Previous Months

April

Don't make these 401(k) mistakes
In retirement seminars across the country, attendees are often advised to think of retirement income as a three-legged stool: social security, traditional company pension and 401(k) plan. Over the years, the pension leg of that stool has been getting wobbly. In an effort to avoid long-term liabilities in today's competitive environment, fewer companies are offering traditional pensions (also known as defined benefit plans). As a result, responsibility for retirement planning has increasingly fallen on employees. All this makes 401(k) planning more important than ever. Unfortunately, easily avoided mistakes may sidetrack the accumulation of a sufficient nest egg to fund your golden years. A prudent employee will steer clear of these 401(k) blunders:

  • Failure to contribute. According to recent reports by the Department of Labor, in the United States there are over 638,000 defined contribution retirement plans. More than 80% of full-time American employees at large companies have access to, and participate in, such plans. That's the good news. The bad news? Upwards of 10% of employees at those companies don't participate. If you're not taking full advantage of your firm's 401(k) - or equivalent defined contribution plan - don't wait. The retirement clock is ticking.
  • Not saving enough. First of all, take full advantage of any company match that's offered. Say your firm offers to match 50¢ for every dollar you contribute up to a maximum of 8% of your income. That's a whopping 50% return on your contributions. Try to beat that in the stock market! And don't stop there. Depending on your age, you'll want to set a goal of contributing at least 10% of your income to your retirement savings, more if you're closing in on retirement and haven't accumulated a substantial balance.
  • Failure to allocate. Contributions should be spread out or allocated among conservative and more aggressive (and, therefore, riskier) investments. That way your nest egg will have a better chance of weathering the inevitable vicissitudes of the market. In general, the closer you are to retirement, the more conservative your investment mix should be.

Source: J.P. Spillane, CPA, PA 
GCU claims no responsibility or ownership for this content.

March

Four Tips for Building an Emergency Fund
Planning for emergencies is kind of like buying insurance: You pay into an account and hope you'll never have to use it. But life happens. Cars break down. Roofs leak. Kids break arms. Having money in the bank to cover those unexpected expenses can reduce stress and keep you from relying on credit cards and loans to make ends meet. Here are four easy and effective ways to establish and maintain an emergency fund:

  1. Start small. Many financial planners advise setting aside enough money to cover at least six months of expenses. That's a worthy goal. But for many people, it's also a daunting task that will take years to achieve. So be realistic. Set an achievable goal for your emergency fund. Dave Ramsey, a financial author and radio host of the "The Dave Ramsey Show," suggests starting out with a goal of $1,000 and working your way up to having three to six months of expenses.   
  2. Sell stuff and slash expenses. Yard sales, online auctions, consignment shops-selling items via such venues can generate cash to bolster your emergency fund. Take a hard look at your budget and consider everything fair game: expensive dinners, vacations, cable television and so on. You may find that a surprising amount of money can be freed up and stashed away in savings. The key, of course, is to direct those savings away from regular spending and into your emergency account.  
  3. Make it automatic. With online banking, it's easy to set up routine transfers from your regular checking account to a separate savings account. If allowed by your employer, allocate a portion of each paycheck to an emergency fund. Consider establishing the account at a financial institution other than your regular bank. As the saying goes, "Out of sight, out of mind." If the money never shows up in your regular checking account, you'll be less likely to use it for everyday spending.  
  4. Pump it up. When you get a bonus, cost-of-living adjustment, tax refund or windfall, consider using a portion of that money to bolster your emergency fund. Fight the temptation to increase spending with every new dollar that comes along. This will bring you closer to your end goal of six months of expenses.

Source: Cavanaugh & Co., CPAs and Dave Ramsey

GCU claims no responsibility or ownership for this content.

February

Create a Budget in Five Easy Steps

In 2014, the National Foundation for Credit Counseling found that approximately two out of five U.S. adults (39%) say they have a budget and keep close track of their spending, a proportion that has held steady since 2007. Though you may avoid creating a personal budget because you are afraid of what you will find, creating and working your budget monthly is one step closer to financial well-being. In fact, after abiding by a financial plan for a few months, you'll find it can help alleviate some financial stress. Here's how to create a budget in five steps:

Step 1 - What's Coming In?
Total your monthly income. This includes things like net wages, tips, interest earnings, alimony and child support. Don't include unreliable sources of income like gifts from family members.

Step 2 - What's Going Out?
Total your expenses. Write down all the things you spend money on each month. Don't guess. Take some time and run through your bank statement. You might find things you forgot about. Create a budget category for everything you're spending money on - you'll adjust it later.

