What About a Lifestyle “Ceiling”?

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In our pursuit of “The American Dream.” the thought of limiting our lifestyle, so that we are not spending every dollar we make, is foreign and unappealing.  Few people want to do that!

However, the day will come for each of us, sooner or later, when we won’t be able to continue working at our jobs.  Our income will shrivel to whatever Social Security benefits might still be available, plus the amounts we have put aside in savings and investments.  For some of us, that conjures up a pretty dismal picture!

As scary as that may be, we still resist any limitations on our current spending habits.  In our consumer driven society, there is always something bigger, better, nicer, prettier, newer, and more stylish than what we already possess.  And it’s also true that no matter how much money we bring home, there will always be something that comes along to catch our eye and dig into our pocketbook.

We need to realize a simple fact: any money we spend on lifestyle is simply consumed and gone — forever!  We will never get it back.  It can never go to work for us.  It is just simply gone!

We can’t eliminate all lifestyle expenses.  But until we finally understand that only money we don’t spend will be available for our future use, we ‘ll not likely be open to any discussion about limiting our lifestyle expenditures and purchases.  Once we come to grips with the reality that awaits us, however, we will finally see the wisdom and prudence of such limitations.

That’s why we advocate putting a “ceiling” on our lifestyle at as early an age as possible, no matter how much money we make.  Failing to do so will keep us from allocating the funds we will need later to sustain our retirement years.  The lifestyle we insist on enjoying today will set up the type of lifestyle we will experience in the future.

Because too many of us live only for the present moment, we never contemplate what life might be like when aging issues or health limitations make it impossible to continue trading our time and energy for money.  At that point, only what we’ve set aside in savings and investments will be there to sustain us.

Developing the financial discipline that will enable us to create a future lifestyle like the one we enjoy today may not be easy, but should be the goal of each of us.  That takes planning.  It requires the willingness to put our spending in “check” and begin systematically laying aside funds that will help produce the future we desire.

Some financial vehicles do a better job than others in helping us achieve our future goals. But understanding how money works can be even more important than choosing the right financial tool.

Allow me to introduce you to some little-known principles that will arm you for your journey and give you confidence to navigate the murky financial waters ahead.

 

 

Where to Park Your Money?

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There are many questions worth asking when it comes to our savings and investments.  However, the top four on the minds of most people getting ready to park their money are probably these:

(1)  “How liquid will my money be? This is probably the key element in determining a wise investment.  Too often, we give up access to our capital.  By locking up funds in equity or qualified plans, we can make it difficult and extremely expensive to access our cash when needed for emergencies, major expenses, or a lucrative, time-sensitive investment opportunity.  What if you lost your job or became disabled?  How easily could you access your funds if needed?

(2)  Would my resources be safe?  Are there any guarantees?  What is the risk factor?  Some types of accounts have no loss provisions while others require a strong risk tolerance.

Humorist and social commentator, Will Rogers, was once quoted as saying, “I am more concerned about the return of my money than the return on my money.”  Both are important, but getting a high return ON your money, while important, can be, and are sometimes is, totally nullified by losses incurred.

(3)  What is the anticipated Rate of Return?  Obviously, return on investment is an important consideration, but everyone knows the higher the return, the more likely one will encounter risk.  Even hiding money under a mattress in order to avoid risk, however, has its own dangers.  A good question might be, “Where can I get the highest return for the lowest risk?”

(4)  How will my investment be impacted by taxes?  Many folks have no comprehension just how taxes can significantly erode the accumulation of their wealth.

Tax-deferred growth enables your funds to accumulate faster and better than in a taxable environment.  However, the piper will eventually have to be paid.  Those taxes have not been eliminated, only postponed!  Unfortunately, something else has been postponed as well — the tax calculation!

If, at withdrawal, your tax bracket has gone down, the wisdom of your decision will be obvious.  However, if tax rates go up instead (and who in America really believes they won’t?),  you will end up paying a higher percentage to the government than you originally owed.

And don’t forget that the government’s money grows right along with your money.  If you have $100,000 in a qualified account and are in a 25% income tax bracket, you will be giving Uncle Sam $25,000 of that money at withdrawal.  Should you be fortunate enough to double your money, guess what?  The government’s money will double as well.

Are there accounts where our money can grow with guaranteed rates of return, safety, accessibility, liquidity, and control, in a tax-favored environment?  Thankfully, the answer to that question is “Yes!”

The Private Reserve Strategy enables you to take advantage of amazing benefits, while growing your money and having complete access and control of it at the same time.  By understanding how money really works and utilizing a little known and often misunderstood financial vehicle, you can positively answer all four questions and move toward your future with great confidence.

Is It Possible to Borrow Money Without Going Into Debt?

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When we think of borrowing money, we almost always think of going into debt, becoming a debtor.  But there are folks who borrow money without going into debt.  We’ll call them creditors — people who have the money to pay for an item, but don’t want to give up control and the other opportunities associated with keeping their money, so they choose to borrow.

