, some are specifically for individuals and others which serve business owners. There are numerous financial institutions, from banks to mutual fund companies to brokerage firms that will allow you to open such an account. Most people might not be aware of this but there is a huge difference between a bank IRA and a brokerage IRA.

Bank IRA’s are a great place to put your retirement dollars if you are looking for safety and security. Such accounts are going to utilize certificate of deposits (CD’s) or other safe options like money market funds to invest your dollars. You can be assured that having your money here, you will not lose a cent. Plus having your funds placed there allows them to be protected by the Federal Deposit Insurance Corporation (FDIC). Some banks may offer riskier options, like mutual funds (which are not covered by the FDIC), but primarily the safe options are what you will typically see. This doesn’t seem like a big deal on the surface, however, playing it too safe with your retirement dollars could hurt you in the long run. Banking solutions by their very nature are low-yielding, thus this will subject you to purchasing power (your dollar today won’t be worth much in the future) risk over time due to inflation. IRA’s were designed with the intent of being utilized as a long-term financial instrument, which means it isn’t wise to use CD’s or money markets (which are more geared towards short-term goals) to fund your retirement.  A bank IRA makes perfect sense if you are within a couple of years of retirement because you can’t afford to be too risky simply due to the fact that you don’t have enough time to make up any losses. Or, if you just don’t have the appetite to really take any substantial risk with your money, this option is also appropriate.

The brokerage IRA enables you to purchase securities… stocks, bonds, mutual funds, exchange-traded funds (ETF’s), etc. However, by purchasing securities you are adding more risk to the equation. Unlike the bank IRA, you could lose some of your initial investment and you will see your account balance fluctuate over time. This usually scares people but have you ever thought about your retirement account in this manner… what if retirement is 10/20/30 years away, and the market is down and as a result, so is your account balance. If you’re not at retirement age, meaning you have absolutely no need for these funds, then you have only “lost” on paper. Why exactly are you worried? Most people don’t have a good response to that, thus we need to change the way we think about short-term news in relation to our long-term accounts.

No one individual has control over the stock market, but over the long-haul, having money in the stock market can be extremely rewarding for your brokerage IRA. The neat thing about the brokerage IRA is that you are able to invest in a money market type of fund, along with the other riskier solutions. The one thing you want to avoid is having a brokerage IRA open and ONLY having money market funds within it. This happens quite often because people will rollover funds from an old 401k or 403b and the money will just sit in a money market fund (which is the default), not being invested. Or, they will open a brokerage IRA, fund it, and never make a decision on what to invest in. Take full advantage of all your options within the brokerage IRA.

timeless tips

5 Timeless Financial Tips

Most people would agree that discussing your finances can be extremely challenging. The biggest hurdle that plagues us…getting started. Just like with anything else, when it comes to beginning your journey to financial glory, you must set a goal. Once the goal is set, now it’s time to take action.

Of course, there is no “one-size fits all” type of approach, and no matter where you are in your life, you may need to address one or all of the following as it applies to your financial game plan:

(1) Create a spending plan (also known as the budget).

How much do you earn? How much do you spend? How much are your bills each month? How much do you save/invest? Try your best to stick to a spending plan each month and have someone hold you accountable when you do not stick to it. Please do not beat yourself up if you don’t stick to it each month because it’s hard to change your spending habits overnight. Grade yourself on a 3-month basis because if you can manage this over an extended period of time, then guess what, you’ve created a brand new habit! And if the conventional way of “budgeting” doesn’t work for you, consider an alternate strategy, like the 50/20/30 plan.

(2) Pay off credit card debt.

We all know that credit card companies make money off the interest they charge on your account. Here are a couple of tips: 1) Stop spending money that you don’t have; 2) Pay off the card with the highest interest rate; 3) Consider paying off the smaller balance (this will give you the emotional jolt to continue to fight against the larger balance) 4) If possible, pay more than the minimum payment each month. 5) Try the debt-snowball technique

(3) Build an emergency fund.

