bUSINESS & FINANCE
There has never been a more inspiring time to get into business than now.
If you look at the huge growth in American, British, European and Japanese stock markets, and think you could be one of them too, it’s time to get started. My Tim Sykes Millionaire Challenge has taught me a lot about what works and what doesn’t.
Here are my top millionaire business tips for creating a winning business.
You can do it.
Business has taught me is that you need a commanding self-belief. We’ve all heard the advise fake-it-till-you-make-it. And this is so true. You need to believe in your idea if you’re going to be successful.
I like to look at Winston Churchill as a prime example of what it means to believe in yourself. All those often-repeated quotes come from the short period between 1940 and 1941 when Britain stood alone against the Nazis and was on the brink of defeat.
It’s this unwavering belief that will keep you going.
Are you looking at the big picture?
I looked at the news recently and I saw the US panicking. Analysts railed against the lack of US jobs growth. But if they viewed the big picture they would see a total unemployment rate of 4.1 percent, the best since the year 2000. That’s massive progress.
Don’t allow bad results to derail your confidence. You will always have bad months in business. Look at the big picture and see how far you’ve come and whether you’re still on track to meet your goals.
It also works the other way. Don’t let a single month of good results hide the big picture. Look at your long-term goals.
Risk correlates with reward.
In business you must be willing to take risks to gain those rewards. Every major businessperson in history has taken incredible leaps in the dark to achieve what they did. Take the formation of Rolls Royce. Only a partnership between a magnificent working-class engineer and a leading upper class marketer in England created this iconic brand.
They put everything on the line to do it. Sooner or later you will have to take those risks too. I believe that these risks are inevitable. At the same time, I always take calculated risks. I don’t hit and hope, I research and ensure this is really the right decision.
Keep pushing onwards.
Setbacks, challenges and moments of self-doubt are all features of my business career. And that’s fine. It’s natural.
What separates success from failure is your ability to keep pushing onwards. I go out of my way to be optimistic and to dwell on the bright side of my business. That doesn’t mean I promote blissful ignorance, but it’s important not to live and die on your failures.
Always keep things in perspective and to look to the future. Never allow your setbacks to define you. Think about how to avoid making the same mistakes and staying on track with your goals.
According to the most recent State of the Automotive Finance Market study from Experian, EXPN, -0.89% the average new car loan surged to a shocking $30,534 during the first quarter of the year. Unfortunately, those purchasing new cars didn’t lower their expenses that much. The study noted that the average used car from a franchise set consumers back $20,904, whereas the price of the average used car purchased independently climbed to $16,612.
But what’s really astounding is how long people promised to pay their loans back. New car loans—for both new and used vehicles—lasted an average of almost 69 months, the report noted. Obviously, this is a lot of cash, and there are borrowers who can’t truly afford these loans.
If you’re getting ready to purchase a car and don’t want to overspend or borrow too much, here are seven tips that can help.
1: Review your budget
Whether you plan to finance your car or pay entirely in cash, you need to make sure you understand the financial implications of the purchase. Figure out how the monthly payment will affect your monthly budget or how paying in cash might affect your finances over all.
If you’ve been paying a $400 or $500 monthly car payment all along, you might already know what you can handle. But if you’re financing a car for the first time, you’ll want to sit down and write out a budget and your expenses to gauge how much you can truly afford without forsaking your other financial goals.
If you’re paying for a car in cash, make sure you’re not depleting your emergency fund—and that you’re leaving enough money behind for your regular bills and living expenses.
2: Consider the interest rate
While the total cost of your new or used car is a good place to start your comparison, you should also check to see what interest rate you qualify for. Generally speaking, the interest rate you qualify for will depend on the quality of your credit score.
And if you think it doesn’t matter, think again. Even a few percentage points can make a huge difference. If you borrow $25,000 at 8% APR, for example, you’ll pay $506.91 a month and incur a total loan cost of $30,414.59. If you take out the same loan but qualify for 4% APR, on the other hand, you’ll pay $460.41 a month and only $27,624.78 over the life of your loan.
