Personal Finance Tips for New Graduates

You’ve marched along to Pomp and Circumstance and collected your diploma–now you’re ready to finally head out on your own. Maybe you have student loans that you need to start paying back. Perhaps you’re looking forward to making your first car purchase or starting a new job. Whatever your situation, you’ll definitely have new financial challenges you’ll need to address and financial goals that you’ll want to accomplish during this stage in your life. Fortunately, there are some relatively simple steps you can take to get started on the right track with your personal finances.

Create a budget

An easy way to maintain control of your finances is to create a budget. Ideally, a budget will assist you in making sure that you are spending less than you earn.

In order to create a budget, you’ll need to identify your current monthly income and expenses. Income includes your regular salary and wages, along with other types of income such as dividends and interest.

When it comes to identifying your expenses, it may be helpful to divide them into two categories: fixed and discretionary. Fixed expenses include things that are necessities, such as rent, transportation, and student loan payments. Discretionary expenses include things like entertainment, vacations, and hobbies. You’ll want to include out-of-pattern expenses (e.g., holiday gifts, auto repair bills) in your budget as well.

The most important part of budgeting is sticking to it. To help you stay on track:

  • Try to make budgeting a part of your daily routine
  • Build the occasional reward into your budget (e.g., splurge on a latte at the local coffee shop or have dinner at a restaurant instead of cooking at home)
  • Be sure to evaluate and monitor your budget regularly and adjust/make changes as needed

Make saving a priority

Whether it’s setting enough aside on a regular basis to accumulate an emergency cash reserve or putting money into an employer-sponsored retirement plan, if your budget allows, you should make saving a priority. And being a young investor means that you have one powerful advantage over older generations–time. By making saving a priority early in your life, your money can have more time to potentially grow and take advantage of the value of compound interest. To make it even easier to save, you can arrange to have a portion of your paycheck/earnings directly deposited into a savings or investment account.

Get a handle on your debt situation

Whether it’s debt from student loans or credit cards, it’s important to avoid the financial pitfalls that sometimes go hand-in-hand with borrowing. In order to manage your debt situation properly:

  • Keep track of loan balances and interest rates
  • Develop a plan to manage your payments and avoid late fees
  • Pay off high interest debt first or take advantage of debt consolidation/refinancing

Understand the importance of having good credit

Credit reports affect so many different aspects of one’s financial situation–from being able to obtain a car loan to being a prerequisite for employment. Having a good credit report will allow you to obtain credit when you need it, and often at a lower interest rate. As a result, it’s important to establish and maintain a good credit history by avoiding late payments on existing loans and eliminating unpaid debts. Finally, it’s important to monitor your credit report on a regular basis for possible errors.

Evaluate your insurance needs

As a younger individual, insurance is probably not the first thing that comes to mind when you think about your finances. However, having the right amount of insurance to protect yourself against possible losses is an important part of any financial plan. Your insurance needs will depend on your individual circumstances. For example, if you rent an apartment, you’ll need to obtain renters insurance to protect against loss or damage to your personal property. If you own a car, you’ll need to have appropriate coverage for that as well. You’ll also want to evaluate your needs for other types of insurance (e.g., disability and life).

Finally, under the Affordable Care Act, everyone, regardless of age, must have qualifying health insurance or risk paying a possible penalty. If you don’t have access to health insurance through your parent’s health plan or an employer- or government-sponsored health plan, you may purchase an individual health plan through either the federal or a state-based health insurance Exchange Marketplace. You can visit www.healthcare.gov for more information.

Tips for paying off student loans:

  • To make your payment schedule easier, consider consolidating or refinancing your student loans
  • To shorten the overall repayment term and save on interest charges, try to divert extra funds toward monthly principal prepayment
  • If you are having trouble paying your federal student loans, look into the government’s Income-Based Repayment (IBR) plan

Advisory services offered through Capital Analysts, Inc.or Lincoln Investment Planning, Inc., Registered Investment Advisors. Securities offered through Lincoln Investment Planning, Inc., Broker Dealer, Member FINRA/SIPC. Beacon Financial Partners and the above firms are independent, non-affiliated entities.

What is duration, and why should I pay attention to it?

 

The Federal Reserve’s actions over the next year could be important to bond markets, particularly if and when the Fed decides to increase its target interest rate. Since bond prices typically move in the opposite direction from yields, rising bond yields will translate into a decline in bond prices.

If you have bonds or bond mutual funds in your portfolio, you might want to pay attention to the duration of each one. Technically, a bond or bond fund’s duration calculates the length of time it will take to receive the full true value of the investment; duration takes into account the present value of expected future payments of interest and principal.

However, duration’s biggest value to an investor is as a gauge of how sensitive a bond might be to changes in interest rates. The longer a bond’s duration, the more its price is likely to be affected by an interest rate change. A mutual fund’s duration can be found in its prospectus; for an individual bond, you’ll probably need to ask your broker or the bond’s issuer.