Step 3 - Does it Add Up?
Ideally, your income will be greater than your expenses. If that's not the case, review your expenses and look for places to scale back. Evaluate your needs vs. wants. When you can't reduce your expenses you'll have to increase your income. Take on a part-time job or ask for overtime. Or find ways to make money from hobbies. Evaluate your tax withholding. If you typically receive a tax refund it means you're probably having too much money withheld from your paycheck each month.

Step 4 - Put the Paper into Action
Once your budget's on paper it's time to start living by it. Refer to your budget to make spending decisions. At the end of the month write down the actual amount you spent in each budget category. Highlight any places where you went over your budget.

Step 5 - Make Budgeting a Habit
Don't give up if your budget doesn't work the first month! It can take a few months of practice to get your budget into the perfect place.

Source: The National Foundation for Credit Counseling, MoneyNowUSA

GCU claims no responsibility or ownership for this content.

January

Focus On Expenses, Not Just Income

Listen closely. In workplaces across America you'll hear this refrain: "If only I made more money. Then I'd have plenty to live on."

It's important to earn a sufficient salary to pay the rent, keep the lights on, service the car and purchase school supplies. But the income side of the ledger tells only half the story. Expenses are the other half.

Retirement planners often tell clients to take a hard look at expenses they expect to incur when full-time employment draws to a close. But even if you're decades from retirement, it makes sense to scrutinize your routine and not-so-routine expenses on an annual (or more frequent) basis. Folks who accumulate wealth over a lifetime generally develop a habit of living within their means. In other words, they've whittled down their expenses to a level commensurate with their income. By one means or another, they've learned to stick to a budget and save for the future.

Does that mean they never take a vacation? Or buy a newer model car? Or send their kids to college? No.

It does mean, however, they've learned to sacrifice in the short term for long-term benefits. They refuse to live paycheck-to-paycheck until the paychecks dry up.

Here are four expenses that can often be trimmed with minimal pain:

  • Cable or satellite television. Watching pay-per-view events and TV packages with premium channels can drain your budget in a hurry. Take a break from TV for a week and use the time to read a book or play cards with friends. Your thinking may change. You may find that the cost of premium television begins to outweigh the benefits.
  • Auto fuel. Consolidate trips to the store, the school and the church. Planning ahead is a relatively painless way to minimize visits to the gas pump.
  • Telephone services. If your wireless bill is beginning to resemble a phone book - with most of the records logged against your kids' phones - maybe it's time to shop around for less expensive plan.
  • Vacations. America is a huge country (just ask someone who lives in Europe). It's also a great place to explore on a budget. Road trips, especially if planned for the off season, can provide a wealth of memories for a reasonable price.

Take steps to increase your earning potential, but don't forget the other side of the ledger.

Source: J.P. Spillane, CPA, PA    
GCU claims no responsibility or ownership for this content.

December

The Outlet Mall: A Good Place to Get a Good Deal?

A few years back, outlet malls had an almost seedy reputation. They tended to be located far from upscale neighborhoods and generally offered defective or second-rate goods. Nowadays, outlet stores look a lot more like their full retail counterparts. Though outlets may not feature showpiece displays or offer wide selection, they're popular for one main reason: perceived savings. However, there are a few things to keep in mind when shopping at outlet malls:  

  • Check Out the Quality of Items. Several studies have shown that over 80% of the products sold at factory outlets were manufactured specifically for those stores. So the blouse that's on the rack at the outlet store may not be identical to a similar item displayed at the store's retail establishment or on their website. At the outlet mall, leather in a purse may have been replaced with plastic; sweaters may be shorter and have fewer buttons; T-shirts may be constructed with fewer stitches and lighter fabric. Although these differences in quality may not be a deal breaker for you, it's always good to know what you're buying.
  • Know Your Discount. Using a marketing technique known as reference pricing, bold price tags at the outlet store may advertise a huge discount from an item's "retail price." Unfortunately, that "retail price" may have been concocted at the store's recent management meeting. There's no guarantee that merchandise at the outlet store was ever listed for that price at a retail establishment.
  • Shop Sales and Promotions. Outlet malls have sales, too, so it makes sense to shop when items are truly discounted. Sign up for an outlet store's mailing list to be notified about upcoming promotions. Before you buy, make sure the retail store isn't offering an even bigger discount on your favorite item.
  • Shop During the Off-Season. Look for bargains when stores are trying to move their end-of-season inventory. Buy beach apparel in the fall and winter coats in the spring.
  • Don't be Afraid to Leave Empty-Handed. Driving a long distance to an outlet mall doesn't necessarily justify a shopping spree. If it makes sense to buy an item, buy it. If not, wait to shop another day.
  • Know the Store's Return Policy. Retail establishments may not take returns from outlets. Others may require price tags and receipts before accepting returns.

