Controlling Personal Debt

Retirement Lifestyles Weekly Quick Tip



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Video Transcript:

Hi I’m Patrick McNally with today’s quick tip from Retirement Lifestyles.

This week I’m talking about controlling personal debt

Let’s start with the cold hard stats… 7 out of 10 Americans live paycheck to paycheck and are loaded with credit-card debt.

In fact, according to NerdWallet.com, the average American household has $134,643 in debt with credit card balances of $16,748. The average interest rate runs in the mid- to high teens at any given time.

Let me ask you a question, have you ever felt like you wanted to start saving and investing more, but just don’t have the extra cash to do it?

Once you learn how to control your personal debt, you’ll be able to get on track and accomplish your financial goals.  Here are 5 tips to get you started.

First, you need to understand that some debt is good.                

For example, borrowing for a home usually makes good sense. Especially because you can write off the mortgage interest on your taxes, thereby reducing your overall tax bill.

Second, you also need to understand that some debt is bad.

It’s usually not a good idea to use a credit card to pay for things you consume quickly, such as meals, it doesn’t make sense to finance your hamburger… the same goes for vacations, unless you can pay off your bill in full every month. Using a card for these items is the easiest way to fall into debt, so try putting aside some cash each month for these things so you can pay the bill in full.

Now, I can hear a lot of you saying, but Patrick I want to get the airline miles on my card… ok, look, if you want to use that card, fine, but at least save the cash for it first over a period of weeks or months, then charge it, and then pay it all off!

Number three… Get a handle on your spending.

Most people spend thousands of dollars without much thought to what they're buying. Write down everything you spend for a month, cut back on things you don't need, and start saving the money left over or better yet, use it to pay down your debt more quickly.

Number four…Pay off your lowest balance credit cards first.

If you have multiple credit cards, add up the monthly minimum payments from each one. Whatever that number is, imagine of you could be investing that amount, instead of sending it to a credit card company.

The key to getting out of credit card debt efficiently is to pay down the lowest balance first. That way you get a small win each time you pay something off and your confidence grows. Now, whatever the minimum payment was on the last card… add it to the next one and you’ll snowball your way out of debt.

I’ve included a link below and in the youtube description for a free debt snowball worksheet. It will help you list out your credit cards and the balances. Go ahead and download it, put it to work and watch the debt melt away.

And finally number five, expect the unexpected.

Set up an emergency fund with a thousand dollars in it. You always need a cash cushion in case of an emergency. If you don't have an emergency fund, a broken air conditioner or damaged car can seriously upset your finances.

Thanks for watching today’s quick tip, like it, share it and post any comments that you’d like.

If you would like to learn more about how we help clients with retirement planning, click the link below that says “I would like to schedule a call with Patrick” and it will magically bring up my personal calendar where you can reserve a phone call with me and we can discuss your situation and you can ask me any question you want.

There’s no charge for the call and you don’t need to worry about sending me any personal information or account statements.

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And if you live in the north state, be sure you tune in to my radio show Retirement Lifestyles every Saturday morning at 9am on news talk 1057 KQMS.

Thanks again for joining me today, and I wish you the best in retirement!

Retirement Lifestyles Weekly Quick Tips

Weekly Update May 30th, 2017

This Week's Update is all about Asset Allocation..!

Retirement Lifestyles Weekly Update May 22nd, 2017

Gain Insight into the New World of Retirement

This is not your father's retirement; it won't be your children's either. Retirement – what it means and how we get there – is constantly changing. Understanding today's world gets your retirement journey off to a good start, and keeps you ready for changes on the way.

Whether you're fresh out of college or ten years into the workforce, your first thought about retirement is probably...that it's very far off. That's understandable. Right now you're thinking about your career, perhaps starting a family or buying a house. It's not easy to imagine what your life may be like in your 70s.

But here's the thing: the retirement savings habits you establish now will serve you throughout your career, and putting time on your side by starting early will give you much greater freedom and flexibility later.

The Cost of Waiting

Retirement is a great place to be, but it's a long road to get there. Take the first step today! Take Action!

  • Start saving today - don't count on tomorrow.
  • Use as much time as possible to save and invest for retirement.

Every day is an opportunity to build your savings so you can live your retirement dreams.

If you haven't started saving – or if you aren't saving enough - here are some important things to consider:

  • People are living longer – Your earning years may not be much longer than your retirement years.
  • The level of income you'll need to afford the lifestyle you desire during retirement may well exceed your current living expenses.
  • Time is money – The sooner you start saving, the more time your investments will have to grow.

Investing just $300 per month will grow to $787,444 in forty years, assuming an average annual growth rate of 7%. If you put off saving for retirement for even just five years, that number shrinks to $540,316. So that $300 a month that you didn't save for retirement may have afforded you $18,000 worth of small luxuries over those five years, but it leaves you with $247,128 less when you retire. There is no doubt that the cost of waiting is very high.

These investment returns are not the only missed opportunity if you don't start saving now. If you work for a company that matches a portion of your retirement account contributions, waiting also costs you that company contribution and the investment returns on that amount.

And don't forget about the tax advantage of saving for retirement. When you make retirement account contributions on a pre-tax basis, a smaller percentage of each paycheck goes to the IRS. More importantly, your retirement funds won't be subject to taxes until you begin making withdrawals after your retirement party. 

Have More Questions?

Good Financial Steps to Take When You Get Married

If you’re going to say “I do”, here are some things you might want to do. 

Are you marrying soon? Have you recently married? As you begin your life together, it's important for you to start planning your financial future together and putting your finances on the same page. Here are some priorities you might want to write down on your financial to-do list …

Plan for retirement. 

There is a chance that decades from now, many of us who are currently saving and investing for the future might end up millionaires. Actually, we may all need to become millionaires.

Consider this: according to current Social Security Administration projections, the average 63-year-old is projected to live until age 84.1 So today’s typical retiree is looking at a retirement of approximately 20 years. Some of these people will live past 100 – many more than in previous generations.

Given ongoing advances in health care, how long might you live? Living to be 90 or 100 might become commonplace for the members of Gen X and Gen Y. Factor in inflation’s effect on the cost of goods and services, and you can see a possible scenario ahead where you might need, say, $100,000 or more a year for 30 years to have a nice retirement in which you don’t outlive your money.

This (strong) possibility means you may want to make saving for retirement NOW a higher priority.

In a typical couple, one spouse is more risk-averse than the other (sometimes dramatically so). So you need to agree on the investment approach you take, preferably with the help of a financial consultant who can help you determine how much money you might need for certain life goals or financial objectives.

Manage debt. 

Many of us go through life shouldering five-figure or even six-figure debts. When couples marry, the danger is that one spouse’s debt will be seen as “his debt” or “her debt”. Arguments may start because “your debt” is hurting “us”.

Debt management should be a priority for any newly married couple. There are good debts which we assume on the way to a positive result (such as a mortgage), but there are also bad ones we assume through our credit cards and other channels.

Live within your means. 

An established, mutually-agreed-upon budget can be very helpful in this regard. Different people have different levels of thrift, and different perceptions of what a “bargain” looks like. This perception gap can result in some interesting financial moments in your life – your spouse may pick up a “bargain” that you would call an extravagance.

Save for college. 

If you plan to raise children, it’s never too soon to start saving for college. You can do it a little at a time, a little per month. You can open a college savings account using different investment vehicles – stocks, funds, or investments with lower risks. 529 plans in particular offer you some fine tax breaks.

Insure yourself. 

You need disability and life insurance. You may feel you don’t need it yet. However, getting a policy early can be cost-efficient: if you buy a term life policy (or even a permanent life policy) when you are young and healthy, chances are you will pay less expensive premiums than people in their 40s and 50s who may be obese, diabetic, heavy smokers or drinkers.

Communicate to avoid surprises. 

No matter how much of a “we” a couple becomes, there is always the need for some private space, some individual pursuits and “me time”. That’s great, but that’s probably not the best approach when it comes to your shared financial life. When a spouse starts to hide a money-related matter or omit it from conversations, it may open the door to troubles. Open, frank conversations about money may be the best way to avoid problems in your finances (as well as your relationship.)

Build an emergency fund. 

You’ve probably watched or read a number of stories about couples who were hit hard by the downturn – nice, once-affluent people who suddenly had to live in their car or a motel. When things got rough, many had no emergency fund to sustain them and ended up homeless.

Consider building up a cash reserve (gradually, if necessary) that you could tap into should something go wrong. You won’t regret having it around.

Citations

1 – chicagotribune.com/business/sc-cons-0819-journey-20100819,0,1141623.story [8/19/10]

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