Finding financial faith

Success image - Stuart MilesKJ: How do you find financial faith? Those times in your life when you’re struggling with “is it enough” or “am I on the track that I need to be?” With so many unknowns – especially in your more long-term goals like financial independence, children’s education, etc. – sometimes it can be difficult to keep perspective on the here and now. It’s this moment that you’re living in now, so learning to periodically take a step back and review your progress is important.

AJ: We’re only four months into this year, and it has already been a doozy. Sometimes I get so caught up in moving forward that I forget to acknowledge where we’ve been, which is a constant theme in my life.

Do you find yourself, like me, in a perpetual state of planning for the future at the expense of the everyday? Someone please say yes :)

Kirby outpaces me beautifully when it comes to really just living in the moment, trusting that we’re doing the right things for our future and that we’re on track to achieve our goals. Me? I like to track every time we don’t put as much into savings as we planned to, every time we go over budget on any given category and every time we have an unexpected expense. Clearly I enjoy that feeling of constant panic and always feeling like I’m chasing my tail, right? Nay.

I know I’m already chalk full of New Years Resolutions and that it’s no longer the new year (hello, Q2!) but I am going to actively resolve to find more financial faith. I have no trouble believing that the money we put into our 401(k)s, IRAs and mutual funds will be whatever they’re going to be but what is it about those variable day-to-day things that bog me down? Here’s my plan for combating my lack of financial faith and trusting that it will all be okay:

1. Create a goal
- Not all goals are met, accomplished, defeated, whatever you want to call it. Sometimes goals are just a place you look at, consider and keep walking past, but they’re important to ensuring you’re paying attention to the state of your business.
- Write. It. Down. Whether your goal is to save an extra $100 a month, pay down debt, or like me, make yourself whole on areas where you feel you’ve over spent, know what that number is and keep it somewhere that you regularly will see it.

2. Create a plan
- Create a timeline upon which you hope to achieve the goal. Whether the goal is realistic or not, give yourself check points and guardrails. Saying I want to recoup what I’ve overspent by 2018 isn’t a huge accomplishment but it keeps me from slipping into the abyss of things I MEANT to do.

3. Take action
- What’s a goal without concerted effort? Track what you spend, track what you save, track what you DON’T spend, track what you DON’T save. Awareness is key.

4. Celebrate the successes
- This is the most important step I always forget to take. Achieving wealth of any magnitude is a process, and creating a strong financial foundation is a huge accomplishment. Pat yourself on the back, say the serenity prayer and celebrate!

KJ: One of the important parts of setting goals is taking time to step back and reflect on the successes (or failures). Sometimes it’s a reflection on what you could have done differently, and other times, you get to reflect on what you did correctly. Goal setting isn’t about just setting unachievable goals and never accomplishing them, it’s about a process and what you do along the way is just as important as the end goal itself.

    What do you do to keep your goals in front of you?
    How do you track your goals progress?
    What do you do to reward your successes?

Image courtesy of Stuart Miles / FreeDigitalPhotos.net.

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A target to aim for: what do I need to save for retirement?

KJ: One of the commercials that Fidelity had running a few years ago had a green arrow with a number above each person. The magic number was the amount of money that person needed to have socked away for retirement. But, how did they calculate how much a person needs for retirement? What factors should you think about as your family plans for your future? Well, there have been numerous research studies over the years about a little thing called the ‘safe withdrawal rate.’ This is the percentage of your savings/investments that you could “reasonably” expect to withdraw over a long period of time while letting your savings continue to grow. I.e., it is the amount of income you and your family could plan to live off of in retirement. And, this is such a little understood concept of personal finance that it’s why people who win the lotto or sports players with HUGE signing contracts end up dead broke after spending all of their money.

And, if you do not have a barometer for what amount you need to save in order to retire, there’s slim chance that you can get there successfully. Do you need to have $500,000, $1,000,000, or $5,000,000+? The answer: it depends.