To estimate the impact of an interest rate change on a specific bond holding, simply multiply its duration by the change in interest rates. For example, for a bond fund with a duration of 5 years, a 1% increase in interest rates would generally result in a 5% drop in the fund’s value (1% x 5 years = 5%). Though the Fed’s target rate is already at its historic low, the same principle would apply in reverse if interest rates were to fall. A 1% decline in interest rates would likely result in a 3% gain for a bond holding with a duration of 3 years.

Note:   These hypothetical examples are intended as an illustration only and do not reflect the performance of any specific investment. They should not be considered financial advice. Before investing in a mutual fund, consider its investment objective, risks, fees, and expenses, which can be found in the prospectus available from the fund. Read the prospectus carefully before investing.

Bear in mind that duration can work somewhat differently for specific types of bonds–for example, floating-rate bonds whose interest payments get reset. That’s also true for mortgage-backed bonds, since interest rate changes can cause homeowners to refinance their loans.

 

Broadridge Investor Communication Solutions, Inc. does not provide legal, taxation, or investment advice. All the content provided by Broadridge Investor Communication Solutions is protected by copyright. Forefield claims no liability for any modifications to its content and/or information provided by other sources.
Copyright 2011 by Broadridge Investor Communication Solutions Inc.
All Rights Reserved.

 

www.beaconplanners.com

What Baseball Can Teach You about Financial Planning

 

Spring training is a tradition that baseball teams and baseball fans look forward to every year. No matter how they did last year, teams in spring training are full of hope that a new season will bring a fresh start. As this year’s baseball season gets under way, here are a few lessons from America’s pastime that might help you reevaluate your finances.

 
Sometimes you need to proceed one base at a time

There’s nothing like seeing a home run light up the scoreboard, but games are often won by singles and doubles that get runners in scoring position through a series of base hits. The one base at a time approach takes discipline, something that you can apply to your finances by putting together a financial plan. What are your financial goals? Do you know how much money comes in, and how much goes out? Are you saving regularly for retirement or for a child’s college education? A financial plan will help you understand where you are now and help you decide where you want to go.

It’s a good idea to cover your bases

Baseball players minimize the odds that a runner will safely reach a base by standing close to the base to protect it. What can you do to help protect your financial future? Try to prepare for life’s "what-ifs." For example, buy the insurance coverage you need to make sure you and your family are protected–this could be life, health, disability, long-term care, or property and casualty insurance. And set up an emergency account that you can tap instead of dipping into your retirement funds or using a credit card when an unexpected expense arises.

You can strike out looking, or strike out swinging

Fans may have trouble seeing strikeouts in a positive light, but every baseball player knows that striking out is a big part of the game. In fact, striking out is much more common than getting hits. The record for the highest career batting average record is .366, held by Ty Cobb. Or, as Ted Williams once said, "Baseball is the only field of endeavor where a man can succeed three times out of ten and be considered a good performer."

In baseball, there’s even more than one way to strike out. A batter can strike out looking by not swinging at a pitch, or strike out swinging by attempting, but failing, to hit a pitch. In both cases, the batter likely waited for the right pitch, which is sometimes the best course of action, even if it means striking out occasionally.

So how does this apply to your finances? First, accept the fact that you’re going to have hits and misses, but that doesn’t mean you should stop looking for financial opportunities. For example, when investing, you have no control over how the market is going to perform, but you can decide what to invest in and when to buy and sell, according to your investment goals and tolerance for risk.

Warren Buffett, who is a big fan of Ted Williams, strongly believes in waiting for the right pitch. "What’s nice about investing is you don’t have to swing at pitches," Buffett said. "You can watch pitches come in one inch above or one inch below your navel, and you don’t have to swing. No umpire is going to call you out. You can wait for the pitch you want."

Note:   All investing involves risk, including the possible loss of principal.

Every day is a brand-new ball game

When the trailing team ties the score (often unexpectedly), the announcer shouts, "It’s a whole new ball game!" Or, as Yogi Berra famously put it, "It ain’t over ’til it’s over." Whether your investments haven’t performed as expected, or you’ve spent too much money, or you haven’t saved enough, there’s always hope if you’re willing to learn both from what you’ve done right and from what you’ve done wrong. Pitcher and hall-of-famer Bob Feller may have said it best. "Every day is a new opportunity. You can build on yesterday’s success or put its failures behind and start over again. That’s the way life is, with a new game every day, and that’s the way baseball is."

Broadridge Investor Communication Solutions, Inc. does not provide legal, taxation, or investment advice. All the content provided by Broadridge Investor Communication Solutions is protected by copyright. Forefield claims no liability for any modifications to its content and/or information provided by other sources.
Copyright 2011 by Broadridge Investor Communication Solutions Inc.
All Rights Reserved.

