New Years Resolutions

"Now is the accepted time to make your regular annual good resolutions. Next week you can begin paving hell with them as usual." Mark Twain

Here we are - a New Year. Some also say a New Decade.

What 'Financial' Resolutions have you made? Can't think of any? Here are a few tips.

1. Review and Rebalance your Investments and 401(k)
If you have been putting it off for a while to "wait & see", your account is probably seriously out of balance. Sit down with an advisor to review your goals and make your your fund mix matches what your needs are.

2. Increase Contributions to Your 401(k)
Are you putting between 10% and 15% into your 401(k) at work? If not, then at least raise the amount you are putting in. Gradually work yourself up to that level. You will need the nest egg for income later.

3. Pay Off Credit Cards and Other Debt
If you are having trouble with #2, get these paid off and free up some money for yourself.

4. Set Up a Budget and Stick To It
There are a number of places you can find good basic worksheets for setting up a budget. It should be simple. Just make sure all of your money has a place to go - either savings or expenses. Here is a site with some downloadable sheets. http://www.betterbudgeting.com/

5. Contribute to a Roth IRA and Convert Pre-Tax Retirement Savings
You can put up to $5000 into a Roth ($6000 if you are 50 and older). You can still make 2009 contributions up until April 15. The Roth IRA of course grows tax free and allows you to make withdrawals at retirement which are also tax free.

There are no income restrictions for the Roth this year and if you choose to convert any money from your Traditional Pre-Tax IRA to the Roth, you may spread the taxes out over the next 2 years.

You can contact me through my website, http://www.helpmy401k.us/. You may also follow me on Twitter at http://www.twitter.com/deanvoelker. I also host a weekly internet radio program at http://www.blogtalkradio.com/401kcoach.

Retirement Calculators

There are some great tools and calculators you can use for free to help plan for retirement. Some of the best ones are those which you may not even know about.

First, not to toot my own horn, but my website, www.helpmy401k.us has a great tab called Investment Tools .

There are calculators there for almost everything. The most commonly used one is the 401(k) Calculator. You could also use the 457(b) calculator if you are a government employee, but the concept is the same.

Simply go to the 401(k) calculator and plug in your own numbers. For example, lets say you are 29 years old with $1000 in a retirement savings account. Lets also say that you earn $50,000 per year and that you follow Dave Ramsey's advice and put in 10% of your pay into your 401(k) or $5000. If you earn an average return on this 401(k) account of 8% and keep doing this until age 66, you will have saved $1,076,087 for retirement. And that does not include an employer match or a raise in pay - EVER. Personal Finance expert Eric Tyson has an idea which may help provide an incentive to save more in 401(k) or IRAs - instead of calling them those names, we should try calling these "tax-reduction accounts".

What if we did figure those in? Easy - just enter those numbers.

Well, lets say your employer matches your contribution by 50% of whatever you put in up to 4%. If you put in at least 4% or more (and we are doing 10%, remember?), that means you are getting another 2% ($1000) from the employer. Also, lets assume they will raise your pay by

2% per year as a cost of living increase. Keeping the other earlier numbers the same, you will now have saved $1,598,680 for retirement.

Here is another one which my be helpful if you are planning to pay off credit card debt. And you should absolutely do that! It will have you save more in your "tax-reduction accounts."

Let's say you have a balance of $2000 in a credit card account. Your current monthly payment is $125/month and your interest rate on the card is 17.5%. (Ugh!) If you do as Dave Ramsey says and do some "plastic surgery" on your card (cut it up and dont use it anymore!), did you know that you can pay the card off in 12 months by just raising your payment to $183/month? It's true and very easy to figure out using the "Credit Card Payoff" calculator on the site. This can be very helpful to see yourself making progress towards your goal, if you can't pay the entire amount, but know you should pay less than the minimum.

In upcoming blog articles, we will look at a few more of the calculators.

You can see these calculators and many other helpful ideas on my website, www.helpmy401k.us. You can also follow me on Twitter at www.twitter.com/deanvoelker . I also host a weekly internet radio program "Improving Your Financial Health" at http://www.blogtalkradio.com/401kcoach .

Credit Myths

There is an old saying that if you tell a lie loud enough and long enough, then over time, the lie will become accepted as truth.

Like many of you, I had bought into the credit card myth. I believed that having a credit card was aprt of life and that you "needed" one to rent a hotel room or make other purchases.

Recently, I've discovered that one of the best ways to Improve Your Financial Health is to perform some "Plastic Surgery". There is an overwhelming feeling of freedom and relief when you take a pair of scissors to that piece of plastic in your purse or wallet.

Dave Ramsey discusses this in further detail in his Financial Peace University course.
www.daveramsey.com

Imagine how much simpler your life would be without credit card payments or other loan payments. Imagine being totally debt free, or at lest debt free except for your home.
How much money could you save if that were your situation?

