Plan ahead. Work hard. Retire young.
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  • Average Retirement Age

    Posted on October 23rd, 2010 William No comments

    You may have heard that one of the reasons that Social Security is starting to have trouble is that, back in the 1930s when the program was started, not all that many people lived to be 65! Over the decades, the average lifespan has gone up much faster than the retirement age; as of this writing, while reduced Social Security benefits are available from age 62, the retirement age to collect full benefits is gradually increasing (by 2 months per year) from 65 to 67, and it has been proposed that this should increase further.

    But forget full retirement age for a moment; what's the average retirement age? According to the US Census Bureau, in the US the average retirement age is 62 (and this has been decreasing) and the average length of retirement is 18 years (and this has been increasing). What does this mean? We're retiring earlier, and living for longer. That makes it even more important to start planning and saving now, as we have ever-fewer years to save ever-more money for retirement. However, note that just because the average retirement age is 62 doesn't mean you're required to retire then - every extra year you work is quite a bit more than a year longer you can live without running out of money. You may want to have as many retirement years as possible, but isn't it better to be financially secure and ready to enjoy them?

  • Financial Freedom

    Posted on October 16th, 2010 William No comments

    What does financial freedom mean to you? For many people, it means getting out of debt. For others, it means having enough money to retire. Still others think that financial freedom means owning a nice home and having enough money to eat out every night. What does it mean to you?

    I define financial freedom as meaning that you no longer need to worry about money; in other words, you have a large enough nest egg (or sufficient passive income) that you can pay your bills for the foreseeable future without needing to work. Jobs can disappear at any time; freedom is forever.

    So what are the steps to becoming financially fee? First, obviously, is to get out of debt!

    The rich rules over the poor, and the borrower is the slave of the lender.
    Prov. 22:7

    Debt can be an effective financial tool; by leveraging the money you already have, you can create wealth more quickly than you could otherwise. Unfortunately, in today's society most debt is taken out not to create wealth or to survive, but for convenience. We want what we don't have, and we don't want to wait or work for it. Thus, the magic piece of plastic makes the wait go away! To become finally free, you must rid yourself of debt; you must be saving for the future rather than paying for the past.

    Second, of course, is to build a nest egg. When I retire, I don't want to have the same standard of living as I do now, or worse; I want to travel the world and do whatever I like! With compound interest, it's easy to save now and play later. Ok, that's not quite true - saving is never easy, at least until you get into the habit! I recently calculated that if I were to accumulate $300,000 in retirement savings by the time I turn 40, I'd have the retirement fund I need ($3 million) when I reach 65 without ever saving another dime. Ten years earlier, I'd need only a third as much for the same result!

    These days, we spend entirely too much time worrying about money when we should be enjoying life. The key to reaching financial peace, financial freedom, is to simplify, avoid buying what we don't need, avoid going into debt, and save for the future. Revolutionary? No. Surprising? No. Effective? Yes.

  • Buying a New or Used Car

    Posted on October 15th, 2010 William No comments

    You have, no doubt, heard the conventional wisdom that it is always smart, financially, to buy a used car rather than a  new one because they depreciate so much in the first three years. Ten years ago, this was probably even true.

    These days, however, it's not so clear-cut as all that. Due to a number of factors - more demand for used cards, less production of new cars, Cash for Clunkers - the price gap between new and used cars has narrowed dramatically; in unusual cases, used cars have sometimes gone for more than new models!

    When buying a car, first decide what type of car you want and what you're looking to spend. The ideal, of course, would be to get what you need for a low price and pay in cash., but of course this isn't always possible. Once you've decided what car you're interested in, then consider the price difference between buying new and used and ask yourself whether the extended warranty period and lower mileage are worth the price difference. Also, be sure to take taxes into account, particularly if you're looking at energy-efficient vehicles; your state, for example, might offer tax credits for the purchase of new electric or hybrid vehicles.

    Get the financial stuff figured out, and then you can concentrate on picking out the right color..