As always, follow the wise consumer's tried-and-true maxim: buyer beware.

Source: J.P. Spillane, CPA, PA    
GCU claims no responsibility or ownership for this content.

November

Should you rent or buy a house?
For many folks, the lyrics of a 1960s rock song summarize the American dream: "Our house is a very, very, very fine house." According to U.S. Census figures, about two thirds of American families are homeowners. But buying a house or condo may not be the best choice for every family in every situation. Renting offers the following advantages:

  • Greater flexibility. When renting a house, apartment or condo, you have the option of moving at the end of the lease term. No need to contact a realtor, no hassle with buying or selling. For those who want to keep their options open, especially in terms of job location or dwelling size, renting may prove the better choice.
  • Opportunities to invest elsewhere. Instead of plowing your savings into a home, you might get a better return by contributing to mutual funds or other investments. Depending on the housing market in your city, the annual increase in your home's value may barely outpace inflation.
  • Lower cost. Apartments are often smaller than homes so heating and cooling expenses tend to be lower. If you don't have a lawn, you won't incur the cost of water to keep it green. Roof leaking? Appliances on the blink? Call the landlord. Home repair and maintenance aren't your responsibilities.

Of course, as many realtors and financial analysts rightly point out, homeowners also enjoy significant advantages:

  • Greater flexibility. Ironically, homeowners enjoy certain freedoms denied to renters. If a homeowner wants to paint a wall or hang a picture, he or she doesn't answer to a landlord. Installing a doggy door isn't a problem. Hiring a remodel contractor to tear out a wall is perfectly acceptable. Don't try this if you're a renter.
  • Increasing equity. Of course, one of the greatest advantages to buying a home is the likelihood of increased equity over time. As long as your mortgage is being whittled down by monthly payments, you're building equity-even if your property value remains stable.
  • Lower taxes. The ability to deduct mortgage interest and property taxes (if you itemize) can significantly lower your end-of-year tax bill. Renters must forgo this benefit.

Clearly, the choice to rent or buy a home depends on individual circumstances and tastes. 

Source: J.P. Spillane, CPA, PA    
GCU claims no responsibility or ownership for this content.

October

Ask these questions before paying off a mortgage early

Making extra principal payments to retire a mortgage before the end of a 15- or 30-year term may seem like a no-brainer. After all, who wouldn't want to extinguish that substantial debt and those monthly principal and interest payments? But paying off a mortgage early may not be the best choice for every household. Here are five questions to consider:  

  • Do you have high-interest credit card or loan debt? If your credit card company is charging 15% on your outstanding balance, you can earn a guaranteed 15% by liquidating that debt. It makes sense to pay off high-interest accounts first, before putting extra funds toward your low-cost mortgage. That's especially important if you're in a higher tax bracket. Home mortgage interest is tax deductible-consumer debt is not.
  • Have you established an emergency fund? Life happens. If you haven't set aside funds in an easy-to-access "rainy day" account, you may be forced to acquire additional debt when life's inevitable troubles come along. Build up that emergency account to cover at least a few months of living expenses before supplementing your mortgage payments.
  • Are you contributing to a retirement plan at work? Many companies will match a certain percentage of funds contributed to a 401(k) retirement account. For example, your firm might match 50% of the money you contribute, up to a maximum of 6% of your salary. Don't pass up that offer. It's easy money and certainly earns a better return than dollars paid toward your mortgage principal.
  • Can you get a better return elsewhere? The stock market is notoriously volatile so paying off your mortgage may help you sleep at night. However, if you can handle the risks of stock-based mutual funds or similar accounts, it may be prudent to invest at least a portion of your extra money there, especially if you won't need the money soon.
  • How's your cash flow? Before you retire from full-time employment and paychecks are replaced by social security payments, pensions and/or retirement account withdrawals, run the numbers. Retiring without mortgage debt may be a wise financial goal for your family, but it's prudent to base your decisions on hard facts, not wishful thinking or uninformed advice.

Source: J.P. Spillane, CPA, PA    
GCU claims no responsibility or ownership for this content.