Success On Dartboard Showing Accomplished Progress

Looking at the math
While it is entirely dependent on your age in retirement, expense levels, and other factors, some suggest the safe withdrawal rate is anywhere between 3.5% and 4.5% of your savings. To illustrate this point, if you and your family had annual living expenses of $50,000 per year, you may need anywhere from $1,100,000 – $1,450,000 ($1,100,000 X 0.045 = $50,000) in savings to be able to maintain the purchasing power of your dollars over time while you took your $50,000 per year out of the account. I.e., in a “normal” year (whatever that is!) you could earn some return on your money, take your money out for your living expenses, yet still end up with the same amount of money as you started the year (accounting for the little thing called inflation, that is).

Fortunately, there are income sources like Social Security that may help reduce the overall amount you need to save, so the true amount you may need to accumulate in your savings could be MUCH lower. So, are you on track? One of our prior posts highlighted the milestones you could aim for based on your salary and age. Check it out here.

Other things to consider as you plan:
What does retirement mean after all? – Is it living on a beach, traveling around to play golf at all of the amazing courses around the world, or spending time at home with your family? Each of these has very different implications for what you would need to save and how your savings may need to keep up with your expenses. Thinking about it before-hand means you won’t be spending your days at home stuck to the computer wondering what you’re supposed to be doing with your time!

Expanding life expectancies
Life expectancies are not decreasing, but in fact have continued to increase significantly over the past century, so planning ahead by thinking about how long your savings could last you for the next 20, 30, or 40 years could be the difference between a well laid plan and a complete flop.

Your comfort levels for investments
Who would have thought this would come into play, but it really is an important one – especially when planning for a VERY long time horizon! If you’re not comfortable taking on a certain level of investment risk, you may have to save up more than your friend by shooting closer to the 3.5% target instead of 4.5%, so you can remain more conservative with your savings. Whatever your preferences, talk to your significant other (and an advisor as well) to get a feel for what you are and are not comfortable with when talking about your savings. If you find the stress of stock markets keep you up at night, then maybe you could be more conservative in your strategy. However, with that approach, you may find yourself needing to set aside more savings each month. It’s a bit of a trade-off, but it’s important to discuss before you find yourself making a reactive decision later!

    How do you calculate what you are aiming for?
    What do you do to determine how much money you need for retirement?
    Tell us your retirement success plans.

Image courtesy of Stuart Miles / FreeDigitalPhotos.net.

A target to aim for: what do I need to save for retirement? is copyrighted by TheSimpleMoneyBlog.com without consent to republish.

Some of the links in the post above may be affiliate links. This means if you click on the link and purchase the item, we will receive an affiliate commission. We feel strongly about only recommending products or services we use personally and/or believe will add value to you, our readers. Read more about our commitment to providing quality product recommendations.

The simple secret to building long-term wealth

KJ: So, here goes. The simple secret to building long-term wealth. A strategy so simple, how can it possibly be true? Is it a genius idea, is it working 70+ hours per week, eliminating your weekends from your personal life, is it abandoning all fun in your life? Nope. The simple truth is that you only need two very important, but very basic things: time and discipline. While that super genius invention that everyone in the world will need to use combined with your expert business savvy could be factors that get you there; chances are that isn’t likely the path for you (or most everyone in the world out there).

Time
We’ve written about this before, but time is one of the greatest assets available when you’re saving for your goals – especially very long-term goals like retirement. Really, the compounding effect of interest over time is amazing. It’s all about putting your savings to work for you over time, and the longer it’s at work, the more and more beneficial it is for you. Don’t believe it…just look at the chart below on how time can work in your favor.

JP Morgan Investing Early and Compounding Interest Over Time

It’s never too late to start though, so stop putting off your goals and savings until a time when you will have fewer expenses. Don’t delay, and start today!

Discipline
Now that you’ve got step one of two down on this list to building long-term wealth, it’s time to work on your discipline. And, one of the easiest ways to build savings discipline in your family’s budget is to make it both automatic and calculated, so you don’t even have to think about it.

Have your savings (retirement, travel, emergency fund, etc.) siphoned off each month at predictable times. That way, you make savings part of the rule and not the exception. Your net worth will thank you over time by making your savings systematic. When you don’t have it at your disposal to spend each day, week, or month, you’ll be amazed what you and your family can live on (or without!).

Live below your means. We don’t spend as much time talking about this as we do actually living it, but getting a raise doesn’t equate to increasing your budget. It equates to retiring earlier. Find a comfortable financial station that you and your family can reasonably live with and stay there even as you build your earning potential well beyond that point. I won’t judge your 15 year old car if you won’t judge me for retiring at 45.

