Archives for August 2016

Financial Anxiety Part 4

Over that last few weeks we have looked at the different financial anxieties Americans experience. We have talked about creating a budget and maximizing your savings to alleviate the fear of not being ready for emergencies. And, we have talked about investing your money to ensure there is enough to sustain you throughout retirement. Now, we are going to look at your finances, specifically reviewing your finances.

As you get older, your life changes. You may have kids, move several times, start new jobs, etc. Everything your situation changes you need to take a look at your finances to see if they still align with your goals. While we said creating a budget and sticking to it was the most important part of financial security, reviewing your finances periodically would have to come in a close second.

When you created a budget, you also created financial goals. If you want to stay focused on your goals and reach your goals, you will have to review your finances on a regular basis to make sure you are still on track. According to the Northwest Mutual study, 82% of Americans believe that finances should be reviewed every six months, but 62% surveyed stated they did not have a financial advisor of any kind. This means that many Americans are going years without reviewing their finances.

Since finances change over time, this is distressing and is a source of some of the anxiety. When you review your finances you are insuring that you are still headed in the direction you need to be going. You may need to change some numbers, such as what is going into retirement or savings.

One option to keep everything in line is to have a financial advisor that reviews your finances for you at least once a year. This does not mean you lose control of your finances, but it gives you someone to get ideas from or talk over investment opportunities.

Another option is to rely on friends or family to help keep the finances on track. They can offer suggestions or guidance on what to invest and maybe even where to invest.

American’s financial fears are not going to disappear overnight, but with some guidance and help from everyone around them they can be reduces over time. All it takes is planning, commitment, and the right advice.


Financial Anxiety Part 3

Last week we explored creating a budget to maximize your savings. This week we are looking at another step that helps reduce financial anxiety. Another worry that was in the top five was running out of money during retirement and becoming a financial burden. Investing in the right assets and using the right tools can go a long way in alleviating those financial worries. Let’s look at some strategies that will help make sure the money last for as long as you need it to last.

Being able to create wealth and maintain it for the long term has been statistically linked to investing in the stock market. While this may not be for everyone, it is a good option to build and create wealth that last for the long term. The stock market has about a 7% return rate annually which is greater than savings accounts and savings bonds. If you reinvest the dividends into more stock, then you are starting to make your money work for you. If the stock market maintains a 7% return rate annually, then it is more than the inflation rate, so you will come out ahead. This is good news for people wanting to create wealth to sustain them throughout retirement.

In a study by JPMorgan Chase, they confirmed that the buy-and-hold strategy was showing the best value for most investors. In their study if an investor purchased stock in the S & P 500 index in January 1995 and held it thought December 2014 they would have netted 555% returns, despite this going through the both the dot-com bubble and the Great Recession. In contrast, if they were trading this stock and missed more than 30 of the best trading days out of roughly 5000, then they would not have made any gains at all. Investing in good stock and hanging on to it is better for the average American than trying to be a trader on Wall Street.

There are a couple ways to take advantage of the gains provided by investing in stocks. A great place to start is a Traditional IRA and employer sponsored 401(k)s both defer taxes until you begin to withdrawal in retirement. This is a great choice for many people who want to go the brokerage account to grow their nest egg while deferring their tax liability. An even better choice can be the Roth IRA. The Roth IRA allows any gains made within the investment are completely tax free for life. It also offers more flexibility since there are no minimum required distributions and no age-based contributions.

In the next part we will examine the final component that can help relieve financial anxiety.


Financial Anxiety Part 2

Last week we talked about financial anxieties of 85% of Americans. With over three-quarters of Americans expressing worry over financial well-being, it is important to understand what causes it and if there are ways to reduce the stress. Depending on your financial situation, some of these suggestions may be easier than other, but they are worth talking about and could set you up for financial security if done right.

The first way to reduce stress is to build an emergency fund. Since the number one and two fears was not being able to pay for an emergency or unexpected medical expenses, having an emergency savings is vital to the financial well-being of everyone. Building an emergency savings is probably easier said than done, but to ease the anxiety, Americans need to work on optimizing their savings to build that emergency fund.

Building an emergency fund is not easy for everyone because if requires sacrifice and creating the dreaded “B” word (a budget). Only one-third of American households keep a detailed budget. By creating a detailed budget, you build a financial road map for you and your family. Since two-thirds of American don’t understand cash flow, so that means they don’t understand how they use their money. The way to start creating a budget is to examine your expenses and track them over a month. Find out where your money goes. This is the easy part because there are many different software and apps that can help you do this. All you have to do is plug in your numbers and it will help you create a budget.

After the budget is made and you understand where your money is going, the hard part is committing to the budget and holding yourself accountable. Accountability is the most important component to keeping a budget. All the promises and plans mean nothing if you cannot keep to your budget.

Finally, set a goal for your savings. Determine how much you can afford to put away and stick to that amount. Most employers allow this to be deducted from your paycheck. Take advantage of this because chances are if you don’t see the money, then you don’t remember it is there until you need it.

Set a goal for yourself and stick to the SMART (Smart, Measurable, Attainable, Realistic, and Timely) goal. You need to measure your progress toward your goal. Share the goal with your family or friends so they can help keep you accountable.

Next week we will look at another way to reduce your anxiety with choosing the right assets and tools to advance your financial health.


Financial Fears Part 1

Americans all over the nation are worrying about their finances and their financial well-being. Nobody ever told us it would be hard to make ends meet and preparing for retirement. If it was easy we all would have our fantasy house in the mountains or on the beach and the nation would not be facing a wide spread epidemic of poverty.

So what are our biggest fears? According to a study conducted by Northwestern Mutual, there are many aspects to financial health that are worrying Americans. With almost 85% of Americans reporting they have financial anxiety that affect their heath, 70% reporting it affects their home life, and 51% reporting it affect their social life, this is a problem that is not going away anytime soon. Many of their fears are justified, but there are ways to help. Over the next few weeks we will be looking at ways to address these concerns, so let’s look at them and see if there is any way to alleviate them. The following is the list of fears listed from greatest to least (responders were allowed to choose more than one):

  1. Having an unplanned emergency
  2. Having an unplanned medical expense due to illness
  3. Having insufficient saving to retire
  4. Outliving retirement savings
  5. Becoming a financial burden
  6. An inability to afford health care
  7. Losing my job
  8. Identity theft/theft
  9. Extended unemployment
  10. Death/Loss of primary breadwinner
  11. Havinf poor credit
  12. Having to claim bankruptcy
  13. Becoming a victim of a financial scam

All these fears are legitimate and there are ways to alleviate them. With 36% of Americans reporting an increase in financial anxiety over the last three years, this has become an epidemic. In the next few weeks we will look at ways to reduce your financial anxiety.