15 Facts about Social Security

 

It’s easy to take Social Security for granted when retirement is years away, but with 94% of the U.S. workforce covered by Social Security,* it’s likely that this program will play a role in your financial future, perhaps even sooner than you think. Here are some facts and statistics from the Social Security Administration that highlight why Social Security is important to so many people.

Retirement benefits

The Social Security program began in 1935 as a way to protect individuals against economic hardship. Over the years, Social Security has grown to include several other types of benefits, but Social Security is still synonymous with retirement.

Did you know that …

  • Approximately 70% of Social Security benefits are paid to retirees and their dependents**
  • 73% of workers elect to receive reduced benefits early, before their full retirement age*
  • The average monthly retirement benefit is $1,262**
  • The maximum monthly retirement benefit payable in 2014 is $2,642 for someone retiring at full retirement age***

Survivors benefits

Upon your death, your surviving spouse, ex-spouse, children, or dependent parents may be eligible to receive benefits based on your earnings record. These benefits can be a valuable source of income when your family needs it the most.

Did you know that …

  • Survivors of deceased workers account for about 11% of Social Security benefits paid**
  • About 96% of persons aged 20 to 49 have survivors protection for their children under 18 and for their surviving spouse who cares for those children****
  • The average monthly family benefit is approximately $2,561 for a widowed mother or father and two children*

Disability benefits

Disability benefits from Social Security can help protect you and family members that rely on you for financial support in the event that due to sickness or injury you’re unable to work and earn a living.

Did you know that …

  • Disabled workers and their dependents account for 19% of Social Security benefits paid**
  • Approximately 90% of workers age 21 to 64 and their families are protected against long-term disability****
  • The average age of a worker receiving disability benefits is 53.2**
  • The average monthly benefit for a disabled worker is $1,130**

Other facts

Here are some other facts about Social Security that you may not know:

  • 55% of adult Social Security beneficiaries are women**
  • More than 3.4 million children under age 18 and students age 18 to 19 receive Social Security benefits**
  • Social Security provides at least half of total retirement income for 74% of nonmarried beneficiaries age 65 or older**

All of the following source publications can be found on the Social Security Administration’s website, http://www.ssa.gov.

*Annual Statistical Supplement, 2013, published February 2014

**Fast Facts & Figures About Social Security, 2013, published July 2013

***Fact Sheet: 2014 Social Security Changes, published October 2013

****Social Security Basic Facts, published July 2013

Please visit us at www.beaconplanners.com


Broadridge Investor Communication Solutions, Inc. does not provide legal, taxation, or investment advice. All the content provided by Broadridge Investor Communication Solutions is protected by copyright. Forefield claims no liability for any modifications to its content and/or information provided by other sources. Copyright 2014 by Broadridge Investor Communication Solutions Inc. All Rights Reserved.

 

Quarterly Market Review: January-March 2014


*Source: "Estimated Long-Term Mutual Fund Flows Data," Investment Company Institute (www.ici.org) as of March 31, 2014.

Key Dates/Data Releases

4/1: Auto sales, ISM manufacturing report, construction spending

4/2: U.S. factory orders

4/3: Balance of trade, ISM services report

4/4: Unemployment/payrolls

4/9: Federal Open Market Committee minutes

4/11: Wholesale inflation

4/14: Retail sales

4/15: Consumer inflation, international capital flows, Empire State manufacturing

4/16: Housing starts, industrial production

4/17: Philadelphia Fed manufacturing

4/18: Leading economic indicators, options expiration

4/22: Existing home sales

4/23: New home sales

4/24: Durable goods orders

4/29: Home prices

4/30: Federal Open Market Committee announcement, Q1 GDP initial estimate


The Markets

Profit-taking from 2013’s strong run as well as currency and credit problems in several emerging markets threatened to derail the stock market as 2014 began. Those factors, combined with the prospect of less support from the Federal Reserve, a slowing Chinese economy, and renewed Cold War tensions, led to a volatile quarter for equities. After a dismal January, equities regained some strength once Congress avoided a fight over raising the debt ceiling limit. By early March the S&P 500 had hit a new all-time closing high; on the bull market’s fifth anniversary, the S&P was only a couple of hundred points away from having tripled since its March 2009 low. At that point the NASDAQ was up more than 4% for 2014, well ahead of the S&P 500 for the year and more than 5 percentage points ahead of the Dow industrials, which spent much of the quarter in negative territory.

However, the rest of March was a great equalizer, narrowing the gaps between the various indices. A slump in tech and biotech stocks handed the NASDAQ its worst month since October 2012 and cut its year-to-date gain to half a percent. The small caps of the Russell 2000 also suffered in late March. However, the S&P 500 proved more resilient, managing to hang on to its 2014 gains.

