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Staying Financially Healthy

Secrets of Super Savers

9/26/2019

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How do some people enjoy the good comfortable life and still find ways to save 20 to 30 percent of their incomes? Like most people, such super savers have home mortgages, pay tuition bills, and take vacations. Also, they tend to have peace of mind about their finances because they have built up a sizable cushion of savings and investments.

Some of the secrets of Super Savers include:


  • Be goal-oriented about savings and investments to achieve results,
  • Shop purposefully (by asking "Do I really need it?") so you can ignore impulse buys, which make up 40 percent of purchases
  • Choose to postpone buying anything expensive for two months to see if the "need" is still strong. Avoid debt (installment loans for computers, vehicles, TVs, cell phones,
  • electronics, and furniture) and using credit cards so you will not spend money you do not have.
  • Cut back on spending on expensive items such as homes (not the largest in the neighborhood) and vehicles (drive older ones), and enjoy creative vacations that are not too pricey.
  • Choose to spend wisely on everyday expenses by comparison shopping, clipping and using coupons, buying cheaper discounted goods and services, and being careful and mindful about entertainment expenses.
  • Make savings automatic by diverting the maximum contribution to your employer's 401(k) retirement plan, and sign up for automatic transfers from a checking to a savings account, a 529 plan, a Roth IRA, and/or a high-yield savings accountSave more as income rises

- Tips from Dorothy B. Durband Kansas State University, Manhattan, Kansas
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Variable Expenses VS Fixed Expenses

9/19/2019

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Variable Expenses VS Fixed Expenses

Variable expenses (or flexible expenses) are expenditures over which an individual has considerable control. Food, entertainment, and clothing are variable expenses Some categories, such as savings, can be listed twice, as both fixed and variable expenses.

The following are examples of fixed and variable expenses that you might include in a cash-flow statement:

Fixed Expenses
  • Savings and investments
  • Retirement contributions to 401(k) plan and IRA account
  • Housing (rent, mortgage, loan payment)
  • Automobile (installment payment, lease)
  • Insurance (health, life, liability, disability, renter's, homeowner's, automobile)
  • Installment loan payments (appliances, furniture, electronics)
  • Internet service
  • Telephone payments
  • Taxes (federal income, state income, local income, real estate, Social Security, Medicare, personal property)

Variable Expenses
  • Meals (at home and away)
  • Utilities (cell phone, electricity, water, gas)
  • Transportation (gasoline and maintenance, licenses, registration, public transportation, tolls)
  • Medical expenses
  • Child care (nursery, baby-sitting)
  • Lunches at work
  • Dry cleaning
  • Clothing and accessories (jewelry, shoes, handbags)
  • Snacks (candy, soft drinks, other beverages)
  • Education (tuition, fees, books, supplies)
  • Household furnishings (furniture, appliances, curtains)
  • Cable television
  • Personal care (beauty shop, barbershop, cosmetics, dry cleaner)
  • Entertainment and recreation (hobbies, socializing, health club, downloads, movie rentals, movies)
  • Charitable contributions (gifts, church, school, charities)
  • Magazine subscriptions
  • Vacations and long weekends
  • Credit card payments
  • Savings and investments
  • Miscellaneous (postage, books, magazines, newspapers, personal allowances, domestic help, membership fees)

There is no rigid list of categories to be used in the expenses section, but you do need to classify all of your expenditures in some way that suits your needs. Rather than just use fixed and variable expenses categories, you might also separate expenditures into savings/investments, insurance, taxes, and household expenses. The more specific your categories, the deeper your understanding of your budget.
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Warped Financial Priorities Lead to Tough Retirement for Americans

9/12/2019

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​Americans place much of their focus on managing their existing debt over saving for the future, which results in their overall loss of focus on adequately saving enough money for retirement.

This is according to Jamie Hopkins, director of retirement research at Carson Wealth in a piece at Forbes.

