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The Free Financial Advisor

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Adulting 101: 5 Ways to Manage Your Money Like an Adult

June 4, 2018 by Susan Paige Leave a Comment

Being in your 20s is a wild ride. For one, you’re too old to still be dependent on your parents, but also too young to face the pressures and figure everything out. But the pressures of adulting demand that you figure it all out on your own. Then you reach your late 20s, and you’re expected to have mastered it all.

But what is all this adulting about anyway?

Well for one, it’s building that discipline needed to focus on the most important tasks at hand. It’s realizing that, you only really need to do things one at a time. But of course, the pressures and surge of hormones in our youth lead us to succumb to all kinds of distractions and it all gets tangled up into the blackhole of existential crisis.

So, in line with being focused and disregarding all the nonsense, I present to you the way you can manage your budget like an adult. If you’re still in your early 20s, well, awesome. Enjoy all the fun, confusion, and take all the lessons you can get. But, as tita as this may sound, it’s best that you learn all these values now, so you can get ahead of everyone in ‘adulting’. You’ll surely thank yourself later.

Consolidate All Your Monthly Bills

How much are you really paying every month? This should be your top priority, and not your FOMO (Fear of Missing Out) — on parties, scenes, and events. There’s no better feeling than the peace of mind that comes with being able to pay your bills on time. And with this practice comes the fulfilment of being financially independent, too.

If you’re still short on your monthly income and have a credit card, you’re lucky to have something to help you out on those Petsa de Peligro days. But learn to use your credit card wisely so you don’t get caught up in debt. Another solution for this is to look for side job opportunities on the internet, so you get to earn more money. Maybe even in US dollars, too, as most freelance contractors from the likes of Upwork are from the USA.

Setting Both Long and Short-Term Savings Goal

You’ll often hear this at job interviews. What are your goals five, ten years from now? And the right answer should be to see yourself climbing the corporate ladder in that company, to let them know you’re not going anywhere. That thought can change, sure, but the question is still important. What is all this hard work for without a goal, right?

Entry-level salaried employees should never set their goals merely based in their income.

Set bigger, realistic goals and a specific timeline. Do you want to own a house before you’re 30? That’s possible. Set bigger goals and your paycheck will follow. This is because you’ll program your mind to work double to get to that goal.

Start Investing

Entrepreneurs and financial advisers will have you know, letting loads of money sit idly in your bank would be a waste. If you have enough money saved up in the bank, find the right investment venture for you.

Invest in something you’re interested in, e.g. Stock Trading, or maybe a business you can start, with partners or by yourself. You can even opt for a personal loan to get that jumpstart if you already have a solid business plan.

Find ways to earn extra income

Let’s be honest, it wouldn’t be cool if you just kept living on a tight budget. If you’re the spaghetti head type who can’t be bothered to set a budget, then grow your money instead. If you have a skill you can monetize — web design, graphic design, writing, or being a consultant in your field of expertise, you get it — make money out of it.

Your 20s is about laying a solid foundation for your future. There will be a lot of distractions. But you wouldn’t want to get too caught up in those that you forget about your own well-being and future.

 

Filed Under: Personal Finance

How Will You Generate Income In Retirement?

May 30, 2018 by Leave a Comment

Retirement income sourcesHow are you planning to generate income in retirement?

The first thing that comes to mind for a lot of people will be Social Security. That’s OK, but most people will need to have more than that if they want to retire comfortably (and there are those who are concerned that at least some of those benefits may not be there for future retirees when the time comes). Other people might be looking forward to pension income, though that’s less common than it used to be.

It’s useful to step back and take stock of the various potential sources of retirement income. Certain sources have more to recommend them, and certain asset class combinations will work better for some folks than others due to the assets’ risk profile, tax characteristics, and other qualities.

Interest

A recent Bloomberg story quotes a chief investment officer at Credit Suisse saying that treasury yields at 3.5% would pull people out of stocks and into fixed income. As we’re writing this, the 10-year Treasury yield is on the rise and the highest it has been since 2011 at nearly 3.1%.