The international uncertainty lured back money that had been invested overseas in recent years and helped counterbalance some of the fear about Fed monetary policy. Money that had been pulled from bond mutual funds during 2013’s second half began to flow back in during the first quarter of 2014,* helping to cut the benchmark 10-year Treasury yield almost a third of a percent as prices rose. After last fall’s slide, gold rallied from nearly $1,200 an ounce to almost $1,380 before the late-March swoon took it down to just under $1,300. The price of oil gained a couple of dollars a barrel in Q1, ending at just over $100 a barrel, while the dollar remained little changed.

Market/Index 2013 Close As of 3/31 Month Change Quarter Change YTD Change
DJIA 16576.66 16457.66 .83% -.72% -.72%
NASDAQ 4176.59 4198.99 -2.53% .54% .54%
S&P 500 1848.36 1872.34 .69% 1.30% 1.30%
Russell 2000 1163.64 1173.04 -.84% .81% .81%
Global Dow 2484.10 2502.78 .73% .75% .75%
Fed. Funds .25% .25% .25% 0 bps 0 bps
10-year Treasuries 3.04% 2.73% 7% -31 bps -31 bps

Table reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Quarterly Economic Perspective

  • U.S. economic growth slowed in the fourth quarter of 2013, according to the Bureau of Economic Analysis. The 2.6% annualized increase in Q4 gross domestic product was lower than Q3’s 4.1% gain. That helped cut inflation-adjusted GDP for all of 2013 to 1.9%, compared to 2012’s 2.8%. Meanwhile, after-tax corporate profits were up 2% for the quarter–slightly less than in Q3–and a 3.7% drop in corporate taxes last year left corporate after-tax profits up 6.9% for all of 2013.
  • Unemployment barely budged during Q1, remaining not far above the 6.5% unemployment rate that the Fed had targeted as a potential threshold for raising short-term interest rates. However, at its March meeting–the first under new chair Janet Yellen–the Fed’s monetary policy committee said any interest rate decision will be based on a variety of economic data, and will likely come "a considerable time" after the end of its bond purchases, now down to $55 billion a month after three rounds of tapering. Most committee members expect the Fed’s near-zero target rate to end 2015 at 1%.
  • In the wake of Russia’s Crimean takeover, European Union countries and the United States agreed to prepare tough economic sanctions that could be imposed if Russia makes further moves to destabilize Ukraine. Also, the G8 nations canceled the summit that had been scheduled to be held in Sochi in June and ejected Russia from the group.
  • European leaders declined to take stronger action to counteract an inflation rate so low that it raised concerns about the possibility of deflation. However, central banks in some emerging-market countries, including Brazil, India, Turkey, and South Africa, raised rates sharply to try to stem capital outflows from their currencies and/or fight inflation.
  • Now you see it, now you don’t: Mt. Gox, at one time the largest Bitcoin exchange, filed for bankruptcy after 850,000 bitcoins–nearly half a billion dollars’ worth of the virtual currency–disappeared faster than Ukrainian flags over Crimean government buildings. However, Mt. Gox subsequently said it had located 200,000 bitcoins in digital wallets used before June 2011.
  • Housing suffered from frigid weather throughout much of the country as housing starts and sales of both new and existing homes saw strong declines during the quarter. However, building permits issued in February–an indicator of future activity–offered shoots of hope, rising 7.7% during the month.
  • U.S. manufacturing also appeared to be affected by winter weather, though by the end of the quarter, two key Fed manufacturing surveys as well as that of the Institute for Supply Management┬« had shown signs of rebounding. Manufacturing data from China raised bigger concerns. Indications that the country’s breakneck growth could be slowing across the board raised concerns about the potential global impact if reduced demand there affects emerging markets whose economies rely on exporting commodities to China.
  • Overall inflation remained tame at both the consumer and wholesale levels. Both annual inflation rates have hovered in the neighborhood of 1% since October, giving the Federal Reserve plenty of breathing room to keep interest rates low.
  • The Senate Banking Committee’s bipartisan leadership announced plans to replace Fannie Mae and Freddie Mac with a system of government-backed mortgage insurance that would be administered by a new Federal Mortgage Insurance Corp. If adopted, the legislation would require a minimum down payment for FMIC loans, create a mechanism for standardizing mortgage-backed securities based on them, and require private lenders to suffer a 10% loss before insurance payments would be triggered.

Eye on the Month Ahead

As a relentless winter finally begins to release its grip on much of the country, investors may get a clearer sense of whether sluggish Q1 economic data was primarily the result of bad weather or something more troubling. Speculation about the timing of a Fed rate hike will likely continue, along with Fed tapering. Overseas, the state of China’s economy will continue to be a focus, and the potential for tougher economic sanctions against Russia, which could affect global oil supplies, also bears watching.



Visit us at www.beaconplanners.com



Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); http://www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

Broadridge Investor Communication Solutions, Inc. does not provide legal, taxation, or investment advice. All the content provided by Broadridge Investor Communication Solutions is protected by copyright. Forefield claims no liability for any modifications to its content and/or information provided by other sources.
Copyright 2011 by Broadridge Investor Communication Solutions Inc.
All Rights Reserved.