3: Don’t forget about the length of your loan
While it’s important to gauge the affordability of your new car’s payment and the interest rate you qualify for, don’t forget about the length of your loan. Taking out a longer loan can help you qualify for a lower payment, but you may pay a lot more interest due to the longer stretch of time it takes you to repay.
And if you need to borrow for longer than you really want, it might be worth asking yourself if you’re spending too much.
“If you must borrow money for a car, make sure it is an amount that can be paid off in three to four years and the payment will comfortably fit within your monthly budget,” says financial planner Matt Adams of Money Methods. “If you need to finance a vehicle for anything longer than four years to simply get the payment within reach, you are likely buying more vehicle than you should.”
4: Remember the higher ongoing costs of new vehicles
In addition to the sticker price of vehicles you’re considering, it’s smart to look into other costs you might incur, says financial adviser Ryan Cravitz of Milestone Wealth Management.
“Make sure that you don’t forget to account for the many so-called hidden costs when buying a particular car,” he says. “Factors such as the cost of insuring the vehicle, the average maintenance and repair costs, the fuel economy ratings, and whether you should buy the extended warranty are just a few things that should not be ignored.”
Also, don’t forget that a lot of these costs can be higher if you purchase a new car right off the lot. Auto insurance rates in particular tend to be heftier than you might expect when you purchase a newer, more expensive vehicle.
5: Ask yourself about the trade-offs
Taking on a new car loan is often one of the easiest ways to get into the car you want. While it’s difficult and time-consuming to save up tens of thousands of dollars in a new car fund, you can visit a dealership, finance a car, and drive off the lot in a matter of hours.
Unfortunately, you’ll likely pay a pretty penny for the privilege. While you may theoretically be able to afford the payments on your new car, something usually has to give. And that something might be an expense you miss being able to afford like you were back in the days you didn’t have a huge car payment hanging over your head.
“Remember that whatever you spend on your car, that’s money you won’t have for clothes, food, or going out with your friends,” says financial adviser Anthony Montenegro of Blackmont Financial Advisors. “So, weigh out the trade-off carefully and spend wisely.”
6: Set a firm limit and consider your options
While any of the tips above can help you figure out how much you can afford to spend on your new ride, some financial advisers suggest simplifying the process with a firm limit.
For example, New York financial adviser Joseph Carbone of Focus Planning Group recommends that his clients never take out a car loan that exceeds 10% of their monthly income. “Of course, everyone’s situation is different,” he says. But this situation can truly work if you let it.
Let’s say your take-home pay is $4,500 a month. Using this rule, your car payment should come in under $450 a month. That may not be enough to get you into the car you want, but it’s enough to get you into the car you need.
Financial adviser Brian Hanks also suggests considering more than one car as you make your final selection.
“After you choose a model car you think you want, pick your second favorite,” says Hanks. “Compare the monthly costs of your first and second choice cars side by side. Without a tangible second choice to compare against, it’s too easy to justify higher monthly costs for your first choice.”
7: Spend less than you can afford
If you’re still struggling to decide how much to spend—or you’re worried about overextending yourself—take a step back. Unless you need a new car today, there’s nothing wrong with thinking through your decision for weeks or months until you know exactly where you’re at.
And if you still can’t decide, try to err on the side of spending less than you can afford, says financial planner Mitchell Bloom of Bloom Financial, LLC. Bloom says he sees a lot of people who under-budget for and overspend on cars to the point where it puts them in financial peril. Fortunately, this situation is completely avoidable if you do some legwork.
The bottom line: Keep your expenses low, save as much as you can, and have a long-term plan. And if this advice doesn’t mesh with the car you want to buy, you’re probably spending too much.
J D Wetherspoon is well-known in the United Kingdom for its more than 890 pubs, as well as a chain of upscale bars and boutique hotels. The firm, founded in 1979 by Tim Martin, grosses about $2.2 billion a year and employs more than 37,000 people. Martin prides himself on visiting anywhere from 10 to 20 of his establishments each week. He writes notes on the staff, the cutlery, the quality of food and, of course, the beer. Oh, and he consumes about two to four pints of it just about every day.
