From Class to Class-Moving Up Economically

                 In these challenging economic times, it seems that all attention has been given to people who have been blessed to make it to the middle class. Policies are being enacted to preserve the standard of living for millions of Americans.  But what about the individuals who are just above broke working 10-16 hours a day and still falling significantly short in maintaining a minimal standard of living?  According to the Census Bureau’s most recent reporting, approximately 46.2 million individuals are currently living below the official poverty level of $22,350 for a family of four. Where does the hope lie for that family?  What can they do to move upward and into the middle class?

                The answer of how to create a financial plan for someone barely making ends meet is not easy but it is possible.  The solution is wrapped up in a person’s willingness to press beyond the long hours to complete personal goals that will help them accomplish their heart’s desires, increase their income and ultimately their standard of living.  What does that mean? When an individual can identify their natural talent and gift, they can begin the long journey of putting their gift into action or working their talent.  Working in a field they enjoy will encourage them to pursue their dreams even when they are beyond exhausted because they can see the reward in the future.  But if they never buy into the possibility that life can be different, then they will be destined to live a life of mediocrity and barely making ends meet.  They will ultimately fall so short that dependency on outside resources will be inevitable.

                But the other problem is lack of financial integrity.  The mindset of most individuals is to enjoy life in the now.  The rainy day funds are obsolete and foreign to Americans today.  Long gone are the days where people spent less than what they earned, socked money away in drawers, saved coins at the end of the day and put money in the safe.  They have been replaced with tired moms who prefer to get fast food for the kids at least once a week instead of cooking a meal after working a 16 hour shift.  Instead of saving to invest in one’s future, money is spent on discretionary items that will calm someone’s nerves, make them feel better emotionally or temporary euphoria.  From cigarettes and liquor to miracle offerings instead of paying tithes, people are looking for temporary fixes or solutions. 

Financial integrity will have an individual become a good steward over what limited resources they have.  It will make a mom take an extra hour to match coupons against the store with the greatest discount, bring lunch to work to save, carpool with someone to reduce expenses and stretch to save wherever possible because they have a goal that is greater than their desire for a short term fix to a long term problem. 

An individual who is in poverty now but committed to pursuing a better life will have the greatest opportunity to succeed when they combine their passion and talent with financial integrity.  If they stay committed to the plan that will lead to increased income, there will come a moment when saving for tomorrow becomes a reality.  

Investments Require Time to Blossom!

Everyone is familiar with the saying April showers produces May flowers! In addition, as a gardener, one understands the concept of planting seeds and expecting flowers to bloom. If a person desires a beautiful garden, there are several steps that need to be taken to ensure maximum results. For starters, the gardener must cultivate the land before seeds could ever be placed in the fertile soil. Once the seeds have been sown, the ground must be saturated occasionally to protect the seeds sown. Over the course of time, buds will begin to sprout and in due season, a full garden has blossomed.

Establishing a financial net worth requires the same dedication and commitment one would display when creating a garden. A person must devise a plan to ensure they receive maximum results financially. After developing the plan, or cultivating the soil, the initial investment must be made that will help an individual achieve their stated goals and/or objectives. But one cannot stop at the initial investment. Establishing a net worth requires attention. One may be required to add more money, make slight adjustments, or systematically rebalance or reallocate what is already invested.

But what is most essential between a garden and investments is they both require time to blossom. One cannot plant a seed today and expect a full, vibrant garden tomorrow. If you interrupt the process by agitating the seed sown, it cannot properly develop and produce the desired result. It is critical that while the seed requires attention, its primary need is time to bloom.

Building a net worth requires the same time and attention. Any investments made, whether in business, in the stock market or even real estate, require time to bloom. There may be occasions where the investment needs attention, but that does not negate the fact that over time your investment has the opportunity to grow.

So as you watch the flowers blossom all around you in anticipation of the summer time, remember the cold weather when nothing grew. Your investment will always experience periods in which there is little, no or even negative activity. But then comes the April showers. Most businesses will make adjustments over time to work towards profitability for their future. These seeds of promise are like the April showers. And with April showers, come May flowers! Paying attention to your investments and getting the proper advice and guidance will have you achieve your financial goals over time.

So don’t fret, what you sow, you will also reap. Begin working on your financial garden today and watch it grow and blossom over time into exactly what you desired. I love it when a plan comes together!!!