If you had $10,000 or more in a savings account, to be used only for emergencies, would you be able to worry less about the possibility of something happening?

One of the best definitions I have heard of "Financial Security" is this:
Financial Security means being able to afford almost anything you want - AND wanting very little.

When you tell a lie or spread a myth long enough, it will eventually be accepted as truth.

Here are a few "myths" about credit which have been told to us over & over again through marketing and the media.

Myth: You need a credit card to build credit.
Truth: A credit card does not "build" credit. In mnay cases, it can even destroy credit.

There is NO positive side to credit card use. You will spend more if you use credit cards. Even by paying the bills on time, you are not beating the system! Most families don't pay on time. The average family today carries $8,000 in credit card debt according to the American Bankers' Association.

When you pay cash for a purchase, you can "feel pain" of the money leaving your hand. This is not true with credit cards. Flipping a credit card up on a counter registers nothing emotionally. If you use credit cards instead of cash you will spend 12-18% more. This is money you could have saved.

Myth: What about my credit score or FICO score? Don't I need a good score for getting a job,
getting loans.
Truth: The FICO score (Fair Issac Corporation) was created in 1958 as a way of determining the likelyhood that a person will pay their debts. http://en.wikipedia.org/wiki/Credit_score_(United_States)

In other words, it is a debt score. It measures what debts you have and how likely you are to pay them. People with no debt over a period of several years actually have a ZERO score. Wouldn't it be better to have ZERO debt as a measurement of managing your money, than a 'score'?

Myth: Wouldn't it help to get a debt consolidation loan? That is a good way to get out of debt.
Truth: When you do a debt consolidation, you just move the debt from one place to another. 88 percent of the time people do debt consolidation, they don’t change their behavior and go right back into debt. You can't borrow your way out.

The best way to eliminate debt is by putting together a budget, and putting your debts on a sheet and knocking them out one by one, starting with the smallest balance.

Myth: 90 Days Same as Cash or 0% Financing is a good deal.
Truth: This is an advertising gimmick. Businesses are in business to make a profit.

When companies use this method, they simply build the extra right into the price. Then when you don't pay it off in 90 days, they can charge you interest on top of it at rates from 24-35%. Worse, they will backcharge the rate all the way back to the date of purchase. And they know that most of the time, people won't pay it off on time. Again, the reason for doing this is to make a profit - once when they sell the item, and again when they can charge you interest.

Please contact me for more information. You may reach me through my web site. www.helpmy401k.us. You may also follow me on Twitter. www.twitter.com/deanvoelker

Fixing Your 401(k) - Part 4

Problem #3 - Loans

"Brother, Can You Spare A Dime?" (Bing Crosby 1932)
http://www.youtube.com/watch?v=eih67rlGNhU

There has been a popular myth lately that it is OK to borrow against your 401(k) plan. The most common thing I hear from those I talk with is "I'm paying myself interest!"

If you believe that, I've got some GM stock for you that you should buy!

All kidding aside, this could be the worst idea ever with regards to retirement savings plans. Dave Ramsey, nationally syndicated financial expert, has some thoughts on this as well.
"Never, ever borrow on your retirement." Dave says in response to this question. http://www.daveramsey.com/etc/askdave/index.cfm?event=dspAskDave&intContentItemId=7802

Yet, almost 1 in 5 401(k) plans (18%) have a loan against it. This is according to Transamaerica for Retirement Studies in their annual survey. www.transamerica.org
http://www.ebri.org/publications/ib/index.cfm?fa=ibDisp&content_id=3838

Reality is NOT "paying yourself interest", but rather paying credit card interest to borrow your own money. OUCH!

What are the Tax Consequences on a 401(k) Loan?

When you borrow, you have 2 options -
1. Pay it back.
2. Don't pay it back.

Of these, the best of course is to pay it back. However, did you know that when you do, you face DOUBLE TAXATION? You are paying interest with after-tax dollars that will be taxed AGAIN
at withdrawal.

What about not paying it back? Well, obviously your investment takes a hit & you could be taxed up to 35%, and face the early withdrawal penalty of 10% if you are younger than 59 1/2. If you leave the company, the loan is automatically listed as a withdrawal, so it is "repaid".
Again, you are paying interest, not to yourself, but to a lender on your own money.

What does this mean to your investment? It lowers the balance, certainly. How much depends on how many times the loan is taken, what amount, investments, payback and several other factors.

Please don't "Spare a Dime" from your 401(k). You will need this money later!!
For more information, please contact me, Dean Voelker, at www.helpmy401k.us

Where You Put Your Money Does Matter

According to Dave Ramsey (www.daveramsey.com), "A Simple one-time investment of $1000 could make a huge difference at retirement...if you know how and where to invest it.