Martin's official title at Wetherspoon, which is a publicly held company, is chairman and founder. But, don't you dare call him that. "I'm a publican," he said in a recent BBC interview. "My day-to-day life is running pubs."
What do you say when people ask you what you do for a living? Are you a "small business owner?" An "entrepreneur?" A "CEO?" Don't believe it. You're none of those things. Those are just titles, made up to make people feel more important. This is not what you really do.
Instead, think of what your business does. If your business provides landscaping services, then what you really do is you create beautiful lawns. If you distribute piping to energy companies, then you're really helping customers in the oil industry be more efficient. If your shop sells coffee, then you're a seller of coffee and if your store sells men's underwear then you sell men underwear.
Me? My title may be president of the Marks Group but that's not who I am and that's not what I do. When people ask me what I do, I say I sell technologies that helps our clients sell and market their products.
To me, when someone says they're a CEO they lose credibility. It's like the title is being used to impress other people. It's very easy when you start a business to give yourself whatever title you want (I find it hilarious -- if not a little sad -- when some guy repping industrial products from his home office seriously refers to himself as a CEO).
Of course, titles are necessary in the corporate world. You need them when you fill out a form or when you hand out a business card. But a title is not what you do. Martin's business philosophy is that you're not out to change the world. You're just out to make it a tiny bit better. That's what you really do.
You help other people. You are directly responsible for making and selling stuff that is used by people to make their lives better in some small way. If you're an employee, you contribute to an organization that makes and sells stuff that is used by people to make their lives better in some small way. If your business is selling boring pipes or packaging or farm equipment to other businesses, your products are helping those business create stuff that ultimately is used by people to make their lives better in some small way.
Don't discount this. Every business is important, every business makes a contribution, every business is -- in some small way -- making the world a tiny bit better.
So the next time someone asks you what you do, for goodness sake never, ever say you're a CEO or a president -- and definitely don't call yourself a "small business owner" or even -- ugh -- an "entrepreneur." You're not that. In the end, you are what your company does. Not all of us are lucky enough to call ourselves publicans and quaff a few pints of ale every day as part of our jobs. But, we make our contributions other ways and that's how we should always identify ourselves.
Many think of teenagers being fiscally irresponsible. Everyone wants their kids to understand the value of money, but somehow, a lot of them never get there. It makes letting them go that much more difficult. You don't have to push your child to be an entrepreneur just so they will understand how to manage money. Actually there are some simple ways to accomplish this task even if you struggle with money yourself.
Recently I discussed this topic with Asheesh Advani, CEO of Junior Achievement (JA) Worldwide, a massive global organization that educates more than 10 million young people per year. I had long thought JA was primarily focused on teaching kids about entrepreneurship. In actuality, JA has three major pillars of how they help children become productive and resilient in society. Aside from entrepreneurship, they teach career readiness and most importantly financial literacy.
Advani, a member of the Young Presidents' Organization (YPO), has extensive financial experience having built two financial services companies from startup to acquisition. The first was sold to Richard Branson as part of the Virgin Money group and the second was sold to Interactive Brokers, one of the largest brokerage companies in the world. Now, heading up the rapidly growing global organization at JA Worldwide and teaching young people fiscal responsibility in more than 100 countries, he has seen what works best. Here are his insights for getting your kids on the road to financial freedom.
1. Get them started early.
Most parents wait to involve their kids with money because they don't see the necessity. Starting at a young age removes ignorance and reduces risk of bad habits. Advani points out they can see the value of compound interest while still young. "For saving, take a trip to the local bank and open an account when your kids turn 10," advises Advani. "There's nothing like receiving an interest payment (even if it is a few cents) in your name for the first time!"