Nobody knows for sure which way treasury rates are going, but those rates are worth paying attention to, for a few reasons. First, higher interest rates almost surely would lead to poor performance for bellwether retirement equity investments, such as those in the utility and telecom sectors. (More on this in a bit.) Second, a risk-free interest rate would be tough to ignore at some level as a source of income in retirement. We would probably put that level at around 4% (after all, why get a bond paying less than 4% when you can buy stocks that pay more than that and have been boosting the payout annually for 20 or 30 years?), but that will vary by individual circumstance and risk tolerance.

Not that treasuries are the only way to get interest income, of course. The best proxy for junk bonds, the iShares iBoxx $ High Yield Corporate Bond ETF (HYG), yields 4.7%. The investment-grade version (the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) is around 4%.

Dividends

We mentioned utilities and telecoms earlier. These kinds of firms are generally big dividend payers. As such, when interest rates rise, their stocks often sell off, as suddenly there are other, less volatile sources of income–bonds–that compete with those dividends.

Now, if you are able to make ends meet on dividends alone (or close to it), the volatility may not matter. Stocks can bounce up and down and all around, but the dividends will keep coming (and even growing) regardless. In fact, when stocks are down, it could be time to consider adding to those holdings, assuming the companies’ businesses are still sound.

You may not be able to get to a place where dividends are your main source of income. But counting on dividends for some portion of retirement income makes sense for a lot of retirees. The year-in-year-out nature of the payments (for a lot of companies), the potential for growth in those payments, the potential for capital gains on the shares, and, not least, the taxes (which are 0% on qualified dividends for a lot of people) all add up to a compelling income source.

Principal

By definition, at retirement, full-time employment income stops, and it’s probably time to start spending down on all that money you saved over the years. That’s hard for a lot of people to get their heads around. After all, it means making a complete 180-degree turn to what you have been doing for probably decades.

So that’s worth thinking about in advance and preparing for. If seeing that balance dwindle each year is a concern, you might want to start conservatively on how much you plan to take out each year. It used to be a 4% drawdown rate was considered safe for most traditional retirees, but that’s no longer conventional wisdom. You might run some scenarios that target something closer to 2% or 3% and see if that allows you to sleep at night.

As with so much in retirement planning, though, much will depend on individual circumstances and sources of income. Someone with a solid pension and low living costs will probably need to take less out of their principal than others.

Capital Gains from Rebalancing

Rebalancing your portfolio isn’t controversial, though reasonable people can disagree about how often it should be done. Rebalancing refers to the simple concept that, over time, a portfolio of investments will have winners and losers, and the initial (presumably target) asset allocation–this much in growth stocks, that much in short-term bonds, and so on–will get out of whack. So, periodically, a portfolio needs to be put back into whack.

What’s not mentioned as often is that it’s possible to think of rebalancing as a source of income as well. Retirees could keep the piece that is a long-term gain and use it for living expenses, and still rebalance to the optimal asset allocation.

The obvious problem here is that markets don’t just go up; they go down too, sometimes for quite a while. So there’s an unpredictability to this source of income that makes it too undependable to be a core source of income for a retiree. But it is a source, and one that’s sometimes overlooked.

Income in Retirement

In the end, which sources you depend on for retirement income will come down to risk tolerance, personal preference, luck (at least a little bit helps), and how diligent you have been about saving through your working years. Knowing what those potential sources are and planning on how you might use them will take some of the surprises out of the process, and help make retirement go more smoothly.

 

Filed Under: Personal Finance Tagged With: Dividends, Income, Interest, Retirement

How Long Are You Going To Live?

May 28, 2018 by Jackie Cohen Leave a Comment

How long are you going to live? Figuring out your life expectancy is arguably the first step in creating a successful retirement plan–and also arguably the toughest number to figure out. [Read more…]

Jackie Cohen
Jackie Cohen

Jackie Cohen is an award winning financial journalist turned turned financial advisor obsessed with climate change risk, data and business. Jackie holds a B.A. Degree from Macalester College and an M.A. in English from Claremont Graduate University.

Filed Under: Personal Finance Tagged With: Life expectancy, Retirement

Will Social Security Completely Disappear Before You Retire?

