Investing for Major Financial Goals

Investing for Major Financial Goals

Presented by Jared Daniel of Wealth Guardian Group

Go out into your yard and dig a big hole. Every month, throw $50 into it, but don't take any money out until you're ready to buy a house, send your child to college, or retire. It sounds a little crazy, doesn't it? But that's what investing without setting clear-cut goals is like. If you're lucky, you may end up with enough money to meet your needs, but you have no way to know for sure.

How do you set goals?

The first step in investing is defining your dreams for the future. If you are married or in a long-term relationship, spend some time together discussing your joint and individual goals. It's best to be as specific as possible. For instance, you may know you want to retire, but when? If you want to send your child to college, does that mean an Ivy League school or the community college down the street?

You'll end up with a list of goals. Some of these goals will be long term (you have more than 15 years to plan), some will be short term (5 years or less to plan), and some will be intermediate (between 5 and 15 years to plan). You can then decide how much money you'll need to accumulate and which investments can best help you meet your goals. Remember that there can be no guarantee that any investment strategy will be successful and that all investing involves risk, including the possible loss of principal.

Looking forward to retirement

After a hard day at the office, do you ask, "Is it time to retire yet?" Retirement may seem a long way off, but it's never too early to start planning--especially if you want your retirement to be a secure one. The sooner you start, the more ability you have to let time do some of the work of making your money grow.

Let's say that your goal is to retire at age 65 with $500,000 in your retirement fund. At age 25 you decide to begin contributing $250 per month to your company's 401(k) plan. If your investment earns 6 percent per year, compounded monthly, you would have more than $500,000 in your 401(k) account when you retire. (This is a hypothetical example, of course, and does not represent the results of any specific investment.)

But what would happen if you left things to chance instead? Let's say you wait until you're 35 to begin investing. Assuming you contributed the same amount to your 401(k) and the rate of return on your investment dollars was the same, you would end up with only about half the amount in the first example. Though it's never too late to start working toward your goals, as you can see, early decisions can have enormous consequences later on.

Some other points to keep in mind as you're planning your retirement saving and investing strategy:

·         Plan for a long life. Average life expectancies in this country have been increasing for many years. and many people live even longer than those averages.

·         Think about how much time you have until retirement, then invest accordingly. For instance, if retirement is a long way off and you can handle some risk, you might choose to put a larger percentage of your money in stock (equity) investments that, though more volatile, offer a higher potential for long-term return than do more conservative investments. Conversely, if you're nearing retirement, a greater portion of your nest egg might be devoted to investments focused on income and preservation of your capital.

·         Consider how inflation will affect your retirement savings. When determining how much you'll need to save for retirement, don't forget that the higher the cost of living, the lower your real rate of return on your investment dollars.

Facing the truth about college savings

Whether you're saving for a child's education or planning to return to school yourself, paying tuition costs definitely requires forethought--and the sooner the better. With college costs typically rising faster than the rate of inflation, getting an early start and understanding how to use tax advantages and investment strategy to make the most of your savings can make an enormous difference in reducing or eliminating any post-graduation debt burden. The more time you have before you need the money, the more you're able to take advantage of compounding to build a substantial college fund. With a longer investment time frame and a tolerance for some risk, you might also be willing to put some of your money into investments that offer the potential for growth.

Consider these tips as well:

·         Estimate how much it will cost to send your child to college and plan accordingly. Estimates of the average future cost of tuition at two-year and four-year public and private colleges and universities are widely available.

·         Research financial aid packages that can help offset part of the cost of college. Although there's no guarantee your child will receive financial aid, at least you'll know what kind of help is available should you need it.

·         Look into state-sponsored tuition plans that put your money into investments tailored to your financial needs and time frame. For instance, most of your dollars may be allocated to growth investments initially; later, as your child approaches college, more conservative investments can help conserve principal.

·         Think about how you might resolve conflicts between goals. For instance, if you need to save for your child's education and your own retirement at the same time, how will you do it?

Investing for something big

At some point, you'll probably want to buy a home, a car, maybe even that yacht that you've always wanted. Although they're hardly impulse items, large purchases often have a shorter time frame than other financial goals; one to five years is common.

Because you don't have much time to invest, you'll have to budget your investment dollars wisely. Rather than choosing growth investments, you may want to put your money into less volatile, highly liquid investments that have some potential for growth, but that offer you quick and easy access to your money should you need it.

Jared Daniel may be reached at www.wealthguardiangroup.com or our Facebook page.

IMPORTANT DISCLOSURESBroadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances.To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.  Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials.  The information in these materials may change at any time and without notice.

Establishing a Budget

Establishing a Budget

Presented by Jared Daniel of Wealth Guardian Group

Do you ever wonder where your money goes each month? Does it seem like you're never able to get ahead? If so, you may want to establish a budget to help you keep track of how you spend your money and help you reach your financial goals.

Examine your financial goals

Before you establish a budget, you should examine your financial goals. Start by making a list of your short-term goals (e.g., new car, vacation) and your long-term goals (e.g., your child's college education, retirement). Next, ask yourself: How important is it for me to achieve this goal? How much will I need to save? Armed with a clear picture of your goals, you can work toward establishing a budget that can help you reach them.

Identify your current monthly income and expenses

To develop a budget that is appropriate for your lifestyle, you'll need to identify your current monthly income and expenses. You can jot the information down with a pen and paper, or you can use one of the many software programs available that are designed specifically for this purpose.

Start by adding up all of your income. In addition to your regular salary and wages, be sure to include other types of income, such as dividends, interest, and child support. Next, add up all of your expenses. To see where you have a choice in your spending, it helps to divide them into two categories: fixed expenses (e.g., housing, food, clothing, transportation) and discretionary expenses (e.g., entertainment, vacations, hobbies). You'll also want to make sure that you have identified any out-of-pattern expenses, such as holiday gifts, car maintenance, home repair, and so on. To make sure that you're not forgetting anything, it may help to look through canceled checks, credit card bills, and other receipts from the past year. Finally, as you list your expenses, it is important to remember your financial goals. Whenever possible, treat your goals as expenses and contribute toward them regularly.

Evaluate your budget

Once you've added up all of your income and expenses, compare the two totals. To get ahead, you should be spending less than you earn. If this is the case, you're on the right track, and you need to look at how well you use your extra income. If you find yourself spending more than you earn, you'll need to make some adjustments. Look at your expenses closely and cut down on your discretionary spending. And remember, if you do find yourself coming up short, don't worry! All it will take is some determination and a little self-discipline, and you'll eventually get it right.

Monitor your budget

You'll need to monitor your budget periodically and make changes when necessary. But keep in mind that you don't have to keep track of every penny that you spend. In fact, the less record keeping you have to do, the easier it will be to stick to your budget. Above all, be flexible. Any budget that is too rigid is likely to fail. So be prepared for the unexpected (e.g., leaky roof, failed car transmission).

Tips to help you stay on track

·         Involve the entire family: Agree on a budget up front and meet regularly to check your progress

·         Stay disciplined: Try to make budgeting a part of your daily routine

·         Start your new budget at a time when it will be easy to follow and stick with the plan (e.g., the beginning of the year, as opposed to right before the holidays)

·         Find a budgeting system that fits your needs (e.g., budgeting software)

·         Distinguish between expenses that are "wants" (e.g., designer shoes) and expenses that are "needs" (e.g., groceries)

·         Build rewards into your budget (e.g., eat out every other week)

·         Avoid using credit cards to pay for everyday expenses: It may seem like you're spending less, but your credit card debt will continue to increase

Jared Daniel may be reached at www.wealthguardiangroup.com or our Facebook page.

IMPORTANT DISCLOSURESBroadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances.To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.  Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials.  The information in these materials may change at any time and without notice.

Financial Planning Issues for New Parents

Financial Planning Issues for New Parents

Presented by Jared Daniel of Wealth Guardian Group

What is it?

As you prepare for life with your new child, it's time to prepare a new financial plan for your family or make any necessary changes to your existing plan. You'll want to consider how your baby will affect your budget, make sure you have adequate insurance, protect your child's future with a well-thought-out estate plan, and determine how having a child will affect your income taxes.

Budgeting for baby

Develop a new spending plan

The birth of a child is an opportunity for you to set up a new budget or review an existing one. You'll have to consider the impact that your child will have on your living expenses as well as account for any shift in income that might occur if you decide to quit your job. You'll also need to save more money to ensure that your family has money to meet its future needs.

Expenses that typically increase when you have a baby

·         Your grocery bill: Diapers and formula (you may use some even if you're breast-feeding) are very expensive, adding $100 or more to your monthly grocery bill. Later, when your baby turns to solid food, you'll have to figure in the cost of baby food.

·         Your housing costs: If you don't already live in a house or large apartment, you may find yourself moving once your baby gets old enough to take up a lot of space with toys and equipment.

·         Your transportation costs: If you have a small car or a two-seat convertible, you may find it difficult to fit in a car seat, and you may need to buy a new car. Or, if you have an old car, you may want to buy something more reliable now that you have to worry about your baby's safety.

·         Your clothing and household expenses: You'll find yourself spending less on yourself and more on your child now that your budget has to stretch. You'll spend a lot initially to buy essentials for your child and then spend a bit more each month than you're used to for items your child needs.

·         Medical expenses: You'll probably pay a co-payment for each of these trips unless your health insurance plan covers 100 percent of well-baby care. Your health insurance premium will likely dramatically increase as well, unless you already had family coverage for you and your spouse.

·         Cost of child care: Whether you look for full-time day care or hire an occasional baby-sitter, you need to plan for the impact this will have on your budget.

Initial expenses

The initial outlay for your baby can be quite high. You'll have to equip your home with baby furniture, a stroller, a high chair, an infant seat, a car seat, bedding, and clothing, among other items. You could spend well over $1,000 equipping your home with just the basics, and many new parents spend a lot more.

However, when you're shopping for the baby you're expecting, try to separate emotion from need. Of course, you want your baby to have the best, but you don't really need the best in most cases. Your baby won't look any cuter in that $1,000 crib than he or she will look in the $200 one, and many parents can tell stories about the top-of-the-line stroller he or she bought then found was too heavy to push easily. The best way to proceed is to ask other parents for recommendations, then shop around. Usually, you don't have to sacrifice quality to save money. If you start shopping far enough ahead, you can find good deals in discount stores, department stores, and superstores. You can also look for items in thrift stores, consignment shops, and yard sales, although finding clean secondhand items in good condition can be a challenge. Ask friends and relatives, too, if you can borrow baby items that they're not currently using. If your friends are throwing you a shower, ask for items you need.

Tip:           Don't buy more than you initially need for your baby, because you may find that what you thought you needed, you really don't. In addition, your friends and relatives may shower you with gifts once the baby is born, and you won't need to buy as much as you thought you would. In particular, don't go overboard buying clothes until you can gauge how rapidly your baby will grow. One thing you definitely should buy is a car seat. Many hospitals won't let you leave without having one, although they may loan you one temporarily.

Costs of day care

The cost of day care will depend on where you live, how many children you have in day care, how old your children are, and what type of child care you choose.

Saving for education

It's wise to begin saving for your child's education as early as possible. There are several ways to do this. You can begin by depositing a certain amount every month into a savings or money market account, contribute to a college savings account, purchase Series EE bonds (may be called Patriot bonds), or take advantage of a wide variety of other investment vehicles.

Saving for emergencies

If you don't have an emergency fund, now is the time to set one up. If your child gets sick, your car breaks down, you need to move unexpectedly, or you lose your job, you can dip into your emergency account. An emergency account should normally contain an amount that equals three to six months' worth of living expenses.

Estate planning issues

Estate planning is a subject many parents would like to avoid. After all, you're celebrating new life, and it's sad to think that you may not be around to raise your child. However, it's crucial to the welfare of your child that you leave behind instructions that clarify your wishes in the unlikely event that you die before your child grows up. If you don't currently have a will, now is the time for you (and your partner, if any) to draw one up. If you do have a will, you'll need to review it. You'll want to nominate a guardian for your child and decide how you want your assets distributed. You may also consider setting up a trust to protect your child's interests after your death. You should also review your beneficiary designations.