  • The Three Best Money Related iPad Apps

    Posted on October 7th, 2010 Guest Poster No comments

    The iPad, like all of Apple’s products before it, has taken the world by storm. It is the latest and greatest in the "smart" device revolution and every techie is clamoring to get one. Of course, just like all of Apple’s products before it, the iPad is expensive and will put a dent in your wallet. Luckily, there are already a ton of great apps for the iPad specifically designed to help you keep track of your finances.

    Many iPad apps cost money to download and install, but there are plenty of free apps out there. Since spending money to keep track of your money seems a little foolish, check out these apps: useful, effective, and completely free. Whether you need to keep track of your online business or just note down your monthly spending, here are the top three best iPad apps to keep your finances organized.

    Square

    If you’re one of the many iPad users who takes part in the internet marketplace - and, these days, who isn’t? - the free app Square will help you keep track of your transactions. You’ll be able to accept payments through Square for your business or charity. You can, of course, also use Square to accept money from friends or other people in your personal life. Square will help you out with calculating sales tax on your transactions and even automatically produces email and SMS reciepts for both cash and credit card payments. Square is particularly popular among iPad users who appreciate app interfaces that rely mostly on images, providing a visual representation of your financial transactions.

    E*Trade Mobile Pro

    E*Trade is well known for helping every day people get involved in stock market investing. Wall Street is an ominous, complex system for beginning investors and companies like E*Trade make their money helping every day people actually make a profit when playing the stock market game. E*Trade has recently released an iPad app to help investors everywhere keep track of their investments. The app is customizable so you can keep track of your individual investments, but the app also gives you up to date investment news.

    EZTip Calculator Tip Agent

    Even the most money aware folks can have trouble dividing a dinner bill into multiple parts and adding in a tip, too. The same goes for splitting up rent and utilities in a shared house or when calculating how much each sibling should pay towards that present for mom. Whatever it is you’re dividing up, the EZTip Calculator is one of those apps that might seem superfluous until you find yourself in the exact moment in which it was made to shine.

    So there you have 3 great and completely free iPad apps to help you get the most from your money. Join in on the "smart" device revolution and make your money use smart as well.

    This guest post was brought to us by the fine folks at iPad Accessories where they review the latest and greatest in iPad cases, covers, and iPad screen protectors.

  • Affordable Auto Insurance

    Posted on October 2nd, 2010 William No comments

    One of the hardest parts about saving for retirement is reducing your monthly expenses so that you actually have money to save. If you drive a car, one of your "fixed" expenses is going to be auto insurance; after all, it's required by law. But are you spending more than you need to?

    How much car insurance you need naturally depends on several factors, most notably the value of your car. If you're driving around a piece of junk worth a thousand dollars or less, you probably don't need collision or comprehensive coverage; after all, why pay to insure the car when it's probably destined for the junkyard within a year or two anyway? You should probably be saving your money so you can purchase a new car in cash when the current one dies.

    On the other hand, you don't particularly want to skimp on liability; remember, if you do happen to cause an accident, you want to have enough insurance to cover the total bill so that your personal assets aren't at risk. Even if you don't have much in the way of assets, you could still wind up with a judgment against you. Liability insurance is required by law, but if you have the option of how much to buy, this isn't the place to get cheap!

    On the other hand, if you have a nicer car, it's worth carrying enough insurance to cover replacing the car if something happens. Insurance is what we call a negative expectation investment to lower variance: you pay more than you expect to get back so that if something does go wrong, it's not a major disaster.

    So once you've decided what coverage you need, how do you get the best rates on that coverage? It goes without saying that you should start by shopping around, although you shouldn't automatically go for the best price; customer service can be important as well. For example, when the author's car was damaged in a hit and run, his insurance company (USAA) took care of everything, including scheduling the repair and arranging for a rental car for a week, with no trouble at all.

    Naturally, your driving history influences how much you'll pay; more than an occasional traffic ticket can send your rates shooting up,  especially if you're convicted of an alcohol-related violation. You also want to avoid ever dropping your current auto insurance without having other insurance in effect first; if you're without insurance at all, you're basically at the mercy of the insurance companies.