Still Time to Make 2013 IRA Contributions!

image

Watch the above video for more in depth information.

www.beaconplanners.com

 

Broadridge Investor Communication Solutions, Inc. does not provide legal, taxation, or investment advice. All the content provided by Broadridge Investor Communication Solutions is protected by copyright. Forefield claims no liability for any modifications to its content and/or information provided by other sources. Copyright 2011 by Broadridge Investor Communication Solutions Inc. All Rights Reserved.

Saving through Your Retirement Plan at Work? Don’t Let These Five Risks Derail Your Progress

 

As a participant in your work-sponsored retirement savings plan, you’ve made a very important commitment to yourself and your family: to prepare for your future. Congratulations! Making that commitment is an important first step in your pursuit of a successful retirement. Now it’s important to stay focused–and be aware of a few key risks that could derail your progress along the way.

1. Beginning with no end in mind

Setting out on a new journey without knowing your destination can be a welcome adventure, but when planning for retirement, it’s generally best to know where you’re going. According to the Employee Benefit Research Institute (EBRI), an independent research organization, workers who have calculated a savings goal tend to be more confident in their retirement prospects than those who have not. Unfortunately, EBRI also found that less than half of workers surveyed had actually crunched the numbers to determine their need (Source: 2013 Retirement Confidence Survey, March 2013).

Your savings goal will depend on a number of factors–your desired lifestyle, preretirement income, health, Social Security benefits, any traditional pension benefits you or your spouse may be entitled to, and others. By examining your personal situation both now and in the future, you can determine how much you may need to accumulate to provide the income you’ll need during retirement.

Luckily, you don’t have to do it alone. Your employer-sponsored plan likely offers tools to help you set a savings goal. In addition, a financial professional can help you further refine your target, breaking it down to answer the all-important question, "How much should I contribute each pay period?"

2. Investing too conservatively…

Another key to determining how much you may need to save on a regular basis is targeting an appropriate rate of return, or how much your contribution dollars may earn on an ongoing basis. Afraid of losing money, some retirement investors choose only the most conservative investments, hoping to preserve their hard-earned assets. However, investing too conservatively can be risky, too. If your contribution dollars do not earn enough, you may end up with a far different retirement lifestyle than you had originally planned.

3. …Or aggressively

On the other hand, retirement investors striving for the highest possible returns might select investments that are too risky for their overall situation. Although it’s a generally accepted principle to invest at least some of your money in more aggressive investments to pursue your goals and help protect against inflation, the amount you invest should be based on a number of factors.

The best investments for your retirement savings mix are those that take into consideration your total savings goal, your time horizon (or how much time you have until retirement), and your ability to withstand changes in your account’s value. Again, your employer’s plan likely offers tools to help you choose wisely. And a financial professional can also provide an objective, third-party view.

4. Giving in to temptation

Many retirement savings plans permit plan participants to borrow from their own accounts. If you need a sizable amount of cash quickly, this option may sound appealing at first; after all, you’re typically borrowing from yourself and paying yourself back, usually with interest. However, consider these points:

  • Any dollars you borrow will no longer be working for your future
  • The amount of interest you’ll be required to pay yourself could potentially be less than what you might earn should you leave the money untouched
  • If you leave your job for whatever reason, any unpaid balance may be treated as a taxable distribution

For these reasons, it’s best to carefully consider all of your options before choosing to borrow from your retirement savings plan.

5. Cashing out too soon

If you leave your current job or retire, you will need to make a decision about your retirement savings plan money. You may have several options, including leaving the money where it is, rolling it over into another employer-sponsored plan or an individual retirement account, or taking a cash distribution. Although receiving a potential windfall may sound appealing, you may want to think carefully before taking the cash. In addition to the fact that your retirement money will no longer be working for you, you will have to pay taxes on any pretax contributions, vested employer contributions, and earnings on both. And if you’re under age 55, you will be subject to a 10% penalty tax as well. When it’s all added up, the amount left in your pocket after Uncle Sam claims his share could be a lot less than you expected.

Keep in mind that no investment strategy can guarantee success. All investing involves risk, including the possible loss of your contribution dollars.

 

Visit our website at www.beaconplanners.com

 

 

Broadridge Investor Communication Solutions, Inc. does not provide legal, taxation, or investment advice. All the content provided by Broadridge Investor Communication Solutions is protected by copyright. Forefield claims no liability for any modifications to its content and/or information provided by other sources.

The Frugal Habits of Millionaires

The word "millionaire" typically conjures up images of a lavish, jet-setting lifestyle, but behind the scenes, that may not always be the case. Like Warren Buffett, who famously still lives in the relatively modest house in Omaha, Nebraska, that he bought in 1958 for $31,500, many millionaires (and billionaires) live a modest, if not downright frugal lifestyle–a lifestyle that may have helped them become millionaires in the first place.