Set specific financial goals. Think about what your savings needs are to achieve your goals – whether it’s a house down payment, vacation travel fund, or an emergency fund – and figure out how long you have to accomplish them. Some goals may vary on the exact timing, but that shouldn’t stop you from estimating when you think you may need those funds. Just do a few simple calculations, and see if your timing and goals are realistic. If you need $10,000 for a goal one year from now, but you only have $100 per month to save toward that goal, chances are it’s not going to happen in your original timeline! So, be specific on what you need to save.

    What strategies have worked for you to build you and your family’s net worth over time?
    What are you doing to get time on your side?
    What disciplined savings habits work for you?

The simple secret to building long-term wealth is copyrighted by TheSimpleMoneyBlog.com without consent to republish.

Some of the links in the post above may be affiliate links. This means if you click on the link and purchase the item, we will receive an affiliate commission. We feel strongly about only recommending products or services we use personally and/or believe will add value to you, our readers. Read more about our commitment to providing quality product recommendations.

Eight super fun things to do with your tax refund

KJ: With the average tax refund for 2012 coming in at a whopping $2,803 – just shy of the average for 2011 that was even higher at $2,913 – what should you do with your income tax refund? With this very significant sum of money that many families receive, it’s time to reflect on some smart money tips…so, here’s my list of super fun adult things to do with your tax refund. Okay, so maybe “super fun” was misleading for some of these…but hey, in the long-run, heading the advice of the first few before looking at the options that follow will allow you to live financially secure sooner and enjoy much, much more than you thought possible!

Pay down debt – the bad kind
Seems easy, right? If you have some of the bad debt – ongoing credit card debt, lines of credit, etc. – then this should be stop number one for your to apply your income tax refund.

Pay down debt – the better kind
Usually within this category falls home loans, so consider taking a chunk and paying down your mortgage a little bit quicker. If you still have a car payment, then consider making a dent in that loan to get it paid off quicker, so you can start applying that monthly payment toward your goals!

Pay yourself
Fund your emergency fund. If you haven’t already begun saving to it, then start it up now! Get it to $1,000 as soon as you can, then work to $5,000, and then 3-6 months of your living expenses. If you’ve done all this (woohoo for you!), then consider saving more to your retirement accounts or investment/brokerage accounts.

Invest in yourself
Class – or certification – you’re interested in that will help further your career to increase your “human capital” – i.e. earning potential. The payoff in the long-term may surprise you. Plus, many companies reimburse you for those relevant classes and certifications, so think of it as just a temporary deposit that will be returned to you.

Replace that shoddy appliance
So again, not as fun, but it can be! Our vacuum cleaner went kaput a while ago, and we decided it was time to retire our existing one once and for all.

Maybe your fridge is on the fritz. Might be time to invest in a newer, more energy efficient model. You might be surprised what monthly energy savings you would have by getting a newer model!

Pad your vacation fund
Maybe a nice relaxing getaway is what you and your significant other need. Hopefully this year’s refund can get you closer to those relaxing days on the beach sipping [insert drink of choice]!

Buy energy efficient light bulbs
Time to upgrade those crappy bulbs that die every couple years with some energy efficient lightbulbs. LED are the latest craze for energy efficiency. We’ve bought a lot of the Cree lightbulbs for our house, and it’s made a huge difference on our energy bills. Not only do they burn about 1/6 the energy, they last much longer than regular lightbulbs, plus they also produce less heat which indirectly means less cooling costs in the summer! A bit of an initial investment, but if you’re going to be in your house for a number of years, then it will be well worth the investment!


Pay it forward
Consider paying it forward. Donate to your favorite charity or use it to support someone in need. Not only will you feel good about it, but chances are it may help your tax bill this year too – win/win!

    What will you be doing with your income tax refund?
    Have you already spent it?
    What do you typically do each year?

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Some of the links in the post above may be affiliate links. This means if you click on the link and purchase the item, we will receive an affiliate commission. We feel strongly about only recommending products or services we use personally and/or believe will add value to you, our readers. Read more about our commitment to providing quality product recommendations.