    There are also ways to lower your rating. For drivers under 25 years old, many insurance companies will give a discount for getting good grades, as they believe that good grades indicate someone who takes responsibility and thus will also be responsible behind the wheel. Similarly, a high credit rating also helps get the best rate.

    When it comes to the car itself, the insurer would naturally prefer that you have a car less likely to be stolen; this could be because it's a model that is stolen less often or because you have some type of anti-theft or theft recovery system in use, such as the club or Lojack.  Cars that have better crash ratings are cheaper to insure as well, as they're less likely to be totaled in a crash. And of course, a more expensive car costs more to insure as well.

    Perhaps the largest discount comes from having multiple vehicles insured with the same company, so make sure that everyone in your household is under one policy! The author saved $75 per month simply by moving his wife onto his policy when they got married. Many insurance companies will give you a discount when you buy multiple policies (auto, renter's, etc) as well.

    Auto insurance is one of those things that, unless you don't own a car, you simply have to have. It's worth taking the time to bring the cost down as much as possible.

  • Debt Snowballs

    Posted on September 27th, 2010 William No comments

    When paying down debt, one thing that many people find helpful is a debt snowball; this is actually a central element in the popular financial management plan by Dave Ramsey.

    The debt snowball is a simple concept: you make minimum payments on all of your credit cards, except for the one with the lowest balance. That card, you pay as much as possible towards each month until it's paid off. You then take the money that you were putting towards payments on that card and put it towards the card with the second lowest balance, and so on, until you have no balance remaining. Once a card is paid off, it's put away and no longer used.

    From a strictly mathematical standpoint, this is silly: you pay the least by putting your money towards the card with the highest interest rate. From a psychological standpoint, however, it can be very effective as you gain a sense of accomplishment from seeing your debts disappear; the satisfaction of having fewer bills makes it easier to keep on saving, whereas putting money towards a card with a higher interest rate but also a higher balance can mean that it takes longer before you can really see the difference your actions are making. Additionally, every time you pay off a card you get to write a bigger check towards the next one!

    Of course, once you've paid off all of your credit cards, since you're in the habit of saving it should be simple enough to redirect the money you were putting towards the credit cards into retirement savings or to pay off a mortgage. Then you're well on your way to financial independence!

  • What To Do About a Bankruptcy Notice

    Posted on September 25th, 2010 William No comments

    A bankruptcy notice (technically, a "proof of claim form") lets you know that someone who owes you money has filed for bankruptcy, and gives you a deadline by which to reply if you wish to file a claim against the debtor's assets. It is sent by the court to every creditor the debtor has informed the court of (presumably all creditors, since only the listed debts will be discharged).

    How likely you are to actually get paid depends on the type of bankruptcy. In a chapter 7, where most debts are discharged, assets may be discovered that can be used to partially pay off the debts, but generally you're unlikely to receive much. In a chapter 13, the debtor's payment plan will require him to pay you at least part of what you're owed. In either case, if you can show that you have security in some asset, this will move you to the front of the line to get paid.

    Once you have the notice, if you're owed enough for it to be worth your time, you need to file a proof of claim to be included in the bankruptcy proceedings and collect whatever portion of the debtor's assets you're entitled to. The notice also lets you know that you can no longer attempt to collect the money owed, as the debtor is now under bankruptcy protection.

    In some cases, it's possible that the bankruptcy notice may reach you after the deadline has already passed. According to section 342(g) of the United States Bankruptcy Code, notice given is not effective notice until it is brought to the attention of the creditor, which means that if the notice does not reach you due to being sent to the incorrect address or similar reasons, you may be able to dispute the missed deadline.

  • Funny Retirement Wishes

    Posted on September 25th, 2010 William No comments

    Don't know what to do with the retired person in your life? Here are a few quotes and sayings about retirement.

    When a man retires and time is no longer a matter of urgent importance, his colleagues generally present him with a watch.
    -- R.C. Sherriff

    You're only young once but you can be immature all of your life.
    --Charles Scoggins

    When I die, I want to go peacefully like my grandfather did.
    In his sleep.
    Not yelling and screaming like the passengers in his car.