We’ve all heard the saying "It takes money to make money." So how can you find extra dollars to save and invest? If you’re looking to improve your financial position, consider putting some of these habits into practice.




Cultivate a frugal mindset

Many people equate being frugal with being cheap, but that’s not really correct. Being frugal means carefully watching your dollars and not spending more than you need to–a trait many millionaires employ. To help cultivate a frugal mindset, get in the habit of asking yourself this question: "With a little extra effort and/or sacrifice on my part, is there any way I can save money here?" Having a frugal mindset can really help when it comes time to playing the role of American consumer, where temptation is everywhere.




Buy wisely and sparingly

We all need "stuff" now and then; the key is not overdoing it or overpaying for it. Try to buy mostly what you really need, not what you really want. Money you save can then be used to build your savings and investment accounts.

Don’t let the price tag of your car, home, or designer suit define your character. For example, a reliable car that safely gets you from Point A to Point B may be completely sufficient for your needs. According to the book The Millionaire Next Door, the top car brand among millionaires is Toyota, not Mercedes or BMW. Even Mark Zuckerberg, the billionaire founder of Facebook, has been spotted driving an Acura TSX, an entry-level luxury car whose base price is about $30,000. The bottom line? As you move up the net worth ladder, avoid the temptation to elevate your "status" by overspending on luxury goods.

You can be smart about everyday consumer purchases, too. You might be surprised to learn that many millionaires clip coupons, buy in bulk, wait for sales, scour eBay and Craigslist for deals, limit clothing purchases, fly coach, avoid credit cards, and save half their restaurant meal for lunch the next day–habits that can free up cash for the occasional splurge.




Shun debt

Debt is bad. Well, mostly. At times taking on debt is necessary, for example when buying a home or attending college, because without it, many people won’t have saved enough money. But generally speaking, you should be leery of taking on debt for things that cause you to live beyond your means. Remember, every dollar you borrow today is a dollar you’ll have to pay back tomorrow, with interest.

People who turn a modest financial base into wealth often do so by living frugally, saving regularly, investing wisely, and avoiding debt. By contrast, people who end up in a perpetual cycle of debt are often those who spend and borrow excessively to support an unsustainable lifestyle.




Take action

What do CEOs Tim Cook (Apple), Ursula Burns (Xerox), Robert Iger (Disney), and Indra Nooyi (PepsiCo) have in common? They’re all up by 5:00 a.m., hitting the gym, reading, working. As Benjamin Franklin famously quipped: "Early to bed and early to rise makes a man healthy, wealthy, and wise." And indeed, many millionaires and leaders aren’t couch potatoes. They don’t sit around waiting for things to happen; they make things happen–by getting up early, working hard, looking for opportunities, constantly educating themselves, taking calculated risks, networking, staying active, and generally trying to improve themselves day in and day out. And with the explosion of information online 24/7, learning new things has never been easier.

Visit us at www.beaconplanners.com



Broadridge Investor Communication Solutions, Inc. does not provide legal, taxation, or investment advice. All the content provided by Broadridge Investor Communication Solutions is protected by copyright. Forefield claims no liability for any modifications to its content and/or information provided by other sources.

 

 

Gift Tax Strategies That Can Benefit Your Family


Today’s large gift tax applicable exclusion amount, low gift tax rates, depressed property values, and low interest rates create a favorable environment for making certain gifts.

Federal gift tax basics

Annual exclusion. Each year, you can give a certain amount ($14,000 in 2013 and 2014) to as many individuals as you like gift tax free.

Qualified transfers exclusion. You can give an unlimited amount on behalf of any individuals for tuition or medical expenses gift tax free. You must pay the amount directly to the educational or medical care provider.

Applicable exclusion amount. Gifts can also be sheltered by the applicable exclusion amount, which can protect gifts of up to $5,340,000 (in 2014, $5,250,000 in 2013). The dollar limit applies to all taxable gifts you make during your lifetime and to your estate at your death for federal estate tax purposes.

Basic planning

Generally, the first gifts you should consider making are annual exclusion and qualified transfer gifts. You can make annual exclusion gifts to anyone for any purpose. The annual exclusion is lost in any year in which you do not use it. While you can make unlimited gifts using the exclusion for qualified transfers, the gifts must be for educational and medical purposes.

You and your spouse can split gifts that either of you make. Doing so allows you and your spouse to effectively use each other’s annual exclusions and applicable exclusion amount. For example, if you have 2 children, you and your spouse could make annual exclusion gifts totaling $56,000 to your children (2 spouses x 2 children x $14,000). If you make gifts of $56,000 for 10 years, you will have transferred $560,000 to your children free from gift tax.

Next, consider gifts that are sheltered by the applicable exclusion amount. But, remember that use of the applicable exclusion amount during life reduces the amount available for estate tax purposes at your death.