Mature…

Think with me for a moment.  Do you know of any senior citizens at the age of 70 or older?  Do they still eat food?  Do they still require a place to live?  Do they still require clothes, daily maintenance, etc.?  I know these questions may sound silly but here is the reality.  Most people do not presume they will be alive at the age of 70 or older.  It seems that society does not believe in long life.  Therefore, we are conditioned to live in the now, not to prepare for the future. 

Addressing the needs of our growing senior population is something every individual must take personally.  In reality, I have said and will continue to say as a professional, “Tell me the date you plan to die, and I will tell you the amount of money you need to maintain your standard of living.”  Providing for the senior population is draining our social security system which is currently designed as a pay-as-you go plan.  Therefore, all working individuals buy into our system which provides for the retired, disabled, unemployed and survivors of the deceased.  In addition, every employed individual also pays for Medicare.  Having said that, we are in the early stages of the baby boomer generation beginning to collect on funds they set aside for this moment in time.

However, the system is already bankrupt.  The country is already in financial turmoil, yet we have an obligation to provide for those who paid into the system in good faith.  There are two problems with this issue.  It seems that as one gets older, they begin to realize when it’s almost too late, they have never accumulated enough financial resources to provide for a steady, comfortable standard of living that they’ve grown accustomed to throughout the years.  The perception that social security will be enough when a senior retires is quickly erased as one prepares for that date.  The second challenge is that at the point of retirement and beyond, a senior’s health naturally begins to deteriorate.  So in addition to poor or deteriorating health, a senior citizen is no longer working and is now relying upon a fixed income for the remainder of their life.  The challenge is that a retiree no longer has the luxury of time to save.  They are in the twilight stages of their life but that twilight season cannot be measured.  In reality, a person can be in retirement for an average of 25-30 years.

What should be done?  How do we handle our baby boomer generation with dignity and respect?  How do we make certain their standard of living can be maintained, even if they are plagued with multiple health challenges?  Planning for a senior citizen’s long term needs is critical and should be a family commitment.  In the next few weeks, we will discuss long term care and insurance to cover the activities of daily living.  We will also discuss the emotional transition that occurs when a person’s value has been wrapped up in their contribution to society through employment and now they are lost or without purpose.  Finally, we will discuss the impact of a person facing their mortality because now people surrounding them;  family members, peers, etc. are dying of natural causes.  In this discussion, I invite your feedback and will address these issue and more…

Health Care Affects the Entire Family

I want you to know that I have prepared my communications with you well in advance to ensure that you will never miss a tip as I have made a 52 week commitment to you.  This week I was supposed to begin the discussion on insurance.  It was my intention to talk about life insurance.  However, I wrote this blog at 2:30 p.m. and felt it necessary to post immediately as my tip for the week.

At 9:30 a.m. when I walked into the office, I received notification that someone who had a diagnosis of a disability over ten years ago cannot protect himself or his family in case of an emergency.  This can potentially affect the family’s ability to build a secure financial foundation.   At approximately 11:45 a.m., I received a call from a friend who suffered an unexpected disability on the job and it will ultimately lead to their inability to work during these tough economic times.  They will be forced to seek employment elsewhere after believing their job was secure.  And if the truth be told, it was.  This is a perfect example of the unexpected, unanticipated becoming a reality.

However, even if those two examples seem major, a financial strategy can still be developed for them if they are willing.  Fortunately, they are.  But at 12:45 p.m. I received a phone call that literally has brought tears to my eyes.  After working with someone for years who was diagnosed with a chronic illness, I was faced with the worst case financial scenario.  A professional is responsible for helping a family lay out a strategy that considers unexpected illnesses.  But it is the family responsibility to follow the instructions otherwise the strategy WILL NOT WORK! 

I am writing this article because there are some areas financially that you must address which are non-negotiable.  While you may not see the value of getting long term care insurance, disability insurance, health insurance, or life insurance, it is designed to protect your family and you.  If you cannot work, disability insurance replaces your income.  Just as you would purchase life insurance to protect your family financially if you died prematurely, or if you would purchase auto insurance to protect your car or home owners insurance to protect property,  YOU ARE THE COMMODITY THAT REQUIRES PROTECTION!  The type of protection must be discussed with someone more knowledgeable than you.

My worst case scenario became a reality because family members did not see the gravity of the illness and its eventual affects.  Their eyes were opened today.  What is disheartening is that it could have all been avoided if only they would have listened.  Now my client will suffer the consequences because others did not understand the significance of following the financial doctor’s orders.  

If you are a caregiver, the person who is suffering, or the child who is affected by the illness of the parent, you have a role to play in ensuring that a sound quality of life can be preserved, in spite of illness, disability or loss.  PLEASE PLAY YOUR POSITION-others are depending on you to be a part of the team!

What’s in a Refund?

Last week I mentioned that tax refunds were overrated. Please allow me to elaborate. Every individual has the ability, with the guidance of a tax professional, to determine their projected income. For example, If you are a single parent of two children making an average of $26,000 annually, it’s reasonable to say you would be entitled to some earned income credit and child credits for starters. The federal government allows individuals to receive that benefit over the course of the year instead of a lump sum. Now, if you could add $200-$300 to your monthly income, would that provide some relief? I find that lack of information minimizes the options people have to change their financial futures. What you don’t know can cripple you when you’re attempting to change. Change is never easy, but exploring different options is extremely worthwhile. If you knew that a professional was willing to help you grow financially, would you consider working with them? Most people don’t want others to know how financially ignorant they are. However, not seeking help isn’t productive either. Most banks have financial professionals on site willing to work with their customers and create a financial plan. At least meet with the professional to gather information. The point I am trying to drive home is this; don’t wait until you earn a certain amount of income before you begin seeking help with your financial picture. You will have multiple opportunities to begin the process of planning and tax season is a golden one. I want to mention something else. Using advance payment services to get your money more rapidly is a waste of hundreds of dollars. The IRS provides free tax preparation and free electronic filing that will allow you to receive your money in an average of seven to ten days for most individuals. You can check your local office for details. With a little patience, that money spent on fees alone will provide you with the money you were looking to spend on vacations, clothes and/or luxuries you desire. You can have the best of both worlds-saving responsibly and spending money on luxury items. It’s a win/win scenario.

Emergency, Emergency

Emergency, Emergency

What constitutes an emergency?  The web definition of an emergency is simply stated as an unforeseen crisis that requires immediate action.  A crisis is when a problem is overwhelming or when our supportive system-within ourselves or from others-doesn’t work, we’re thrown off balance.  Given the gravity of the definition, let’s begin to evaluate what you have historically considered emergencies. 

You may find yourself within one of these examples.  Perhaps you heard of the party of the year and you just had to be there.  To get prepared cost about $100 just for attire and accessories.  Maybe, you were enticed to attend the next great spiritual retreat with every national renowned Bishop, Apostle, and singer.  After all, that is not spending frivolously; it’s sowing seeds into your spiritual essence.  Ok, your children need new shoes but must it be the $150 Air Force Ones.  You’re driving a car you can’t afford, taking a vacation you so desperately need.  The excuses to justify these expenses keep you in bondage.  Unfortunately, our justification spans from a desire to have things we are not financially prepared for, experiences we had as children that we want removed from our memory banks and/or a desire to represent ourselves as being in a place of status that we have not yet achieved.

In the beginning of the year, I shared that you had to honestly assess where your money was going.    I also gave you ideas of potential wasteful spending which you could curtail.  Now it’s time to shift those resources into an area that is allocated as savings.  Mind you, I didn’t mention open an account immediately because you may be that person who can only start off with your change at the end of each day.  Therefore, a jar or bank may be your initial option.  If you find that you’ve allocated $25 per month or more, begin by opening an account at a local bank with the objective of putting money in that account each month.  I know the amount seems minimal, but think about it-you have nothing now and everyone must start somewhere.

Make sure you do not have easy access to the funds.  Do not connect it to your ATM card and select a bank across town if you do not have discipline.  Stop paying bills prematurely when it is possible that your check can bounce.  If you bounced two checks a month, you’ve wasted $70.00.  That’s $840 you could have applied towards your savings. 

Now this money will be used for real emergencies.  Real emergencies are examples of unexpected illness that exceeds a prolonged period of time, unexpected death of a family member and you must travel out of state to attend the funeral services, loss of employment unexpectedly, etc.  You will realize that the money is beginning to add up.  After a while, you will find that you have saved an entire paycheck.  That leads to a month’s income and the funds keep growing. 

 When the books indicate you must have three to six months of emergency cash set aside, it means you have identified your mandatory, monthly expenses such as food, shelter, transportation, utilities etc.  These bills must be paid monthly to maintain your standard of living and they are non-negotiable.  This is why you are saving your money.  If you lost your job, you could survive for an extended period of time giving you room to find another job.

Congratulations-you have survived the first month of building a firm, financial foundation.  It wasn’t easy but you made it.  Next month, we will continue to move forward as we make sure you maximize financially for the remainder of the year!

Where do I start Saving?

If you have a job, you have an opportunity to implement a savings plan.  It sounds harsh, perhaps-not specific to your circumstances.  But it is a true statement nevertheless.  Let me explain.  Most people will agree that savings has been difficult because every time you begin, an emergency arises.  This is the reality of life.  A tire will become flat, the children need braces, an unexpected bill arrives.  It feels like you take two steps forward and ten steps back, never getting ahead-always feeling as if you are losing ground.  How can you avoid that feeling which often discourages and makes you give up on savings before the month of January is even over?

You can begin by saving in your retirement account.  Many, if not most, companies offer retirement planning on the job.  Even if they don’t have a matching program, they can and will provide information for people who need to save for retirement.  If you think social security is adequate, let me share a little secret-THE SYSTEM IS FLAWED!  According to www.socialsecurity.gov, the average monthly benefit in 2009 is $1153.  If this is what you are depending on for an average retirement period of 12.6 years (retirement at age 65 using average life expectancy of 77.6 years for America), you have a problem.

In reality, we are living even longer and we are not the healthiest.  Therefore, if you can tell me the exact date you plan to die, I can tell you how much money you need-down to the penny based on your projected lifestyle.  Unrealistic, I know.  Therefore, you need money when you are no longer willing or able to work.  You must use your working years effectively to accumulate enough funds to maintain your standard of living.  Suggestion:  begin putting aside money through your employer before you receive your paycheck. It’s much easier to absorb and it reduces your tax liability in the current tax year.  I know, you are saying,  “ I’ve heard that before but what does it really mean?” 

If you make $30,000 annually and you decide to start saving 3% of your money, you’ve made a commitment to save $900 toward your retirement.  The tax incentive comes in because when you file your taxes in the current year, the money you saved toward retirement will not be counted when you are determining how much money you owe in taxes.  So instead of having to report $30,000 in income, you are able to report $29,100.  The $900 can be invested (which we will discuss how later) and taxes will not have to be paid until you withdraw the funds at a much later date.  It’s like taking money out of your left hand and saving it in your right.

However, there is a greater issue at hand.  Congratulations!  You just became a saver.  As a financial planner, I understand that most people have difficulty beginning their savings plan.  You have just crossed a major hurdle and we can move forward with a strategy.

Next week, I will backtrack and discuss at length the need for emergency cash!

A New Plan

As a World Trade Center survivor, I know firsthand how unexpected catastrophes can destroy a family.  However, I am not alone.  Premature death, unexpected illness, loss of a job, and becoming the victim of a heinous crime are all examples of life altering experiences.  They affect the way you think, how you operate, and the overall course of your life.  After dealing with the original issue at hand the conversation undoubtedly turns to finances.  How will I handle this issue financially?

Now if you had money in the bank, disability insurance, life insurance or a second job to depend on, perhaps you weren’t concerned.  But if you are like most Americans who are merely two to three paychecks from eviction of their home, this type of unanticipated experience will have you in a tailspin.  Where will you find the money to survive from day to day?  Can you work again after the disability?  How will you pay the bills?  How do you move forward after trauma?

The love for your family will encourage you to address the unexpected or unanticipated.  Provisions can be implemented gradually and systematically.  To tell any family, save three to six months of your monthly expenses sounds like chalk on a blackboard for people who are barely making ends meet already.  So what do you do?

Personal accountability or acknowledgement is the only way you can change anything in your life.  Confronting your experience, accessing its impact and making a commitment to not allow it to control your future are steps you must take.  Then you must look at your bank statements to find out exactly where you are spending your money.  Don’t look at the obvious.  Look at the ATM withdrawals, the trips to Walmart and Walgreens, quick runs to the grocery store.  How many times did you pick up sugar and milk and a few other things you didn’t need.  How much money do you spend on snacks and goodies to get you through the day? 

In December of 2009, I stopped eating snacks and soda for thirty one days.  I decided that the money I saved would be used to help someone fulfill their dreams.  When I began to evaluate how much money I spent daily on these items, it was over $10 a day. Ridiculous! I know.  But if you smoke, drink, or go to parties one to two times a month, your figures are ridiculous too.  That is the money you can use to begin saving for a rainy day.

Now let’s be realistic.  I am not going to stop drinking Pepsi or eating cookies and cake.  But I will begin purchasing in bulk saving me at least 50% of what I was spending.  I now have money for savings.  What can you curtail?  This is a wonderful starting point. 

Keep in mind, you are taking these steps to ensure that when the unexpected in life occurs, you will not be burdened by both the issue and your finances or lack thereof.  That’s all for now-tune in next week and we will discuss another way to begin savings.