    The best time to start thinking about your retirement is before your boss does.
    —Unknown

    Retirement is wonderful. It's doing nothing without worrying about getting caught at it.
    —Gene Perret

    The trouble with retirement is that you never get a day off.
    —Abe Lemons

    When a man retires, his wife gets twice the husband but only half the income.
    Chi Chi Rodriguez

  • 401(k) Direct Rollovers

    Posted on September 23rd, 2010 William No comments

    A direct IRA rollover is when you move your retirement savings from your 401(k) directly to your IRA from the old account, through a trustee to trustee transfer. When you're rolling over a 401(k) to an IRA you always want to make it a direct rollover, as this avoids having to pay taxes or penalties; if you ever handle the money, you can trigger early withdrawal penalties that, combined with taxes, can wipe out half of your savings. The other type of rollover is, surprisingly enough, called an indirect rollover; when you do an indirect rollover, you get a check written out to you (with 20% of your IRA withheld) and you have 60 days to get that money deposited into an appropriate retirement account before triggering the aforementioned penalties. If for some reason you do an indirect rollover, you'll need to make up that 20% with other funds (it's held to pay taxes if needed) in order to avoid taxes on the part not rolled over.

    Generally, when you're holding stock in your 401(k), you have two options. You can transfer the stock directly to your IRA, or sell it and transfer the cash to your IRA; in the latter case, you need to make sure that the sale occurs within 60 days of the rollover to avoid paying taxes.

    While you would normally move your money into a traditional IRA or a rollover IRA, it is also possible to move it into a Roth IRA. In this case, you must pay taxes on the money (because the account was funded with pretax dollars) but you do not need to pay the early distribution penalties and taxes, provided you do not withdraw the money for at least five years. Obviously, when doing this you want to have cash on hand to pay the taxes, so that they don't reduce your retirement savings. This is essentially one way of getting around the $5000/year limit on Roth IRA contributions. (This limit will rise with inflation after 2010, and is also higher for people over 50).

    Note: there are special rules for members of the military; see IRS Publication 3, Armed Forces' Tax Guide for details.

    You can check the IRS Rollover Chart to see whether you can do a rollover between two accounts.

  • Starting a Self Directed IRA

    Posted on September 23rd, 2010 William No comments

    In previous posts, we've mentioned that borrowing money against your retirement plan is generally a very bad idea. A self-directed IRA is something different: it allows you to use your retirement funds to invest in your business. Why would you want to do this?

    Using a self-directed IRA to avoid capital gains

    As we've discussed, the nice thing about a Roth IRA is that your money grows completely tax-free; thus, it's a particularly good vehicle for income sources that would otherwise be heavily taxed. If you're working hard on your business and growing it rapidly, you may be seeing a large return on your investment, which you're then taxed on. If your Roth IRA owns most of the business stock, then not only did that give you access to your IRA funds for business capital, but the return from your business will be tax-free!

    Of course, this does mean that you can't touch the money until you retire, so be sure to keep enough income coming your way to live on!

    Avoiding trouble with the IRS

    The IRS wants to make sure that your IRA really is using to save for retirement, rather than just for avoiding taxes now. To avoid trouble with them, read through the list of prohibited transactions and be very careful to avoid anything on it, as breaking the rules here can result in losing the tax-favored status of your account! Among other things, this means that your parents, children, and spouse are not permitted to invest their IRAs into your business (although your friends and siblings can). Also, you may not borrow money from the account, sell property to it, or use it to buy things for your own use. You're also not allowed to own more than 50 percent of the business you invest in, and you shouldn't invest in an S corporation or general partnership. If you don't have a business yet, you can also use your IRA to buy one, although this may subject you to the unrelated business income tax.

    One nice thing about having people invest in your business through an IRA is that the structure of the retirement plan discourages them from pulling out their investment early, which can be a big help for your business. A self directed IRA does require that you use a special custodian; depending on where you set up your retirement account, your custodian may limit you to certain types of investments (mostly ones the bank sells) or may allow you to invest wherever you like and simply handle the record keeping.

    For more information on  self-directed IRAs, refer to section 408 of the internal revenue code.