If you are likely to have a very large taxable estate at your death that could not be sheltered by the applicable exclusion amount, it might even make sense to make gifts that cause you to pay gift tax. For example, let’s assume any additional transfer you make would be subject to the current top gift or estate tax rate of 40% and you make a taxable gift of $1 million to your child on which you pay $400,000 of gift tax. If you instead retained the $1,400,000 until death, $560,000 of estate tax would be due ($1,400,000 x 40%), and only $840,000 of the $1,400,000 would remain for your child. By making the taxable gift and paying gift taxes that reduced your taxable estate, you reduced taxes by $160,000 while increasing the amount transferred to your child by the same $160,000.

Gift considerations

If you have property whose value is depressed, now may be a good time to make a gift of it. The gift tax value of a gift is its fair market value, and a lower value means a smaller gift for gift tax purposes. However, you generally should not make gifts of property that would produce an income tax loss if sold (basis in excess of sales price). The person receiving the property would have a carryover basis and would not be able to claim the loss. In these cases, instead consider selling the property, claiming the loss, and making a gift of the sales proceeds.

Future appreciation on gifted property is removed from your gross estate for federal estate tax purposes. However, while property included in your estate generally receives a basis stepped up (or stepped down) to fair market value when you die, lifetime gifts do not. Therefore, you may wish to balance the gift tax advantage of a gift with carryover basis and income tax on gain if the property is sold against the income tax advantage of a stepped-up basis and estate tax (if any) if you retain the property until your death.

In the current low interest rate environment, you may wish to consider a grantor retained annuity trust (GRAT). In a GRAT, you transfer property to a trust, but retain a right to annuity payments for a term of years. After the trust term ends, the remaining trust property passes to your beneficiaries, such as family members. The value of the gift of a remainder interest is discounted for gift tax purposes to reflect that it will be received in the future. Also, if you survive the trust term, the trust property is not included in your gross estate for estate tax purposes. Any appreciation in the trust property that is greater than the IRS interest rate used to value the gift escapes gift and estate taxation. The lower the IRS interest rate, the more effective this technique generally is.

In the current low interest rate environment, you may also wish to consider a low-interest loan to family members. You are generally required to provide for adequate interest on the loan, or interest will be deemed for gift tax purposes. However, with the current low interest rates, you can provide loans at a very low rate and family members can effectively keep any earnings in excess of the interest they are required to pay you.

 
 

Now may be a great time to make gifts that take advantage of the current large gift tax applicable exclusion amount, low gift tax rates, depressed property values, and low interest rates.

Be aware, however, that if you make a gift to a person who is two or more generations younger than you, such as a grandchild, generation-skipping transfer (GST) tax may also apply. In general, annual exclusions, qualified transfers, and an exemption equal to the applicable exclusion amount are also available for GST tax purposes and the same 40% tax rate applies.

Visit us at www.beaconplanners.com

 


Broadridge Investor Communication Solutions, Inc. does not provide legal, taxation, or investment advice. All the content provided by Broadridge Investor Communication Solutions is protected by copyright. Forefield claims no liability for any modifications to its content and/or information provided by other sources.

Annual Market Review 2013

 

Overview

Standoffs, sequestration, shutdown, and suspense in Washington supplied the wall of worry that equities markets are said to be so fond of climbing. And climb it they did. The Dow, S&P 500, and small-cap Russell 2000 explored record territory for much of the year. Investors spent most of 2013 toggling between rejoicing at the lack of bad economic news and worrying that good news would prompt the Federal Reserve to start cutting its support. However, the Fed delayed action, first to assess the economic impact of the sequester budget cuts imposed by 2012’s fiscal-cliff detour, and then to avoid aggravating concerns over the U.S. debt ceiling showdown and the 16-day government shutdown.

All the uncertainty rattled markets worldwide, particularly emerging markets, during the summer. However, headlines about potential sovereign default abroad became more scarce as the Eurozone emerged from the longest recession in its history despite record 12% unemployment. Meanwhile, China announced plans for economic reforms designed to reduce state monopolies and open up the banking system. In the United States, regulators finally adopted the Volcker rule, which will limit Wall Street banks’ ability to speculate with their own money, and Janet Yellen prepared to replace Ben Bernanke as Fed chairman. Meanwhile, despite the confusion in Washington, solid corporate profits helped reassure investors.

By year’s end, the S&P 500 had nearly tripled since its March 2009 low. However, financial markets must now begin navigating unfamiliar terrain as the Fed begins to taper its support. With a fresh round of debt ceiling debates on the horizon, that wall of worry isn’t likely to shrink in 2014; the question is whether investors will be willing to climb it–and if they are, how far they might go.