2. Let them make mistakes with their money.
While no one wants to see anyone waste money, children benefit from learning the consequences poor financial decisions. "For spending, let your kid make some mistakes by spending too much on a toy, concert ticket, or mobile app they could have got for less,"says Advani. "Lessons come quickly when regret kicks in. Low-risk mistakes make for great conversation and learning that can save more costly mistakes down the line."
3. Demonstrate how money equals work, work equals money.
A lot of parents give their children seemingly everything, but then the children don't associate value to material items. Advani advises that parents need to make the connection of work with reward. "The best way for kids to realize this is to earn money for chores and for self-initiated projects," adds Advani. "Create opportunities for small projects to earn money. If everything is provided freely, nothing will be valued."
4. Make sure they appreciate what they have.
Not everyone has enough money, and some may never have more than enough to barely get by. Children who are insolated from poverty are less inclined to value the privileges they have. "Teaching empathy goes hand in hand with teaching financial literacy," asserts Advani. "Ensure your kids appreciate the plight of others so they can appreciate the value of money."
5. Have them share their wealth with others.
The value of money lies not only in your own reward, but also enabling what you can do for others. Advani says charity helps get children thinking about how they can use their money for good. But simply donating means little if the children can't see how the money helps. "For giving, set aside 10% and make it real," says Advani. "Take your kids to meet the recipients of their charitable gift, whether it is a small soup kitchen or a large non-profit with local presence. Even if they give a small amount of money, seeing its impact will drive the point home."
6. Set the best example you can.
Children are sponges when it comes to learning--they soak everything in, including what they observe from their own parents' behaviors. So if they see you frequently blowing money at the mall or burning through your savings account, don't be surprised to see them get involved with similar habits as they get older. "If your kids see you waste money or treat savings frivolously, they will pick up your habits," notes Advani.
In some areas of life, flying by the seat of your pants is fun—like calling up a friend on Friday morning to plan a weekend road trip or an impromptu reunion of your college roommates. But when it comes to finances, waiting till the last minute is an almost guaranteed way not to hit your goals.
That doesn’t mean you have to invest a huge amount of time, though. Set aside a half-hour to tackle these four money tasks and they’ll help you stay on track for years to come.
1. Automate everything.
Setting up automatic bill pay, as well as auto-transfers to your savings and investment accounts, lightens your to-do list later and helps ensure you’ll hit your goals.
That’s especially important with investing. “Automation brings discipline to the investment process,” says Jane DeLashmutt O’Mara, a Certified Financial Planner and portfolio manager at FBB Capital Partners. “That’s crucial to long-term success and takes guesswork and market-timing out of the equation.”
If you’ve set up recurring contributions to a retirement and/or regular investment account, you can feel confident that you’re steadily building wealth and enjoying the benefits of dollar-cost averaging . By regularly investing a set amount, you’re buying more shares when stock prices are low and fewer when they’re high, which can help maximize your gains.
2. Check in on your credit.
More than 15 million Americans were victims of identity fraud in 2016. While it may not be possible to avoid this fate, you can minimize the damage—and all the hassles involved—by staying on top of your credit.
Get a free copy of your credit report once a year from the three credit bureaus at AnnualCreditReport.com . Tools like Credit Karma and Credit Sesame also offer free monitoring services that automatically alert you to changes on your report.
So much is dependent on your credit score, from whether you’ll qualify for low rates on loans to your ability to pass a credit check for a new job. “You want to catch something early on, rather than find yourself with a bad credit rating,” says Certified Financial Planner Ken Moraif, senior adviser at Money Matters in Dallas. (But if you do, here’s how to fix your FICO score quickly .)
3. Analyze your investment fees.
No one wants to throw away big chunks of their investment returns on fees—but it’s easy to do. Say you have a $100,000 portfolio that grows 4% annually over 20 years. According to an SEC analysis , paying just 1% in annual expenses could cost you a whopping $40,000 over 20 years. And that’s with a modest rate of return.
So take some time to uncover how much you’re forking over in fees and make any necessary adjustments. (You can easily find ETFs with expense ratios under .1 percent.) Tools like FeeX can help simplify this task: They’ll analyze your investments are rank your fees, so you’ll know which ones are worthy of reassessing.
4. Pick a partner.
Link up with a trusted financial adviser, friend or family member who understands your goals, as well as your financial weaknesses, and is willing to hold you accountable. This is who you can call when you’re tempted to buy something that’s not in your budget or put your 401(k) contributions on hold for a while.
“If you choose someone now that you can rely on to help you reach your financial goals, you won’t have to put forth much effort later when you’re in the moment and need to be held accountable,” Moraif says.
The stock market will rise another 15% next year! No, wait, it’s dropping 5%, at least if President Donald Trump’s tax cut never passes. It’s the time of year to digest more than just turkey: Nearly every bank on Wall Street has a new forecast for the stock market in 2018, and if they seem like a blur that’s because they collectively are one.
But each has its pluses and minuses — ideas that pass the smell test, others a touch rank. Most strategists think the Standard & Poor’s 500 index SPX, +0.43% has another 10% or so to rise after a 17% gain so far this year. But in looking at their reports, there’s also a palpable sense of experts keeping one eye on the exit, just in case.
The good news: Nothing looks as dumb as Royal Bank of Scotland’s advice to “sell nearly everything” heading into 2016, warning of a “fairly cataclysmic year ahead.” (The S&P returned 12%, and began a still-running, record-long rise without a correction by February). The bad news: RBS’s misadventure underscores that market forecasting is more art than science.
The argument: U.S. markets are in the middle innings of a 20-year bull run, BMO Capital Markets strategist Brian Belski argues. He’s calling for a 2950 S&P by the end of 2018, thanks to 11% earnings growth and valuations (specifically, price-to-earnings ratios) that ease only slightly off this year’s near-historic peaks. The key to that call is interest rates not moving up much.
Strongest point: Realistic fundamental expectations — BMO’s earnings forecast is close to consensus.
Weakest point: Belski’s argument relies on valuations staying near where they are as the Federal Reserve at least tries to raise interest rates.
The (Relative) Pessimist
This year was too good to repeat, is Morgan Stanley strategist Michael Wilson’s argument: He sees the S&P rising to 2750 in 2018. And he thinks it’s a good time to sell some U.S. corporate bonds, whose valuations have been stretched by persistently low interest rates.
Wilson’s argument turns on the idea that the U.S. expansion is getting old, and earnings growth will begin to fade after the first half of next year. The recession isn’t here yet, and not all the signs of overoptimism that show up late in bull markets are present, he says — but they’re close.
“We do not think [earnings per share] growth in 2019 will be that exciting and could even be negative,” Wilson writes. “Undoubtedly, that will matter for stock prices next year.”
Strongest point: Expansions do end sometime.
Weak point: Most economists don’t see that happening within 12 months, or even 20, given the absence of speculative bubbles (the bitcoin market is too small to matter)..
The (Prestigious) Fence Straddler
Goldman Sachs’s David Kostin has to reconcile the bullishness of Goldman’s economists and worries that the market is too expensive. His answer: The market may fall 5% if Congress doesn’t cut corporate taxes, but otherwise it should rise 11%, with the S&P reaching 2850. He thinks corporate earnings will rise 14% with a tax cut and 9.2% without one.
Strong point: Kostin points out that most stock gains since 2010 have come from improved profits, with 30% from higher valuations. In 1996-2000’s bull market, half the gains reflected higher price-to-earnings ratios, Kostin says. In that light, 2850 next year is “rational exuberance,” Kostin writes.
Weak point: He sees a modest further expansion of stock multiples he acknowledges are historically high.
The Truth, According to Me:
The likeliest 2018 outcome is sustained U.S. economic growth, begetting pretty-good profits and an opportunity for stocks to rise. That’s especially so because there are still reasons to be skeptical that inflation will surge, or that interest rates will rise enough to hurt stock multiples much.