Make sure to have between 3-6 months worth of living expenses saved at all times. Or for those over-achievers, considering having 9 months to 1 year’s worth. This may be a challenge, but you will never be upset with yourself for saving money when an actual emergency pops up.

(4) Determine personal insurance needs.

Many people may be uninsured or under-insured and this could prove detrimental to your overall financial game plan if the unexpected happens. Consider your situation and see if life insurance and disability income insurance provided by your employer will sufficiently cover your needs. If need be, consider owning personal insurance outside of what is offered through your job. Please note that if you change jobs – or lose your job – typically, you will lose those employer-provided benefits, because the employer is paying the premiums, thus you don’t “own” the policy. Personal policies can help ensure that you’re protected, no matter where you work or what happens with your job situation. Also, your age and health play a HUGE role in how an insurance company will set the price of their policy, so please keep that in mind.

(5) Begin/review your retirement plan.

We all work extremely hard, but what do we have to show for all our years of service? Many companies are doing away with pension plans, thus the responsibility of putting money away for retirement falls on our shoulders. Take advantage of your employer-sponsored retirement plans like a 401(k) or 403(b) because these plans allow you to invest monies tax-deferred. A nice advantage of these plans is that they take money out of your check before you get paid. There are also ways to save for retirement outside of an employer-sponsored plan. Consider opening an IRA (traditional or Roth) or a brokerage account. An annuity or life insurance contract could also be an option. If you decide to save for retirement outside of or in addition to your employer sponsored plan consult with a financial professional as you’ll need to be aware of contribution limits, tax treatment, and how the accounts work.

you need a planner

You Need A Financial Planner

Financial planners were put on this earth for one reason, to help people get and keep their financial houses in order. But so many people avoid financial planners. Why exactly is that? Are you one of those people who thinks you’re better off on your own? Perhaps. Are you the person who says you don’t make enough money, therefore there’s no need for you to meet with one? Or maybe you’re the person who says “I don’t want someone all up in my business.” Whatever your reason, you should seriously consider having a conversation with a financial planner because the data doesn’t lie! As a society, we are seriously failing at financial planning.

If you have some time, go research this piece that the National Association of Personal Financial Advisors published back in 2012. The findings are quite disturbing. In that piece they reference an organization, the National Foundation for Credit Counseling, who conducts an annual consumer financial literacy survey. Take a look at their survey from 2013 and 2014. It should come as no surprise but year after year, the numbers continue to be extremely disappointing. And, if you’re wondering how things are going today, not much has changed. On the flip side, this should encourage any financial planner to continue to reach out to and follow up with their clients, ask those tough questions and challenge their clients to be a better financial stewards.

Financial planning shouldn’t be something that we fear, but something we should embrace. If you are someone who doesn’t have a plan, you need one. If you’re someone who already has a plan, maybe you’re overdue for a review. No matter your situation, having a financial game plan will most certainly guarantee you financial independence (however you define it) at some point in your life. And just like that old adage says, if you fail to plan, you plan to fail.

understand bene's

Understanding Your Benefits is Important

When you get a job, your employer may have informed you that aside from a paycheck, you will be receiving some additional benefits. Some of the most important benefits a company may offer comes by way of insurance. For this article, I want to focus on life and disability insurance. Determining what insurance benefits you select will depend on your unique situation. Keep in mind, some employers may give you numerous insurance options to choose from, while others may offer the bare minimum. Nevertheless, read through the entire benefits packet that they give you!

Most people are well aware of the importance of health insurance but not so much when it comes to life and disability insurance. Here’s a recommendation…take some time to truly determine how much life and disability insurance you need. The life insurance that’s offered through your employer is the cheapest that you will find, typically because your employer is fronting most, if not all, of the premium payments for you. You will generally find that they may offer flat rates of coverage at varying cost to you or they may have it where you’re entitled to an amount equal to one or two times your salary. If what they are offering isn’t enough, consult an insurance agent to determine how much additional coverage you need to fill your gap. Having adequate life insurance is of the utmost importance because if your household has two wage earners and one passes away or the breadwinner of your family was no longer here, the remaining family members would most certainly appreciate having money for the final expenses and the ability to maintain their current lifestyle. The grieving phase will be challenging enough, but adding financial troubles into the mix, just makes things that much tougher on your family.