Market/Index 2012 Close As of 9/30 As of 12/31 Month Change Q4 Change 2013 Change
DJIA 13104.14 15129.67 16576.66 3.05% 9.56% 26.50%
Nasdaq 3019.51 3771.48 4176.59 2.87% 10.74% 38.32%
S&P 500 1426.19 1681.55 1848.36 2.36% 9.92% 29.60%
Russell 2000 849.35 1073.79 1163.64 1.82% 8.37% 37.00%
Global Dow 1995.96 2310.26 2484.10 1.38% 7.52% 24.46%
Fed. Funds .25% .25% .25% 0 bps 0 bps 0 bps
10-year Treasuries 1.78% 2.64% 3.04% 29 bps 40 bps 126 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Snapshot 2013

The Markets

  • Equities: The Dow industrials spent 52 days–one-fifth of the year’s 252 trading days–setting fresh all-time closing highs, while the S&P 500 had its best annual percentage gain since 1997.* However, neither came close to matching the spectacular performances of the Nasdaq and the Russell 2000. The Russell’s 37% increase gave the small caps their fourth best year ever, while the Nasdaq did even better. The Global Dow was hampered by the impact of anxiety about Federal Reserve tightening on the global economy, especially emerging markets. However, like the four domestic indices, it nevertheless managed to more than double its 2012 price gains.
  • Bonds: Bond investors were haunted by two specters for much of the year: possible reductions in the Fed bond purchases that have helped support the bond market, and the potential for an unprecedented default on U.S. debt. Neither of those materialized in 2013, but the brinksmanship over the debt ceiling briefly sent short-term Treasury yields higher than those of the one-year note in October. The flight from bonds left the benchmark 10-year Treasury yield at roughly 3% by year’s end as prices fell.
  • Oil: A resolution to a global standoff over Syria helped oil prices retreat from late-summer highs over $100 a barrel. However, despite increased U.S. production, oil prices ended the year up almost 6% from December 2012, at roughly $98 a barrel.
  • Currencies: The U.S. dollar made a round trip during the year, ending 2013 at roughly the same value against a basket of six other major currencies as it began. Between January and July, the dollar gained more than 5% on anticipation of potential Fed action, only to see those gains vanish during the year’s second half as tapering failed to materialize.
  • Gold: Gold lost much of its luster in 2013, falling from just under $1,700 an ounce in January to just over $1,200 by year’s end. Despite a few bounces along the way, especially in late summer, 2013’s 28% decline was fairly relentless. Low inflation reduced gold’s traditional value as a hedge against higher prices, and global economic recovery undercut the perceived need for safe havens as investors bet on a stronger U.S. dollar resulting from any Fed tapering.

The Economy

  • Unemployment: The employment picture continued to improve slowly. The unemployment rate ended the year at 7%, its lowest level in more than five years and an improvement from last December’s 7.8%. According to the Bureau of Labor Statistics, the unemployment rate has now fallen 3 percentage points from its October 2009 high of 10%.

  • GDP: U.S. economic growth accelerated throughout the year. The sluggish 1.1% expansion seen in the first quarter rose to 4.1% by Q3–the fastest economic expansion since Q4 2011. And though the Bureau of Economic Analysis said after-tax corporate profits were stronger in the second quarter than the third, they were still a dramatic 8.6% higher in Q3 than a year earlier.
  • Federal Reserve: After keeping the world in suspense much of the year, the Fed finally announced it will begin gradually reducing bond purchases in January 2014. Members of the Fed’s monetary policy committee anticipate its target interest rate could remain at its current low level into 2015, even if unemployment falls to 6.5%, as long as inflation remains low.
  • Inflation: Inflation remained well under historical averages, allowing the Fed to begin tapering its bond purchases. By December, the Bureau of Labor Statistics said consumer inflation had fallen to an annual rate of 1.2% from the previous December’s 1.8%, while wholesale prices gained a mere 0.7% over the same time–half the inflation rate of a year earlier. Despite heavy discounting and a shortened holiday shopping season, retail sales showed improvement over the course of the year, and consumer spending was up 2.6% from a year earlier.
  • Housing: Despite being hampered by higher mortgage rates and low housing inventories, the housing market demonstrated resilience. The 13.6% year-over-year average price gain in the S&P/Case-Shiller 20-City Composite Index was the strongest since February 2006, putting home prices back at mid-2004 levels. New-home sales rebounded from a summer slump and by November were 16.6% ahead of the previous year, though the National Association of Realtors┬« said sales of existing homes showed signs of slowing by year’s end. Meanwhile, the Commerce Department said a 23% jump in housing starts in November put them almost 30% ahead of a year earlier.
  • Manufacturing: By the end of the year, businesses seemed confident enough about the future to increase spending on equipment. The Commerce Department said even aside from the strong but volatile aircraft sector, durable goods orders showed signs of improvement in December, while monthly readings on the Institute for Supply Management’s manufacturing index rose every month in the second half of the year.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); http://www.goldprices.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. *Based on data from the "Stock Trader’s Almanac 2014."

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indices listed are unmanaged and are not available for direct investment.

Follow

Get every new post delivered to your Inbox.

Join 59 other followers

%d bloggers like this: