Category Archives: Budgeting

Should You Pay Your Mortgage Off Early?

June 5, 2015

Most people long for a time when they are debt free. It sometimes seems unimaginable to pay off a mortgage in less than 20 or 30 years—but it may be easier than you think. By simply making bi-weekly payments instead of monthly, or by adding more to your mortgage payment each month, you can shave years off your loan.

This may be an easy way to pay off your home early, but it doesn’t mean that it’s a good idea. Before you start accelerating your mortgage repayment, ask yourself the following questions.

• How expensive is your mortgage compared to other debt? If your annual interest charges for your mortgage are lower than the interest you pay on other debts, it might be a better idea to pay off those other debts first. You can then roll all the savings into your mortgage payment and pay it off even faster.

• Are you getting any tax deductions for the interest? Mortgage interest is often deductible, which means it’s reducing your overall tax burden. If you take these deductions, then find out how paying off the mortgage would impact your taxes.

• Do you plan to sell the house in the next five years? If you’re planning on selling your home soon, you could instead put the money you would have used on the extra mortgage payments toward the down payment for the new home.

• Could you earn more on the money than you are paying in interest on an after-tax basis? For example, if you are paying 4% interest on your mortgage and are in the 25% tax bracket, your after-tax interest equivalent is 3% (25% less than 4%). Many investment vehicles can offer a yield greater 3% so it is possible that your money could be put to better use by investing it rather than paying off your mortgage sooner.

• Do you have any emergency savings? If you don’t have 6 months worth of expenses saved, then paying off your mortgage early is not a priority. When you’re just one or two paychecks away from being unable to pay your bills, you face the very real possibility of losing your home in a crisis. Instead, focus on building that emergency savings first.

• Are you maxing out your retirement savings? When an employer matches a portion of your 401(k) contributions, it’s like getting free money that grows and compounds on a tax-deferred basis. This could very easily add up to more money than what you spend on mortgage interest.

At Kramer Wealth Managers, we understand that paying off your mortgage early can be a good step—but we also know that it isn’t right for everyone. Contact us today so we can develop a plan that helps you get on your ideal WealthPath.

Teaching Young Children about Money

January 22, 2015

It’s perfectly natural to want to protect your children from the harsh realities of life. But doing so can inadvertently set them up for failure, especially when it comes to finance. Teaching your kids early about the complex and challenging topic of money is the only way to help them create a solid financial future. Here are four things you can do to get started.

1. Involve your children in the household spending decisions. While you don’t want to overburden your children with any difficult financial struggles you may be facing, it’s still important to involve them (to a limited extent) in household finances. Doing so can help them understand the finite nature of a budget, allow them to better respect the things you use money to buy, and will help them learn not to be spendthrifts when they grow up. There are many simple ways you can do this, including having them:

• clip coupons with you

• create the grocery list with you, allowing them to help make decisions about what to add based on your budget, coupons, needs and local sales

• help make big spending decisions, like: should you go out to dinner once a week or save that money for a fun vacation?

2. Get your kids in the habit of saving early. Children should be taught from very early on that a portion of all income, including birthday present and holiday present income, should be set aside. Have them put at least 10 percent in a piggy bank or a savings account at your local bank. Using a jar is also effective because it allows them to actually see the money filling the jar over time.

3. Be a good example. Kids don’t just learn the lessons you tell them to learn. They also pick things up by watching your behavior. If you’re irresponsible with money, you never save anything, and you don’t budget, then those are the traits your children are likely to mimic.

4. Give them an allowance. A weekly allowance is the first source of regular income that children have. The way you teach them to treat their allowance has a big impact on the way they treat all future income. By giving them an allowance you can help them get into the habit of saving for both the long term and short term and help them start to understand the fundamentals of budgeting.

It’s not always easy to teach important financial lessons to young children, but if you stick with the basics, have a lot of patience, and focus on practical lessons, you can give your children the financial know-how they need to have a bright future. If you have questions about the best ways to teach your kids about finance, let us know!

10 Steps to a Retirement Action Plan (Part 2)

June 2, 2014

A few weeks ago, we gave you the first five steps to developing a workable retirement action plan. It is much easier when you break all the tasks up into small steps so now let’s take a look at steps 6 through 10.

6. Take time to do some insurance planning: The right insurance policies will go far in helping you preserve your post-retirement income, provide a legacy for your heirs and control your expenses after you retire. Consider long-term care insurance, life insurance and before you retire, disability insurance so that a long-term disability doesn’t wipe out your savings.

7. Change your asset allocations: It’s important to strike an appropriate balance between risk and reward before you retire. How you allocate funds in the accumulation phase of your life should be very different from how you allocate in the income phase (or “decumulation” phase). Your financial planner will help you select investments that are appropriate for the income phase but still help you try and keep up with inflation.

8. Create an estate plan: It’s always a good idea to have clear, legally enforceable directives for the distribution of your assets. As you do this, review your beneficiary designations on your insurance policies and retirement accounts to make sure that the assets will go to the right heirs and/or their descendants. Remember that assets that have named beneficiaries will not follow the instructions in your will so it is important that the beneficiary designations still align with your objectives.

9. Develop your new budget: If you want to know how well your retirement budget will serve you in your retirement years, create a budget now to determine how much income you’ll need to draw monthly. Doing this exercise will also help you decide whether you need to consider certain lifestyle changes, relocation or other arrangements.

10. Stay focused: In the last few working years of your professional life, it may be easy to get distracted from your plans. You may have a tendency to become lax about saving, you may want to become too aggressive or too conservative with your investment allocation, you might spend more as a sort of last hoorah, and you may even consider retiring early. Any of these actions, and hundreds of others, can hurt your retirement plans by reducing the savings you have set aside. So stay focused on your original goals and go that extra mile to secure a retirement you can live on your own terms.

The Wealth Managers at Kramer Wealth Managers are here to help you create a goal for your retirement and implement each of the steps necessary to get there. Contact us today to get started on your own personal WealthPath.

10 Steps to a Retirement Action Plan (Part 1)

May 14, 2014

If there’s one common goal everyone seems to be concerned about reaching, it’s retirement. Many of us spend 30-40 years carefully plotting and planning for this far-off date. But when you really break it down, the idea of planning for retirement—a self-funded, work-free period that can span decades—is pretty overwhelming.

Today, we begin our two-part series on creating a retirement action plan. We’ve broken down the steps you need to take into approachable, non-intimidating chunks that’ll help get you on the right path to your future. Today, let’s take a look at the first 5 steps.

1. Establish your retirement goals: It’s next to impossible to set a course if you don’t know what you’re setting a course for. Think about your ideal retirement age, lifestyle, and budget. Write them down and do the math to determine how much you’d need to save in order to reach these goals based on your life expectancy. If that number seems unreasonable, consider adjusting your goals by increasing your retirement age and modifying your lifestyle expectations so you’ll need less in savings to support them.

2. Set 5-year milestones: The first exercise will have given you a general number to aim for. Now it’s time to set milestone goals every five years. These mark the savings you should have accrued by a set age in order to be within your ultimate goal.

3. Create a savings plan: You need to save money in order to reach your milestones, and after looking at the hard numbers, you may have found that you’re not currently saving enough each year to get there. Modify your budget so that you can achieve your next milestone. Note that you may need to adjust your budget every five years in order for your savings to keep pace with your goals.

4. Start thinking about your health: One of the biggest expenses for retirees is their health. Not only can it cost them comfort and quality of life, but when you have health problems it can devastate your savings. That’s why it’s a good idea to start eating right and exercising now, so you can prevent certain chronic illnesses such as high blood pressure and type II diabetes.

5. Create a debt repayment plan: No one wants to carry debt into his or her retirement. And even if you’re decades away from retiring, the expense of the debt you hold right now is costing your retirement both contributions and gains. Rework your budget to increase your debt repayments and get out of debt faster.

At Kramer Wealth Managers, we can help you work through each of these steps in order to help achieve your ideal retirement. Contact us today to speak with one of our wealth managers about helping implement your retirement action plan, and be sure to check back in a few weeks to read the second part of this series.

Are You Saving Enough for Emergencies?

March 31, 2014

There is one piece of advice that almost every single financial planner, guru and expert agree on, and that is to set aside money for an emergency. And while that basic advice is useful, it leaves a lot of room for interpretation. After all, how much emergency savings is enough?

Determining an Emergency Savings Threshold

Emergencies can come from many different situations, but one of the easiest to plan for is unemployment. Generally, it’s advised that you figure out your monthly bills based on an emergency situation (during which you’d cut spending on luxuries such as cable) and multiply that total by six so that you have six months’ worth of expenses saved.

Being Flexible

While we use a temporary job loss and the resulting six months of income loss as a basis for your emergency savings goal, that’s not the only crisis that could befall you. Your emergency could be a leaky roof, a burst pipe, a clogged water main, a car accident, and so on. That’s why emergency preparation isn’t just about having accessible cash; it’s also about having the right insurance policies, including:

• short-term disability

• long-term disability

• home or renters’ insurance

• health insurance

• auto insurance

Many of these policies will have waiting periods and/or deductibles that must be paid out of your own pocket. For example, a long-term disability policy may have a three-month waiting period (also called an elimination period) during which you have to support yourself before receiving benefits. Luckily, your six months of emergency savings can be used to cover that. A home insurance policy or auto policy may include a $1,500 deductible, which you may want to add to your emergency savings goal (remember that auto deductibles are often per incident rather than per year).