The economy has plenty of capacity to deploy before being stretched. Even leaving aside Baby Boomers retired since 2008, there are still about a million fewer people in the post-recession workforce than there ought to be. The re-entry of some of those workers should limit wage demands, and recent gains in business investment may help productivity growth, containing inflation expectations. Moody’s Analytics economist Adam Ozimek says 3% employment-cost growth, which scares most strategists, could still be two to three years out.
But earnings growth effectively limits how much an expensive market like this one can rise. It’s smart to assume price-to-earnings multiples will moderate by late 2018, because the end of this already-long expansion will be 12 months closer.
Add it up, and you get 10% profit growth and a dip in price-to-earnings ratios — small, because next fall there still shouldn’t be a recession in sight. Put me down for a 5% jump to a 2730 S&P 500, a 7% gain including dividends. If I bet on that being too high or too low, I’d take the over.
A new international study discovers psychosocial factors, including work and financial stress, significantly increase the risk of having a heart attack or myocardial infarction. Currently, few doctors ask about stress, depression or anxiety during an annual examination.
Researchers believe inquires on stress, and suggestions on where to obtain information to improve coping skills and enhance resiliency, should become standard practice, just as current standards have physicians asking about smoking.
The INTERHEART study, presented at the 18th Annual Congress of the South African Heart Association, discovered the odds of myocardial infarction was 5.6 times higher in patients with moderate or severe work stress compared to those with minimal or no stress.
Individuals with significant financial stress had a 13-fold higher odds of having a myocardial infarction.
“The role of psychosocial factors in causing disease is a neglected area of study,” said lead author Dr. Denishan Govender, associate lecturer, University of the Witwatersrand, Johannesburg.
“The study showed that psychosocial factors are independently associated with acute myocardial infarction (heart attack) in Africa but as far as we are aware there are no other published local data,” said co-author Professor Pravin Manga, professor of cardiology, University of the Witwatersrand.
In other words, stress, even in the absence other cardiovascular conditions such as high blood pressure or elevated cholesterol, can significantly increases the risk of a heart attack.
This study included 106 patients with acute myocardial infarction who presented to a large public hospital in Johannesburg. A control group of 106 patients without cardiac disease was matched for age, sex and race.
All participants completed a questionnaire about depression, anxiety, stress, work stress, and financial stress in the previous month. A Likert scale was used to grade the experience of each condition.
Investigators assigned four resiliency profiles to classify how well a person was coping with financial stress:
Self-reported stress levels were common, with 96 percent of heart attack patients reporting any level of stress, and 40 percent reporting severe stress levels.
There was a three-fold increased risk of myocardial infarction if a patient had experienced any level of depression (from mild to extremely severe) in the previous month compared to those with no depression.
Govender said, “Our study suggests that psychosocial aspects are important risk factors for acute myocardial infarction. Often patients are counselled about stress after a heart attack but there needs to be more emphasis prior to an event.
“Few doctors ask about stress, depression or anxiety during a general physical and this should become routine practice, like asking about smoking. Just as we provide advice on how to quit smoking, patients need information on how to fight stress.”
In an ideal world, an excellent credit score should mean you get a lower interest rate than people who have worse scores. After all, isn’t that why people strive to pay off their credit-card bills on time? In the real world, however, that’s not always the case.
“Having an excellent credit score does not guarantee a low interest rate,” says Majd Maksad, Founder and CEO of Status Money, a company that allows people to compare scores anonymously. He analyzed 15 million credit scores from consumers — and their interest rates. In fact, 25% of accounts with excellent scores had an interest rate higher than 20% of those with lesser scores, he said. Maksad says consumers should always compare offers and push for a lower rate.
Here’s how the credit-score system is supposed to work. A credit score of 740 or higher qualifies for the best interest rates from most lenders, according to personal-finance site Bankrate.com. “It is difficult, but possible, to get a mortgage with a credit score under 620,” according to Sheyna Steiner, an investing analyst for Bankrate. “The difference between the best and worst rates can vary by a full percentage point and a half.”