When it comes to disability insurance, the same rules apply. Your employer is fronting most, if not all, of the premium payments for you. Many of us don’t see the value of having disability coverage, but here’s some food for thought. If you were seriously sick or injured and unable to work, how would you pay your bills? If you answered that question by saying you have an adequate amount of emergency funds (3-6 months worth of expenses) saved, then you may be okay. If you don’t have such an amount, then disability coverage becomes your savior. Essentially, it enables you to maintain your current lifestyle. What happens for the majority of people is that they fail to have the all-important emergency fund, which results in them having to tap other resources like their investment or retirement accounts, or credit cards. None of those sources should be utilized if at all possible. Your employer may only offer short-term disability or a combination of short and long-term disability coverage. Remember, read your benefits packet because this is something you need to know. Again, just like with life insurance, if what your company offers isn’t enough, consult an insurance agent to determine how much additional coverage you need to fill your gap. [Just so you know, you will never be able to get 100% disability coverage, primarily because if you could get 100% of your earnings without working, you would never go back to work.]

Having a firm grasp of your insurance offerings through work is critical. There may be gaps within your overall insurance plan and you need to make sure they are filled. Insurance is THE foundation of a financial plan. If you are not adequately protected, then you are putting your investment and retirement accounts in serious jeopardy. Think of it this way, if you were going to build a house, would you start on the second floor? Of course not!! You set the foundation, which allows you to build the remainder of the house. There have been numerous studies conducted about the staggering number of people who are under-insured in this country, please don’t let this be you. If you don’t care about insurance studies, ask a family member or close friend if they or someone they know has been negatively impacted by having an inadequate amount of insurance…then you will understand.

best time to invest

When is the Best Time to Invest

Having served as a financial services professional my entire career and I am constantly asked two questions: “When is a good time to invest?” and “Where’s a good place to put my money?”

I used to struggle tremendously with my response when I was a novice, but now that I’m a seasoned pro, it’s really easy. I would always get tripped up on trying to sound really smart or I would talk long enough to assure the person that I knew what I was talking about. As I’ve matured, responding is so much easier. My answer to the first question….NOW! Today is a great day to invest (in something) and tomorrow will be too! My answer to the second question…please take a look at exhibit A.

Having served as a financial services professional my entire career and I am constantly asked two questions: “When is a good time to invest?” and “Where’s a good place to put my money?”

I used to struggle tremendously with my response when I was a novice, but now that I’m a seasoned pro, it’s really easy. I would always get tripped up on trying to sound really smart or I would talk long enough to assure the person that I knew what I was talking about. As I’ve matured, responding is so much easier. My answer to the first question….NOW! Today is a great day to invest (in something) and tomorrow will be too! My answer to the second question…please take a look at exhibit A.

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Now, both of your questions have been answered so you can move forward and start investing. But wait, just giving you a simple answer isn’t enough. I know you will have some follow up questions and now comes the pivotal point in this exchange.

You’ve got two options:

1.   Schedule a time with the professional and dig a little deeper about what you’re trying to accomplish with the money you want to invest. PLEASE keep this in mind…this meeting might cost you money. A financial services professional also has a family, bills, goals, etc. and they are running a business. Just ask yourself, would you be okay working every month and not getting paid? If someone is offering free assistance, it will generally be limited in scope primarily because whatever you are discussing could have been found/read on the internet. Thus, you need to decide is it worth you paying someone to help you get it done. If you are concerned after someone quotes you a price, make sure to shop around a bit (but not too long) to see what else the market is offering. Keep in mind, if you are paying someone, chances are you are serious and will follow through on things since you’ve put some “skin” in the game. Generally, people don’t truly value free advice, thus they rarely take action after receiving it. You know yourself, so the decision is up to you.

2.   Use one of the many do-it-yourself platforms that various financial institutions offer. With this option, you will be required to do your own research and decide what you want to invest in. All of the platforms are extremely user-friendly, so if you are tech savvy, you shouldn’t have any issues.

You are now equipped with a few options that will aid you in starting (or reviewing) your investment plan. Once you have made a decision on which option, you have to act promptly. PLEASE do your best to avoid the awful disease called “paralysis by analysis”. The stock market doesn’t care how long it’s going to take for you to make a decision, you just need to do it. I would seriously hate for you to miss out on an opportunity because your still “thinking” about what to do.

taking inventory

Taking Inventory

Getting your financial house in order is a goal that most people set for themselves. Of course, not everyone will gets things in order at the same stage in life. Like anything else, most people will do things when they are ready, not when some financial professional tells them to do so. Or they will decide to take action as a response to a life event. Here are a few examples. Let’s say you have a friend (who has young children and a spouse) that passes away unexpectedly. After witnessing that, you then decide to get serious about having adequate life insurance to protect your family. Or you have a co-worker who is getting well into their golden years but still HAS to work because they didn’t save/invest appropriately for retirement. Only then do you decide to start taking retirement planning seriously.

No matter your excuse or fear around financial planning, you must take it step by step. You have to crawl before you can walk and you must walk before you can run.

Completing a personal balance sheet is the “crawl” step that everyone should take. This document, which can be found pretty much anywhere on the Internet, is really easy to do. It’s going to require you to list everything that you own (assets) and everything that you owe (liabilities). And, with some basic math (assets – liabilities) you will be able to determine your personal net worth.

Taking this “inventory” enables you to focus on where you need to start as it relates to your financial plan. Plus, as you continue to move forward with your financial plan, this can serve as your barometer of financial fitness. The goal is to continue to grow your assets, while decreasing your liabilities.

Some experts will recommend that you update your balance sheet once a year. However, if you are the type that needs more frequent feedback, perhaps you should consider updating your balance sheet quarterly or twice a year.

spare change

The Spare Change Experiment

I would like to share a story about why it doesn’t make much sense to keep all of your money in a bank account. Disclaimer: Having a bank account is very important. As a rule of thumb, having 3-6 months of savings (6-12 months is even better) in a bank or credit union is appropriate, but anything over that doesn’t make much sense.

During a previous job, I was an avid commuter. Every weekday I would take the train to and from work. On several occasions, I would notice that while passing through the turnstiles at the station, there was always spare change on the ground. Pennies were the most plentiful, but even on a few occasions I found $1 coins and even paper money. If I had to pay for an additional fare or replace my train ticket, I would typically find spare change near the machine. What started out as a simple observation, turned into an obsession. Each day as I passed through the train stations, my eyes were transfixed on the ground, scanning for any signs of free money. My obsession took an even bigger turn, because after a week of doing this, I setup an excel spreadsheet to track my earnings. This adventure went on for nearly 2 whole years!

So what exactly is the point of my experiment? During the first year, I collected nearly $30 (this total excluded the paper money found) off the ground at the train stations. And I’m sure you may have been thinking this while reading this article…yes, I carried hand sanitizer in my bag. That year, my bank only paid me $15 in interest from my savings account. The previous year my bank only paid $13 in interest from that same savings account.

Now the recommendation isn’t to become some spare change scavenger while you’re out in public, but from one (seemingly silly) experiment, I accumulated more money than what my financial institution was paying in interest for the past two years. This makes a very compelling argument for those people who are afraid of investing. Investing your money in the stock market or some other investment vehicle allows your money to work a little bit harder for you. Yes the stock market can be a frightening place (when you don’t understand it) but if you take a look at any historical data about the stock market, you will see some magical things have happened over the long haul. And yes, if you analyze the stock market in certain time frames, it would scare the boogie man. However, investing is a really good thing that everyone should do and the longer time horizon you have for investing, the better.