Let’s define these two terms and look more specifically at each one.

First, we will define the debtor.  A debtor is one who doesn’t have the cash to pay for an item at the time of the purchase.  He borrows with the intention to repay, based on the assumption that he will be able to trade his time and energy for future earnings.  This person is currently employed and fully intends to pay the debt.

As long as things are going well for this person, he does pay his obligation faithfully.  However, in hard times, debtors may not have the ability to pay, even though they have every intention to do so, because that ability is based on income they have yet to earn.  Thus, the circumstances of life often make that good intention impossible to fulfill.

On the other hand, a creditor who chooses to borrow money is in an entirely different position.  He has the necessary capital available, but recognizes there are opportunities out there where his money can earn more than he would pay for the use of borrow funds.  Additionally, deciding to use his own money to make his purchase means he must relinquish control over those resources.

The creditor weighs the earning potential of his cash reserves and the value of access to and control of his capital against the cost of borrowed funds.  Then he makes his decision based on what will best serve his future financial goals.

The defining issue between the debtor and the creditor is simply this: one has accumulated money and the other does not.  Those of us without money, or access to capital, have little to no bargaining power.

It is true that using someone else’s money (borrowing) does have a cost, and no one enjoys paying it!  However, that’s where most of us get bogged down.  We can’t see the forest for the trees.

We fail to recognize the cost of using our own money.  There is a cost either way!   When we deplete or diminish our resources, we relinquish what our own money could have earned us.   Once we spend them down to pay cash for a car, a wedding, college education, etc, those funds can never again earn us any interest.

We need to understand that the cost of that purchase doesn’t end once the sale is finalized.  Had we not spent that money, it could have kept accumulating by compounding interest for the rest of our lifetime!

That’s what we call “lost opportunity cost.”  It’s an important concept to understand if we want to maximize the efficiency of our money and accomplish our financial goals.

The Private Reserve Strategy  maximizes the efficiency of your money!  You owe it to yourself to at least take a look.

 

 

Personality Differences Can Make Budgeting a Challenge

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In creating a household budget, it’s important to take into consideration the personalities of those involved in implementing each of the line items.  In our family, my husband takes care of the monthly bills, house payment, charitable giving, insurance, etc. Most of the categories he is responsible for are fairly fixed expenditures.

I, on the other hand, do most of the spending for groceries, clothing and gifts, living expenses – all of which can vary depending on whether we have company, go camping, have a lot of birthdays in a given month, etc.  Staying within the budget in a category with a lot of variables can be very challenging.

In the discussion about how much money to include in each of these variable categories, our different personalities show up big time.  My husband’s preference is to make the monthly budget as low as we can, with the understanding that in those months we have extra responsibilities, we’ll have to make adjustments accordingly.

For me, however, there is a certain amount of guilt associated with going over budget that I like to avoid whenever possible.  Therefore, I prefer starting with a larger amount for my most challenging categories like “groceries.”  Then I make it my goal to come below budget whenever possible.  When I’m able to do that, it’s a victory for me, but on those occasions when I cannot, I’m not bombarded with guilt, because I’m usually still within budget.

Over the years, my husband has learned to take advantage of the mileage he gets out of designing our budget in a way he knows I’ll be able to wholeheartedly endorse.

These types of adjustments may seem silly and insignificant, but if they mean the difference between willing, even enthusiastic, compliance and negative, half-hearted participation, it might be well worth the effort to understand what makes that difference for your spouse

 

 

Budgets — Love ‘Em or Hate ‘Em — But They Do Work!

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Perhaps one of the main reasons people don’t achieve their financial goals in the long run is their reluctance to sit down and hammer out a workable budget for the short run.  Budgets are not necessarily fun. They are often difficult to create and even harder to implement.

Progressing toward future financial goals will be difficult unless we get honest about what we are spending right now.  Exactly how much income do we have each month?  Monies that are intermittent or seasonal should not be counted in the monthly budget.

What are our non-negotiable expenditures? These must take priority.  After that, what is a realistic amount for each of the other budget categories still to be dealt with?

How much should we be saving or investing?  Do we know the difference between the two?  Should we implement some kind of “forced-savings” plan which will make saving a non-negotiable?

How much are we actually spending?  That may be vague and hard to nail down.  Sometimes, it is necessary to track our spending for a few weeks to get an honest appraisal of real-life spending habits.  Few of us think we spend as much as we do, so tracking where and how much we actually spend, down to the penny, is often a rude awakening.

How much of our income goes toward debt management — paying now for goods and services bought in the past, many of which are already used up, broken, or discarded?  Often, we could live comfortably within our income if we weren’t shelling out such a large percentage of it to pay for past expenditures.

Once we have a realistic picture of our financial situation, we can begin implementing the budget we’ve agreed upon.  But let me caution you to see this as a fluid exercise.  You will need to revisit your budget, make adjustments, and recalculate as you go.

By it’s very nature, it most likely will create tension in your household as you seek to implement it, but patience and grace will help you grow through it together.  Locking yourself rigidly into a budget you refuse to change can create discord and discouragement that makes it tempting to just give up completely.

A budget should be implemented as a benefit to you and your family to help you meet your goals, a road map to help steer you toward your destination.

Why Can’t I Seem to Get Ahead?

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Wealth Transfers may be undermining your Financial Goals.  Most people are not aware of what wealth transfers are, let alone how to identify and eliminate them, but that doesn’t keep them from occurring.

Transfers of wealth can take place currently or in the future, but they involve money we are losing, unknowingly and unnecessarily, and what that money could have earned us had it not slipped away from us.   Sadly, the largest wealth transfers can occur in the least expected places, often while making what many of us consider wise financial decisions.

Eliminating wealth transfers is a hugely important step in securing our financial future.  If we manage to accumulate a million dollars, but lose another million along the way, how sad is that?

6 Things You Should Know About Wealth Transfers

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Money that leaves your circle of wealth, unnecessarily, and without your knowledge, can have a huge impact on your retirement goals.  In fact, in a lifetime, many people will lose, through Wealth Transfers, as much as they accumulate, and they never even know it.

If you are serious about making your money grow, there are six(6) things you should know about Wealth Transfers:

  1. Wealth Transfers are a liability.  The liability can be either current or potential.
  2. Wealth Transfers are hidden.  You have to dig to find them.  Clients need help seeing them.
  3. Wealth Transfers can be a huge obstacle to creating wealth.
  4. Wealth Transfers hinder cash flow.
  5. Many advisers do not know Wealth Transfers exist and are not trained to know how to deal with them.
  6. Wealth Transfers can be corrected, minimized, or avoided.

At Brite Hope Solutions, our role is to assist the client in identifying and correcting, or avoiding, wealth transfers.  Our focus is unique, and sets us apart from all other financial advisors.

We develop strategies to eliminate, reduce, or minimize wealth transfers and bring that money back to the table to work on your behalf.

4 Questions You Should Know the Answers To

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When we’re young, retirement seems such a long way off that we seldom feel any urgency to plan for it.  I know few people, however, who don’t arrive at their golden years wishing they’d started sooner, planned better, and saved more!

Do you know how to determine where you will be financially at retirement, if you continue on your present course of action?  Do you know what would need to change, and by how much, for you to make the corrections that would bring about the outcome you desire?

Whatever your age, knowing the answers to these four questions can save you a lot of grief when you finally reach that stage in life when you have more years to look back on than forward to.  So ask yourself:

  1. What rate of return will I need to earn, every year from now until retirement, to be able to maintain my standard of living without running out of money before my life expectancy?
  2. How much do I need to be putting away every year between now and retirement, to be able to live like I am living now (or like I want to live)  without outlasting my money.
  3. In my current plan, how many years past my desired retirement age will I have to keep working in order to accumulate enough assets to sustain my desired lifestyle through my life expectancy without running out of money?
  4. At the rate I’m currently saving/investing, what is the maximum I could spend each year during my retirement years and still have my money last all the way to my life expectancy.

At Brite Hope Solutions, we offer a complementary service to help you answer those questions. Our powerful tool, “Retirement, Ready or Not,” can help you get on track to making sure that what you want to happen in those golden years will happen.

Is My Cash Really Free?

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Do you know how much your hard-earned cash in savings or other accumulated assets is worth to you?  That may sound like a rather simplistic statement.  But if we’re honest, we’ll have to admit, when we get ready to make a major purchase such as an automobile, home, wedding or college education, we recoil at the idea of using the bank’s money because of the interest we have to pay.  We’d say that money is expensive to use, and we’d be right.

Those of us who are cash-payers think nothing of taking our own money, however, and plopping it down to save the interest we’d have to pay if we financed that purchase.  Most likely, we even feel a mite proud of such a noble accomplishment in our financial journey, and, indeed, we should be.   The discipline it takes to postpone gratification until we can afford the purchase is worthy of approval.

The concern I want to raise is this:  we treat our own cash as if it is free, as if it doesn’t cost us anything to use it.  Is that true?

One question begs to be answered:  Is our cash really free?  What if the cash we used to make our purchase would have earned us more had we kept it and put it to work than we’d have paid for the use  of someone else’s money?   You see, our money is not free, because, when we pay cash for major purchases, we give up whatever we could have earned had we left our money to compound interest without interruption for the rest of our lives.

There is a fundamental difference between amortized interest and compounded interest.  There is a huge discrepancy between the interest I pay on the decreasing balance of an amortized loan and the interest I earn on the increasing balance of a  compounding account.  If I can leave my money to work for me without interruption, without having to spend down my reserves, I will earn more than enough to pay for the use of someone else’s money and pocket the very significant difference.

What if there is a way to make those major purchases without spending down your own reserves.  What if, instead of spending your reserves, you could use them as collateral?  Then your money could continue to earn and grow.  We call this concept the Private Reserve Strategy and would love to show you how it works.  Contact us for more information.