But a low or poor credit score can also prevent people from getting a mortgage. “Buyers below a certain threshold, typically a FICO score of 620, have a better chance of striking oil in their bathtub than securing a mortgage,” Steiner says.
While knowing someone’s credit score doesn’t necessarily reveal whether that person has a medical or student debt or even their annual income, it does indicate whether they are eligible for a loan. A bank will look at each person’s scores — from the three major credit bureaus, Experian EXPN, +0.39% Equifax EFX, +0.04% and TransUnion TRU, -0.22% — and then take a couple’s average score to determine their overall creditworthiness.
And a low credit score doesn’t necessarily mean that you are irresponsible with money or even have no money. Credit scoring models look at the amount a consumer owes versus the total amount of credit available, known as the credit “utilization ratio.”
Savings advice can sometimes seem like satire.
Start early. Save 15% of your income. Make sure it's your pretax income. Do it for 40 years. Cross your fingers. Click your heels.
But in the real world, that's not how it works for most people.
As a financial planner in New York City, I see firsthand how dismayed many people are by the standard savings advice. To those of us who work with money all day, 15% is just a number. But to someone who is trying to make ends meet, it can feel like a failing grade.
Benjamin Dixon captured this sentiment perfectly when he tweeted "I almost choked on my avocado toast" in response to a recent CNBC article that recommended having double your annual salary saved by age 35. The tweet has over 5,000 retweets and over 10,000 likes.
Clearly, Dixon's comment resonated.
Although savings advice is well intentioned — and not wrong — there's a disconnect between the advisers and the advised. Americans put away an average of only 3.5% of their income, after taxes and expenses, according to July data from the US Bureau of Economic Analysis.
Many factors account for the savings gap: student loans, healthcare, expensive housing.
So saving 15% today probably isn't possible for most people. But that doesn't mean you should throw in the towel. Perhaps you could save 1% more than you are now, or 3% more. Incrementally increasing your savings will help your account balances grow, but it does something else that's even more valuable: It creates momentum. Once you start moving, it's easier to keep going.
Speaking of momentum, it could be time to look for a new job with a higher salary. Getting a raise allows you to bulk up your savings percentage without cutting back on your current expenses.
Temporary savings hacks can do wonders, too. Saving aggressively by using the "starve and stack" method, for example, could make a huge difference in your future retirement account balances.
If guidelines help, there are plenty to follow, like those laid out by David Bach, a financial adviser, in his book "The Automatic Millionaire," or charts showing how much you need to have saved to retire.
Ultimately, it's important to be honest with yourself. Sometimes, saving isn't going to possible. But the key word is sometimes. At other times, you will have the ability to save, and you should make it a priority while you can — even if that means moving to a cheaper apartment or trading a gas-guzzling car for one that gets better fuel economy.
As with any goal, you can't be too hard on yourself. There's never going to be a perfect week, or month, or year. All you can do is recognize the difference between when you truly can't save and when you probably could do more than you are now.
There are so many different retirement investment options. Sometimes it’s hard to figure out which ones are the most advantageous from an income standpoint. Following are some of the best choices.
1. Dividend Stocks and Funds
Dividend stocks can be especially beneficial if you’re investing for the long term. Dividends can make up around 45% of your total return if you reinvest. (Total return calculates dividend payments). Dividends are less volatile than earnings over time.
Investing in mutual funds is highly beneficial. You will receive a professionally diversified portfolio for much less money than it would take to purchase individual stocks and bonds. Your fund manager is also responsible for tracking the performance of all the funds so you don’t have to worry about the details.
Exchange-traded funds (ETFs) take the benefits of mutual fund investing to the next level. Advantages include low operating costs, flexible trading, greater transparency and better tax efficiency in taxable accounts.
2. Annuities: Fixed and Variable
An annuity is an insurance product that pays out a steady income stream in retirement. It’s meant to be used as one part of a strategic plan for your golden years that can be mapped out with a professional.