"Most parents list paying down existing debt as their number one financial priority over longer term goals like saving for college or retirement," Hopkins says in citing a study conducted by New York Life Insurance Company. "However, the number of American parents focused on primarily paying down debt is astonishing, with roughly 72 percent of parents saying their primary financial focus in 2019 will be debt management."

Because Americans lack general focus in planning for their long-term financial health, many of them are forced to seek out the guidance of retirement professionals in later years, Hopkins says. However, many of the same individuals in the New York Life survey who stated their focus on debt management also display an unwillingness to get professional guidance on their long-term saving plans.

"Only 30 percent of the respondents stated they plan to seek expert help in 201[9], down from 38 percent in 2018," Hopkins says.

All of these issues feed into a series of larger problems, putting many Americans in a difficult financial situation by the time they get into a vulnerable position without adequate savings in retirement.

"Americans don’t view financial advice as a solution to their financial woes, yet they have difficulty planning for the future," Hopkins says. "Nearly 42 percent of Americans have less than $10,000 saved for retirement."

In order to try and better prepare more people for their financial futures, there are three key recommendations Hopkins makes in order for people to more adequately secure them. The first is for people not to spend money they don’t have, and people can start better looking toward this goal by visualizing their spending habits, Hopkins says.

Saving any increases in income and pushing for consumers to educate themselves concerning investment options are also advised by Hopkins, who has also advocated for the wider contemplation of reverse mortgages as a financial tool in retirement funding.

Article written by Mathieu Turle
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Busting Your A-B Trust!

9/5/2019

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​These days very few families need a complicated tax avoidance trust also known as an A-B Trust. Many trusts were set up over the years to help protect wealth from death taxes. The old A-B Trust allowed you to double the tax savings by creating 2 trusts. However, the federal death tax exemption has risen steadily in recent years from $600,000 to $11,400,000 for 2019 (or to over $22,000,000 for couples). Congress has made the death tax exemption permanent until 2026 and indexed it for inflation. As a result very few people need estate tax planning, and many A-B Trusts that were created years ago are no longer necessary. 
​
But what if you set up an A-B trust years ago? You may want to act now to get rid of it and avoid unnecessary expense and hassle for your family. The current laws make A-B trusts less desirable than they have been in the past when the exemption amount was $600,000. 
​
How does an A-B trust work? When one spouse dies the trust is split into two (2) trusts, Trust A for the surviving spouse, and Trust B for the deceased spouse. Trust B is irrevocable, the surviving spouse cannot change its terms. When one spouse dies the survivor must hire a lawyer or an accountant to determine how to best divide the couple's assets between the deceased spouse's irrevocable trust and the surviving spouse's revocable trust. This decision can have important tax consequences. 
​
The irrevocable “B” Trust is a separate tax paying entity. The surviving spouse must get an employer identification number issued by the IRS for the trust, and file annual trust tax returns (both a 1041 and a 541). These returns are in addition to the 1040 and 540 returns required for Trust A. Therefore the surviving spouse will need to file four (4) separate income tax returns for the rest of her life! The surviving spouse must keep separate records for the irrevocable trust property. 
​
The surviving spouse would need two bank accounts: one for Trust A and another separate bank account for Trust B. The A-B trust becomes complicated after the death of the first spouse, and most surviving spouses are upset about these complications. The children are upset with the A-B Trust because the assets in the B trust are subject to income taxes that could have been avoided if their parents had busted the A-B Trust. 
​
As long as both spouses are alive you can revoke your old A-B Trust and avoid the expense and hassle that will come after one spouse dies. To do it correctly, you should restate your old A-B Trust and update it to a simple probate avoidance trust with disclaimer provisions. You will also want to update your wills, health care directives, and powers of attorney for property. The title and date originally used for the trust will stay the same, so you don't have to worry about changing title to any of your assets.
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    Mathius Marc Gertz
    Mathius Marc Gertz MBA, AFC®, CAPS
    Marc has 36 years in financial services and 6 years in teaching.
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