Lastly, I heard many people express to me that there isn’t any risk when your money is in the bank. However, keeping all of your money in the bank makes you highly susceptible to purchasing power (inflation) risk. Just so you don’t forget, when it comes financial products, whether it’s banking or investing in the stock market, risk is ALWAYS involved.

rtmnt crisis

The Retirement Savings Crisis

The National Institute on Retirement Security produces research studies and their primary focus is, you guessed it, retirement. They published a study back in June 2013 entitled “The Retirement Savings Crisis: Is It Worse Than We Think?” and it was startling to read through the key findings of the report. If you get a chance take a look at the report and even if you’re not in the financial services business, the data is highly disturbing. They produced another study in December 2013 about Race and Retirement and that study was even more frightening. Honestly, year after year, the updates on the data they produce, doesn’t get much better.

The first key finding from that report stated that 38 million working households have NO retirement account assets at all. The sad thing, that number includes workers who are offered a retirement plan through their employer but who refuse to put any money into the plan. It’s understandable that some companies do not offer a retirement plan, thus the individual is responsible for setting something up on their own. If you’re employer offers you a retirement plan and you’re not putting any money into, then you need to have a serious discussion with yourself or someone about why. If you don’t know how to get started or have the slightest idea as to what you’re doing, your benefits department will be more than happy to assist you. They’re providing you the 401k or some other retirement plan and they will gladly walk you each step of the way. If not them, then the plan sponsor (the company hired to offer the retirement plan) can provide you that assistance. Please make that phone call, send an email, find a co-worker who understands the retirement plan, do something.

For those people who are not offered a retirement plan through their employer, then you must seek out someone on your own to help get you squared away. There isn’t a shortage of financial services professionals in this country. And if you don’t want a professionals help, there are a plethora of do-it-yourself options available. Either way, there is absolutely no good reason as to why you shouldn’t have some of your money in a retirement account. If you are still unsure as to why this is of the utmost importance, ask yourself one question… After all your working years, wouldn’t you like to have something to show for all those hours you worked??

Retirement planning applies to every working individual in this country. If you’re just starting out in your career, then time is on your side. It doesn’t take a ton of time for you to do this, but it does involve making a commitment. So many people say that they don’t have time to do this planning, which is bologna. There is more than enough time within a year (8766 hours) for you to work on your retirement plan. Not taking your retirement plan serious is just not cool. There are similar studies done and year after year and the data never seems to improve. We can most certainly do better, simply by asking ourselves one simple question…

How much time did you spend this year or last year planning for your retirement?


The Rule of 219

Retirement planning applies to every working individual in this country. If you’re just starting out in your career, time is on your side. If you’re halfway through, then you should be regularly doing a retirement checkup. If you’re winding down, hopefully you are adequately prepared to enjoy your golden years.

If you don’t think retirement is important, look at some of the research reports from the National Institute on Retirement Security. If you don’t have time to read each individual report, peruse the executive summary and you will get a good flavor of just how horrible this country is doing on the retirement front. That information will blow your mind!

Without proper retirement planning, that virtually means you have only a few options

  1. you need to receive an inheritance
  2. you need to win the lottery
  3. you will or plan on working forever
  4. you pass away the day after you decide to retire

Most people will probably frown at options 3 & 4 and many of us won’t have the luxury of option 1. Option 2, good luck because the odds are definitely not in your favor. People don’t have much saved for retirement because they never set a goal. Plus, we have absolutely no clue how much money we are going to need in retirement.

There are so many variables that you simply can’t plan for, but as a starting point, search “retirement calculator” in your internet browser and play around with the numbers. At least that’s a start. But just to put things in perspective, let’s do some simple math in relation to the amount of money that we’re all going to need in retirement. The rule of 219 is not widely discussed but here’s how you get the number. The rule assumes:

  • you and a spouse/partner/significant other (2 people)
  • eat 3 meals/day at $5/meal
  • you do this for (20) years
  • there are 365 days in a year

Thus 2 x 3 x 5 x 20 x 365 = $219,000. Obviously every meal you eat won’t be $5, you may not have a spouse in retirement, and you may live longer than 20 years in retirement. This rule clearly makes a ton of assumptions, however it is definitely easy to understand. The alternative, trying to determine your retirement number by conducting a time value of money calculation. Simplicity is the goal of this rule.