Articles tagged with: saving money

Beware of Lifestyle Creep

Sometimes more money can mean more problems.

“Lifestyle creep” is an unusual phrase describing an all-too-common problem: the more money people earn, the more money they tend to spend.

Frequently, the newly affluent are the most susceptible. As people establish themselves as doctors and lawyers, executives, and successful entrepreneurs, they see living well as a reward. Outstanding education, home, and business loans may not alter this viewpoint. Lifestyle creep can happen to successful individuals of any age. How do you guard against it?

Keep one financial principle in mind: spend less than you make. If you get a promotion, if your business takes off, if you make partner, the additional income you receive can go toward your retirement savings, your investment accounts, or your debts.

See a promotion, a bonus, or a raise as an opportunity to save more. Do you have a household budget? Then the amount of saving that the extra income comfortably permits will be clear. Even if you do not closely track your expenses, you can probably still save (and invest) to a greater degree without imperiling your current lifestyle.

Avoid taking on new fixed expenses that may not lead to positive outcomes. Shouldering a fixed mortgage payment as a condition of home ownership? Good potential outcome. Assuming an auto loan so you can drive a luxury SUV? Maybe not such a good idea. While the home may appreciate, the SUV will almost certainly not.    

Resist the temptation to rent a fancier apartment or home. Few things scream “lifestyle creep” like higher rent does. A pricier apartment may convey an impressive image to your friends and associates, but it will not make you wealthier.

Keep the big goals in mind and fight off distractions. When you earn more, it is easy to act on your wants and buy things impulsively. Your typical day starts costing you more money.

To prevent this subtle, daily lifestyle creep, live your days the same way you always have – with the same kind of financial mindfulness. Watch out for new daily costs inspired by wants rather than needs.

Live well, but not extravagantly. After years of law school or time toiling at start-ups, getting hired by the right firm and making that career leap can be exhilarating – but it should not be a gateway to runaway debt. According to the Federal Reserve’s latest Survey of Consumer Finances, the average American head of household aged 35-44 carries slightly more than $100,000 of non-housing debt. This is one area of life where you want to be below average.1

Mike Moffitt may be reached at ph#641-782-5577 or email: mikem@cfgiowa.com

Website: www.cfgiowa.com           

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

Citations.

1 – time.com/money/5233033/average-debt-every-age/ [4/13/18]

 

Saving More Money, Now & Later

You could save today & tomorrow, often without that penny-pinching feeling.

Directly & indirectly, you might be able to save more per month than you think. Hidden paths to greater savings can be found at home and at work, and their potential might surprise you.

Little everyday things may be costing you dollars you could keep. Simply paying cash instead of using a credit card could save you four figures annually. An average U.S. household carries $9,000 in revolving debt; as credit cards currently have a 13% average annual interest rate, that average household pays more than $1,000 in finance charges a year.1

The typical bank customer makes four $60 withdrawals from ATMs a month – given that two or three are probably away from the host bank, that means $5-12 a month lost to ATM fees, or about $60-100 a year. A common household gets about 15 hard-copy bills a month and spends roughly $80 a year on stamps to mail them – why not pay bills online? Automating payments also rescues you from late fees.1

A household that runs full loads in washing machines and dishwashers, washes cars primarily with water from a bucket, and turns off the tap while shaving or brushing teeth may save $100 (or more) in annual water costs.1

Then, there are the big things you could do. If you are saving and investing for the future in a regular, taxable brokerage account, that account has a drawback: you must pay taxes on your investment income in the year it is received. So, you are really losing X% of your return to the tax man (the percentage will reflect your income tax rate).2  

In traditional IRAs and many workplace retirement plans, you save for retirement using pre-tax dollars. None of the dollars you invest in those plans count in your taxable income, and the invested assets can potentially grow and compound in the account without being taxed. This year and in years to follow, this means significant tax savings for you. The earnings of these accounts are only taxed when withdrawn.2,3

How would you like to save hundreds of dollars per month in retirement? By saving and investing for retirement using a Roth IRA, that is essentially the potential you give yourself. Roth IRAs are the inverse of traditional IRAs: the dollars you direct into them are not tax deductible, but the withdrawals are tax free in retirement (assuming you abide by I.R.S. rules). Imagine being able to receive retirement income for 20 or 30 years without paying a penny of federal income taxes on it in the years you receive it. Now imagine how sizable that income stream might be after decades of potential compounding and equity investment for that IRA.4

Many of us can find more money to save, today & tomorrow. Sometimes the saving possibilities are right in front of us. Other times, they may come to us in the future because of present-day financial decisions. We can potentially realize some savings by changes in our financial behavior or our choice of investing vehicles, without resorting to austerity.