Wills

Each parent should have a will to ensure smooth distribution of his or her estate. After your child is born, you should review your will (or draw up a will if you don't already have one) to make sure that your assets are distributed as you would like, to nominate a guardian for your child, and to choose an executor for your estate.

Tip:           You may want to write a letter to your child that will be your testament (i.e., a message from you that your child can read at a future date). It can be about anything--your philosophy on life, the family history, or some advice that you'd like to give your child. You can attach a copy to your will or put it in with your important records for safekeeping.

Example(s):         When her daughter Sara was born, Emily wrote a letter to her that described the night Sara was born and Emily's hopes and dreams for Sara's future. When Emily was killed in a car accident the year Sara turned 16, Sara read the letter and found out that her mother was proud of her and really wanted her to attend college. So Sara worked hard the next two years of school so that she could get into the local university.

Nominating a guardian

Choosing a guardian for your child is very important. If you die without naming a guardian for your child, it will be up to the court to do it for you, and the person whom the judge names may not be the person you would have chosen to look out for your child. When choosing a guardian, look for someone who will look out for the best interests of your child, preferably someone who has the time and energy to meet the demands of raising a child. Make sure that you ask a potential guardian whether he or she would like to serve as your child's guardian. Often someone you think is the perfect choice really doesn't want the responsibility. For this reason, you should also nominate a contingent guardian.

Periodically rethink your choice of guardian. As your children grow older, you can ask them whom they would like to live with in the event you die. Although this can be a scary subject for children, it's important to raise the issue with them. In addition, once your children are old enough, tell them whom their guardian will be in the event you die.

Setting up a trust

Setting up a trust can be a good way of passing your assets along to your child. A trust document lists how you want any money left to your children spent, and it can ensure that your child's money is protected. A trust can help the guardian manage assets and make sure that estate funds are used to benefit your children according to your wishes.

Insurance issues

Before your child is born, review your insurance coverage to make sure that you and your family are adequately protected. If you or your spouse is going to quit your job(s), you may cut off your life, disability, or health insurance benefits from that job, and you'll need to buy more coverage.

Life insurance

Having a child will increase your need for life insurance coverage. Many experts recommend that you have life insurance equal to five times your annual salary.

Health insurance

The best time to check your maternity coverage is before you become pregnant. If you don't have health insurance or if your health insurance doesn't cover maternity care, you'll need to buy maternity coverage or figure out how to pay the cost of having your baby. Make sure that you understand your deductibles, your co-payments (if any), and whether your policy covers testing, emergency care, and all the costs of delivery (including anesthesia, if necessary). Find out about claims-handling procedures, how long you will be able to stay in the hospital once you've been admitted for delivery, and whether your choice of doctors is limited. Usually, your baby will be covered from the time of birth, but check your insurance policy anyway to make sure. Determine, too, whether your policy covers routine visits to a family practitioner or a pediatrician once your child is born. If both you and your partner are covered by or eligible for coverage under an employer-sponsored policy, you may need to decide which policy offers the best (or most cost-effective) family coverage.

Disability insurance

Before you had a child, you may not have worried about becoming disabled. Now that you're planning to have a child, you may be thinking about what would happen if you suffered an injury or illness and couldn't work for days, months, or even years. If you're married, you may be able to rely on your spouse for income, but could your spouse really support all of you?

Example(s):         Bob worked as an accountant, a relatively nonhazardous occupation. However, on Christmas Eve, he broke both wrists when he slipped and fell on a patch of ice. Since his injury was not work-related, he wasn't eligible to receive workers' compensation insurance. In addition, he wasn't covered by an individual or group disability policy. His wife was working full-time as a seamstress but wasn't able to support Bob and their children on her salary alone. Within a few weeks, they were financially destitute.

To protect your family in case your income is cut off due to disability, consider purchasing disability insurance if you don't already have it. You may have a group disability policy through your employer or you may want to purchase an individual disability insurance policy. A disability policy won't replace your total income, but it will likely replace 50 to 70 percent of your earnings.