May 21, 2018 by Jackie Cohen Leave a Comment

Planning for retirement includes assuming that Social Security might not be able to cover all of your expenses. — but you should know that the benefit program probably won’t disappear either. [Read more…]

Jackie Cohen
Jackie Cohen

Jackie Cohen is an award winning financial journalist turned turned financial advisor obsessed with climate change risk, data and business. Jackie holds a B.A. Degree from Macalester College and an M.A. in English from Claremont Graduate University.

Filed Under: Personal Finance Tagged With: Retirement, Social Security

What You Should Know About Roth IRA Conversions

May 14, 2018 by Leave a Comment

This year’s tax deadline has passed but you still have until October to do Roth IRA conversions.  [Read more…]

Filed Under: Personal Finance Tagged With: Roth IRA

Five Things You Need To Do To Manage Your Finances If You Lose Your Job

May 9, 2018 by Susan Paige Leave a Comment

Becoming unemployed suddenly can have devastating effects on you and your family and knowing how to cope with it doesn’t always seem possible. From the risks of stress and depression, to the simple fact you don’t have an income to cover your outgoings, there is a lot to consider as far as you and your finances are concerned. While same day loans UK services could be available in a financial emergency, this isn’t always possible without a full time job and so understanding how best to manage your finances is key – and we’ve pulled together five things you need to do to give you a head start.

Know What You Have

First thing’s first, you need to stop and work out what you do have. Whether its savings, a retirement fund, your final pay check or other smaller income amounts, knowing what you have from the very beginning could better help you prepare for organising how much of that will need to go towards your outgoings and how much you’ll have to spare to pay off necessary debts or to put towards finding new work.

Work Out How You’re Spending

Next, you need to work out how you’re currently spending and how that needs to change in order to better manage the money you have to last longer. Initially, it’s best to work out what the necessary outgoings are first. This can include anything from bills to mortgage payments and, of course, food and other utilities. Excess spending should also be documented, whether that’s your monthly subscription to Netflix or a morning coffee on the way to work. Next, it’s time to start cutting that down.

Cut Back

You’ll need to work out a realistic budget by cutting back on most of your unnecessary expenses. Subscriptions you don’t use, magazines you don’t really read and that gym membership you never utilise are all ideal ways to cut back on your outgoings. However, it’s also important that you don’t cut back on your entertainment spending completely. You need to keep your spirits up and avoid that aforementioned stress and depression, so try and reduce the cost of your entertainment without taking it away completely.

Avoid Any Major Purchases

This may seem obvious, but now really isn’t the time to invest in that expensive purchase you’ve had your eye on. You might want that new car or those expensive jeans, but if they aren’t necessary it’s best if they’re kept as a dream for another day. Instead, put your money towards paying off credit card debts or consolidate your loans into one monthly payment with a lower interest rate where possible.

Try And Find Part Time Work

While you may feel like you’ve been kicked to the curb, it’s important to get back up again and get searching. If you just need money to keep you going until you can get back into full time work, why not opt for a part time remote job, or working for a company such as Uber or Deliveroo? These companies are constantly looking for new employees and you’ll often have the opportunity to work as much or as little as you like.

Losing your job has the potential to have devastating effects, but hopefully with our guide above, you can better manage the money and the finances that you do have. Good luck.

 

Filed Under: Personal Finance

How Mutual Fund Fees Impact Your Retirement

May 7, 2018 by 1 Comment

How much do your investments cost? No, not what you paid for the shares when you bought them and not what you pay your financial advisor — this is about how mutual fund fees impact your retirement. [Read more…]

Filed Under: Personal Finance

Will Your Retirement Plan Keep up with Inflation?

April 30, 2018 by Leave a Comment

When planning for retirement most people start with the basics: their budget, their retirement age, life expectancy and their expected retirement income. Usually the inflation rate assumption is more of an afterthought. We all know that our expenses generally go up each year when inflation is greater than 0%. What so many don’t understand is that higher inflation rates usually mean higher tax bills.
[Read more…]

Filed Under: Personal Finance Tagged With: Inflation, Retirement

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