*All investing involves risk including loss of principal

Mike Moffitt may be reached at ph# 641-782-5577 or email: mikem@cfgiowa.com

Website: www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

Citations.

1 – realsimple.com/work-life/money/saving/money-saving-secrets [7/13/17]

2 – investopedia.com/articles/stocks/11/intro-tax-efficient-investing.asp [8/5/16]

3 – blog.turbotax.intuit.com/tax-deductions-and-credits-2/can-you-deduct-401k-savings-from-your-taxes-7169/ [2/7/17]

4 – cnbc.com/2017/05/15/personal-finance-expert-do-these-6-things-to-save-an-extra-700-per-month.html [5/15/17]

 

Why DIY Investment Management Is Such a Risk

Paying attention to the wrong things becomes all too easy.

If you ever have the inkling to manage your investments on your own, that inkling is worth reconsidering. Do-it-yourself investment management can be a bad idea for the retail investor for myriad reasons.

Getting caught up in the moment. When you are watching your investments day to day, you can lose a sense of historical perspective – 2011 begins to seem like ancient history, let alone 2008. This is especially true in longstanding bull markets, in which investors are sometimes lulled into assuming that the big indexes will move in only one direction.

Historically speaking, things have been so abnormal for so long that many investors – especially younger investors – cannot personally recall a time when things were different. If you are under 30, it is very possible you have invested without ever seeing the Federal Reserve raise interest rates. The last rate hike happened before there was an iPhone, before there was an Uber or an Airbnb.

In addition to our country’s recent, exceptional monetary policy, we just saw a bull market go nearly four years without a correction. In fact, the recent correction disrupted what was shaping up as the most placid year in the history of the Dow Jones Industrial Average.1

Listening too closely to talking heads. The noise of Wall Street is never-ending, and can breed a kind of shortsightedness that may lead you to focus on the micro rather than the macro. As an example, the hot issue affecting a particular sector today may pale in comparison to the developments affecting it across the next ten years or the past ten years.

Looking only to make money in the market. Wall Street represents only avenue for potentially building your retirement savings or wealth. When you are caught up in the excitement of a rally, that truth may be obscured. You can build savings by spending less. You can receive “free money” from an employer willing to match your retirement plan contributions to some degree. You can grow a hobby into a business, or switch jobs or careers.

Saving too little. For a DIY investor, the art of investing equals making money in the markets, not necessarily saving the money you have made. Subscribing to that mentality may dissuade you from saving as much as you should for retirement and other goals.

Paying too little attention to taxes. A 10% return is less sweet if federal and state taxes claim 3% of it. This routinely occurs, however, because just as many DIY investors tend to play the market in one direction, they also have a tendency to skimp on playing defense. Tax management is an important factor in wealth retention.

Failing to pay attention to your emergency fund. On average, an unemployed person stays jobless in the U.S. for more than six months. According to research compiled by the Federal Reserve Bank of St. Louis, the mean duration for U.S. unemployment was 28.4 weeks at the end of August. Consider also that the current U-6 “total” unemployment rate shows more than 10% of the country working less than a 40-hour week or not at all. So you may need more than six months of cash reserves. Most people do not have anywhere near that, and some DIY investors give scant attention to their cash position.2,3

Overreacting to a bad year. Sometimes the bears appear. Sometimes stocks do not rise 10% annually. Fortunately, you have more than one year in which to plan for retirement (and other goals). Your long-run retirement saving and investing approach – aided by compounding – matters more than what the market does during a particular 12 months. Dramatically altering your investment strategy in reaction to present conditions can backfire.

Equating the economy with the market. They are not one and the same. In fact, there have been periods (think back to 2006-2007) when stocks hit historical peaks even when key indicators flashed recession signals. Moreover, some investments and market sectors can do well or show promise when the economy goes through a rough stretch.

Focusing more on money than on the overall quality of life. Managing investments – or the entirety of a very complex financial life – on your own takes time. More time than many people want to devote, more time than many people initially assume. That kind of time investment can subtract from your quality of life – another reason to turn to other resources for help and insight.

Mike Moffitt may be reached at phe# 641-782-5577 or email: mikem@cfgiowa.com

Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

  

Citations.

1 – cnbc.com/2015/09/10/this-market-is-setting-a-wild-volatility-record.html [9/10/15]

2 – research.stlouisfed.org/fred2/series/UEMPMEAN [9/4/15]

3 – research.stlouisfed.org/fred2/series/U6RATE/ [9/4/15]