Did you know that 84% of teens have some money saved, with the average being $1044. (I remember being in this position once as a high school student, working & saving. Boy, do I wish someone had shared this with me at that time! $1000 was worth more in 1982 than today!)

Dave Ramsey has a simple chart with some interesting facts.
http://www.daveramsey.com/school/media/pdf/sample_chapter.pdf (Page 9)

He points out on his chart that he learned from a Charles Schwab survey that 81% of teens say that it is important to have a lot of money in their lives. However only 22% say they know how to invest money to make it grow. And only 24% believe that since they are you, saving money now is not that important.

The chart shows what can happen to $1000 over a 40 year period (Age 25 -65) at different rates of return 6%, 12%, and 18% (with no new money added). Because of the compounding effect of interest, a snowball effect is created.

At 6%, $1000 will grow to $10,285 in 40 years.
At 12%, $1000 will grow to $93,050 in 40 years.
At 18%, $1000 will grow to $750,378 in 40 years.

There are some well-established mutual funds which have averaged 12%per year over a 40 year or longer time period. That does NOT mean that the fund will perform at 12% every year. 12% is merely an average.

As Dave often reminds us, saving & building wealth requires discipline and it is a marathon, not a sprint. Plant the seed and let it grow.

Are there any funds which average 18%? None that I can think of which have consistently perform at that level long term - However, think of your credit card lenders, and other forms of revolving credit. Can you see how they make money?

Remember the compound snowball is either working FOR you or AGAINST you. With all of the recent news about credit card lenders gouging, http://njmg.typepad.com/moneyblog/2009/05/credit-card-gouging.html
isn't this a great time to cut up the cards and begin to take control of your finances again?

Do you know a teen who has saved some money?

For more information, please contact me at www.deanvoelker.com.

Retire As A Millionaire!

Want to retire as a Millionaire? As Warren Buffett might say, "It's Simple, but never easy."

Dave Ramsey, the leading expert in helping others to build wealth has an illustration he shows in his classes, to show how Compound Interest works. Dave uses the example of Ben & Arthur. (Why not Ben & Jerry? Just kidding!) http://www.daveramsey.com/etc/cms/index.cfm?intContentId=64

In the example, Ben starts at age 19 and invests $2000 per year at 12% (Well, an AVERAGE of 12%). Ben does this from Age 19 to Age 26 (8 years or a total of $16000 invested) and then stops. He lets the money compound and continues to earn 12%. At Age 65, assuming he never withdraws anything, Ben has $2,288,996.

Arthur, on the other hand, waits until he is 27 to get started, and also invest $2000 per year at 12%. Amazingly, even though Arthur invests a total of $78,000 over 39 years, and is getting the same return, he NEVER catches up with Ben, because Ben started earllier. Arthur's total at Age 65 is $1,532,166. I think many people would be happy with that number though.
Compound interest teaches us a few things.

1. Start early. The eariler you grasp this concept, and apply it for yourself the better.
2. Start now. Don't worry about the past. Make a plan to start today. And STICK TO IT.
3. Down Markets will happen. With disciplined investing (By the way, $2000/year works out to
less than $40/week.) you are buy at a bargain when values are down. The catch is to do it
every week.
4. Compound interest is either working for you or against you. Is it time to do "plastic surgery"
on your credit cards?

For more information, contact me at www.deanvoelker.com

Time For Plastic Surgery

This morning, I watched a report on NBC's Today Show by Lisa Myers "Credit Card Backlash - Are Banks Gouging With Credit Cards?" According to Ms. Myers report, some credit card companies have raised interest rates significantly on balances owed. Apparantly, this is one way for banks to recoup some lost profits from last year. http://today.msnbc.msn.com/id/26184891/26411480#30363732

Its also stirred anger from the credit card holders. Whether or not you own a credit card, this should make you angry. Credit cards, like many things have a good and bad side, but often we use them to pay for things when we don't have the money. This kills our chances of growing our savings. When you think about it, the big reason we are in a recession now is because too many people lived beyond their means and bit off more than they could chew.

Want to do your part to get the economy going again?

Do what Dave Ramsey (www.daveramsey.com) says - perform "plastic surgery" on your cards.
Shred 'em & Get Rid of 'em!!

Like ripping off a band-aid, it may hurt at first, but you should also feel a huge sense of relief - like a giant boulder lifted off your shoulders. Without the card, you can't add debt. You can only lower it by making your payments. With the average credit card debt in America at $8400,
http://www.spendonlife.com/content/CreditCardDebtEliminationAndFactsAboutDebtInAmerica-1-223-3.ashx this is the time to dump the debt and start growing savings.

Check out Dave Ramsey's "Town Hall for Hope" www.townhallforhope.com 8:00pm EST
South Bend, IN area residents can attend at Clay Church www.claychurch.com

For more information on improving yhour financial health, please contact me at www.deanvoelker.com .