Income tax considerations

At tax time, you'll find out that some financial benefits can help defray the cost of raising a child. You'll suddenly be eligible for an extra exemption, and you may be eligible for one or more tax credits.

Exemptions

When you file your income tax return, you may be able to claim an exemption for you, your spouse, and your dependents if your adjusted gross income is below a certain phaseout amount. This means that when you file your income tax return in the year of your child's birth (and ensuing years), you'll be able to claim an extra exemption that will reduce your tax liability.

Tax credits

Having a child might enable you to qualify for one or more tax credits. Credits related to children are the child and dependent care tax credit (if you have qualifying child-care expenses), the child tax credit, and the earned income credit (if you have income under a certain level, having a child raises the amount of income you can have and still claim the credit).

Jared Daniel may be reached at www.wealthguardiangroup.com or our Facebook page.

IMPORTANT DISCLOSURESBroadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances.To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.  Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials.  The information in these materials may change at any time and without notice.

Getting Started: Establishing a Financial Safety Net

Getting Started: Establishing a Financial Safety Net

Presented by Jared Daniel of Wealth Guardian Group

In times of crisis, you don't want to be shaking pennies out of a piggy bank. Having a financial safety net in place can ensure that you're protected when a financial emergency arises. One way to accomplish this is by setting up a cash reserve, a pool of readily available funds that can help you meet emergency or highly urgent short-term needs.

How much is enough?

Most financial professionals suggest that you have three to six months' worth of living expenses in your cash reserve. The actual amount, however, should be based on your particular circumstances. Do you have a mortgage? Do you have short-term and long-term disability protection? Are you paying for your child's orthodontics? Are you making car payments? Other factors you need to consider include your job security, health, and income. The bottom line: Without an emergency fund, a period of crisis (e.g., unemployment, disability) could be financially devastating.

Building your cash reserve

If you haven't established a cash reserve, or if the one you have is inadequate, you can take several steps to eliminate the shortfall:

·         Save aggressively: If available, use payroll deduction at work; budget your savings as part of regular household expenses

·         Reduce your discretionary spending (e.g., eating out, movies, lottery tickets)

·         Use current or liquid assets (those that are cash or are convertible to cash within a year, such as a short-term certificate of deposit)

·         Use earnings from other investments (e.g.,stocks, bonds, or mutual funds)

·         Check out other resources (e.g., do you have a cash value insurance policy that you can borrow from?)

A final note: Your credit line can be a secondary source of funds in a time of crisis. Borrowed money, however, has to be paid back (often at high interest rates). As a result, you shouldn't consider lenders as a primary source for your cash reserve.

Where to keep your cash reserve

You'll want to make sure that your cash reserve is readily available when you need it. However, an FDIC-insured, low-interest savings account isn't your only option. There are several excellent alternatives, each with unique advantages. For example, money market accounts and short-term CDs typically offer higher interest rates than savings accounts, with little (if any) increased risk.

Note:Don't confuse a money market mutual fund with a money market deposit account. An investment in a money market mutual fund is not insured or guaranteed by the FDIC. Although the mutual fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the fund.

Note:When considering a money market mutual fund, be sure to obtain and read the fund's prospectus, which is available from the fund or your financial advisor, and outlines the fund's investment objectives, risks, fees, expenses. Carefully consider those factors before investing.

It's important to note that certain fixed-term investment vehicles (i.e., those that pledge to return your principal plus interest on a given date), such as CDs, impose a significant penalty for early withdrawals. So, if you're going to use fixed-term investments as part of your cash reserve, you'll want to be sure to ladder (stagger) their maturity dates over a short period of time (e.g., two to five months). This will ensure the availability of funds, without penalty, to meet sudden financial needs.

Review your cash reserve periodically

Your personal and financial circumstances change often--a new child comes along, an aging parent becomes more dependent, or a larger home brings increased expenses. Because your cash reserve is the first line of protection against financial devastation, you should review it annually to make sure that it fits your current needs.

Jared Daniel may be reached at www.wealthguardiangroup.com or our Facebook page.

IMPORTANT DISCLOSURESBroadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances.To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.  Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials.  The information in these materials may change at any time and without notice.