Here’s how an annuity works: you make an investment in the annuity, and it then makes payments to you on a future date or series of dates. You can decide if your annuity payments will come monthly, quarterly, annually or even in a lump sum.
Annuities are beneficial because they carry a low amount of risk and they can often be protected from creditors and frivolous lawsuits.
Tax deferral and exclusion ratios on annuity payouts are additional strategies that help people lower their tax exposure. Annuities can also efficiently pass outside of probate, so they are beneficial from an estate planning standpoint.
3. Bonds: Municipal, Corporate and Agency
Decades ago, U.S. savings bonds were issued on paper. They were a popular way to make a contribution toward a child or grandchild’s future. They are now issued electronically and are not nearly as widely used as before. But bonds can still be valuable components of retirees’ savings portfolios.
The “cash infusion” from cashing in a bond may help some retirees delay withdrawing assets from other accounts. This allows them to continue growing. A bond that is decades old could cash out at anywhere from three to nine times its face value at full maturity. Also, the interest on bonds is exempt from state and local taxes even though it is taxed by the IRS.
Municipal bonds are debt obligations issued by states, cities, counties and other governmental entities, which use the money to build schools, highways, hospitals, sewer systems, and many other projects for the public good. When you purchase a municipal bond, you are lending money to a state or local government entity. It then promises to pay you a specified amount of interest and return the principal to you on a specific maturity date.
Agency bonds are issued by two types of entities: government-sponsored enterprises (GSEs), usually federally-chartered but privately-owned corporations, and federal government agencies. The latter may issue these bonds to finance activities related to public purposes. These include increasing home ownership or providing agricultural assistance.
Agency bonds are known as relatively safe investments, with low risk and high liquidity. They give individuals and institutions the opportunity to gain a high return on their investment. They also sacrifice very little in terms of risk or liquidity. Also, the multitude of bond structures found in agency offerings allows buyers to tailor their portfolios to their own situations. (For more, see: 4 Mistakes to Avoid with Your Retirement Plan.)
Corporate bonds are also attractive to investors for a number of reasons. They usually offer higher yields than other maturity government bonds or certificates of deposit (CDs). They also provide steady income while preserving your principle. There are several options for “safe” investments in terms of the likelihood of repayment of principal and interest. Corporate bonds additionally offer diversity in their options. And they are very marketable if you need to sell them before maturity.
CDs (or share certificates, as they’re called at credit unions) are a way to enjoy higher returns on your money without a lot of risks. You agree to keep your money in a CD for a designated period of time, called the “term length.” Generally speaking, the longer the term length, the higher the interest rate you’ll earn.
The average rate on a three-year CD taken out at a bank currently stands at 0.49%. However, many credit unions and online-only banks offer certificates with rates above 1%.
Other advantages of CDs include having your savings – up to $250,000 per account ownership category per institution – insured by the federal government. Also, since CDs have an early withdrawal penalty like IRAs and 401(k)s, there is more of a savings incentive than a typical checking or savings account.
SOOTHING EMOTIONS WILL GUIDE YOU WITH RESEARCH, ARTICLES, AND INTERACTIVE TOOLS TO HELP YOU ON THE JOURNEY OF NAVIGATING YOUR MENTAL HEALTH.
© COPYRIGHT 2015. "Soothing Emotions" is a registered trademark of SoothingEmotions.com ALL RIGHTS RESERVED
DISCLOSURE: THE CONTENT PROVIDED ON THIS WEBSITE IS FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY, AND IS NOT MEDICAL ADVICE, MENTAL HEALTH ADVICE, OR THERAPY. IF YOU ARE HAVING A MEDICAL OR MENTAL HEALTH PROBLEM, PLEASE SEEK APPROPRIATE HELP FROM AN APPROPRIATE PROFESSIONAL. IF YOU ARE HAVING A MEDICAL OR MENTAL HEALTH EMERGENCY, PLEASE CALL 911, YOUR LOCAL EMERGENCY NUMBER, OR GO TO YOUR NEAREST EMERGENCY ROOM.