What to Do with Emergency Savings

As you can imagine, an emergency savings account can eventually hold quite a bit of cash. It needs to stay relatively liquid so that you can tap into it when needed but you may want to try and earn some interest on it. This can be done by keeping the funds in an interest-bearing account.

At Kramer Wealth Managers, we can help you determine the right amount of emergency savings to set aside and we can help you decide where to put the funds. Contact us today to get started on your personal WealthPath.

Do Coupons Make You Overspend?

What would you do to shave a few dollars off your weekly grocery bill? To many people, spending an hour cutting coupons from the Sunday paper sounds like the perfect way to reduce spending. Unfortunately, coupons aren’t always the money-saving tools they seem to be. Sometimes, they actually encourage you to spend more than you would if you didn’t have them.

 How Coupons Can Hurt

Manufacturers don’t offer coupons because they want to be generous—they do it because they want to encourage new consumers to buy their products. That means their goal is not to help you save money, but to encourage you to spend on items you wouldn’t normally buy.

If a coupon encourages you to purchase a product that you don’t need because it’s cheaper than it otherwise would be, then it’s doing more harm than good to your budget.  Likewise, if you spend more than you normally would on products you aren’t likely to use, simply because you have a coupon, then these discounts could end up draining your checking account without providing any real value.

 Making Coupons Count

For most people, grocery shopping is a pretty routine event. While you may alternate meals and ingredients from week to week, chances are good that you consistently buy certain brands and items each and every month. When you have a coupon for one of these regularly purchased items, using it will save you money. The difference here is that you were going to buy the item before you had the coupon, so its discount represents a true savings.

Another way coupons can help is if they reduce the cost of a more expensive brand than you’d normally buy. But remember, you’ve only got a limited number of coupons, so if you decide to permanently switch to the more expensive brand after trying it, your overall grocery spending will increase.

Seemingly small, unnecessary expenses, such as those incurred when you overspend with coupons, can reduce the amount you’re able to set aside for retirement. They can also impact the longevity of your retirement savings. Careful budgeting and well-planned spending, on the other hand, are two great ways to stay on your WealthPath. Money-saving coupons can also help, but only when you make certain that you aren’t allowing the coupon to dictate your purchasing decisions.

Social Security and Medicare Numbers for 2014

New figures announced

The Social Security Administration (SSA) has announced that Social Security and SSI beneficiaries will receive a 1.5% cost-of-living (COLA) adjustment for 2014. According to the SSA’s announcement, after the COLA adjustment, the estimated average retirement benefit will rise from $1,275 in 2013 to $1,294 in 2014.

 

The Centers for Medicare & Medicaid Services (CMS) has also announced next year’s Medicare costs. The standard monthly Medicare Part B premium will be $104.90 in 2014, the same as in 2013. However, beneficiaries with higher incomes (individuals with taxable incomes of more than $85,000 and couples with taxable incomes of more than $170,000) will pay more than $104.90 per month because they must pay an income-related surcharge.

 

Other important Social Security and Medicare figures are listed below.

  • The amount of taxable earnings subject to the Social Security tax (called the maximum taxable earnings limit) will increase to $117,000 from $113,700 in 2013.
  • The annual retirement earnings test exempt amount for beneficiaries under full retirement age will increase to $15,480 from $15,120 in 2013. If a beneficiary has earnings that exceed the exempt amount, $1 in benefits will be withheld for every $2 in earnings above the exempt amount.
  • The annual retirement earnings test exempt amount that applies during the year a beneficiary reaches full retirement age will increase to $41,400 from $40,080 in 2013. If a beneficiary has earnings that exceed this amount, $1 in benefits will be withheld for every $3 in earnings above the exempt amount.
  • The amount of earnings needed to earn one Social Security credit will increase to $1,200 from $1,160 in 2013.

  • 2014 Medicare figures

  • The Medicare Part B deductible will be $147, the same as in 2013.
  • The monthly Medicare Part A premium for those who need to buy coverage will cost up to $426, down from $441 in 2013. However, most people don’t pay a premium for Medicare Part A.
  • The Medicare Part A deductible for inpatient hospitalization will be $1,216, up from $1,184 in 2013.

    Beneficiaries will pay an additional daily co-insurance amount of $304 for days 61 through 90, up from $296 in 2013, and $608 for stays beyond 90 days, up from $592 in 2013.

  • Beneficiaries in skilled nursing facilities will pay a daily co-insurance amount of $152 for days 21 through 100 in a benefit period, up from $148 in 2013.
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    Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2013.