Understanding Your Net Worth and How to Increase It

For many people, the idea of finances and money management can be a cause of stress. It can seem difficult to manage the money you already have, let alone increase it by any substantial amount. Luckily, managing your finances and learning about how to increase your overall net worth can be simple. By taking control of your money you can have less stress and be better prepared for whatever the future may bring.

Calculating Your Net Worth

Net worth is the total amount of money you have after factoring in your debts. Figuring out the value of your net worth should be straightforward. Start by making a list of your assets. These don’t have to be limited to what is in your bank account but can also include valuable items you own.

Valuable assets can include:

•          Real Estate
•          Cars
•          Investments
•          Retirement funds

Once you have calculated the overall value of your assets you can make another list that includes your liabilities. These are generally things such as mortgages, loans, and credit card debt. Once you have both lists, simply subtract your total amount of liabilities from your total amount of assets. The number you get is your net worth! Don’t be too alarmed if it’s lower than you expected. Instead, look at it as a motivator to take better charge of your finances in the future.

Managing Your Money

Once you know what your net worth is, the next step should be to try and maximize it.  From budgeting to investing, there are a lot of strategies you can use to get the most out of your money. While none of them are get-rich-quick schemes, they should still help you to see real improvement in your finances.

Here are three money-smart strategies you should consider.

1. Examine Your Liabilities

Many people find that their biggest liabilities are the mortgage on their house or debt owed on credit cards, car payments, student loans, etc. Paying off debts, especially the mortgage on your home can be one of the best ways to increase your net worth. A home that is completely paid off can go from being a liability to becoming one of your biggest assets.

2. Invest for Future Gain

While investing can always come with some level of risk, it can still be a practical way to make your money grow. Risk can be reduced by investing in mutual funds or ETFs. While you may see smaller returns by using these methods, they can be a good way to dip your feet into investing. It can be important to understand your risk tolerance before dedicating any money to an investment.

3. Save Money

By committing to saving money for emergency and long-term purposes, you can be sure to have a comfortable buffer if things go wrong. Saving up money for things you want to buy instead of putting them on credit cards can keep you from losing money on interest. It can be helpful to keep emergency or long-term savings in a separate bank account from the money you use daily so that you aren’t as tempted to spend it.

Taking Your Finances to the Next Level

Once you start putting in the extra time and attention to keep track of your money and make it grow, you should start to see positive results. Researching experts such as Peter Foyo can be a great way to become more informed about the world of financing and how you can maximize your net worth.

By calculating your net worth, you can take the first step to improving your overall financial well-being. Managing your money can be simple if you know where you stand and take steps to pay off debts, invest and save. It can be possible for anyone to increase their net worth if they are mindful of where their money is going and how they can make the most out of it.

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4 Important Tips on Saving for Retirement

Saving for retirement is something people under 40 rarely think about. However, it is something very important to start early. In fact, finance professionals recommend people begin to start thinking about it in their twenties. Retirement savings are your sole tool for future financial security. Retirement accounts, like individual retirement arrangements (IRAs), are specialized to compound on your savings on the long term, as in decades. It’s very difficult to predict what the markets will be like in a decade or two from now. Meaning, saving money is crucial for survival. Here are several important tips you should know about saving for retirement:

Start as Early as Possible

Investments become valuable as they mature. If you start saving for retirement in your late forties, you won’t have that much by the time you retire in your sixties. However, if you start saving in your twenties or thirties, your retirement funds would have had more than a decade to mature. The compounding effect is quite powerful, even if your savings have an extremely conservative rate of return like six percent. So, don’t wait around to start your retirement savings account.

Contribute Pre-Tax Money to a Traditional 401(k)

Get a traditional 401(k) from your employer. The money you contribute will not be subject to income tax. That means you will only have to pay taxes out of your take home pay, which will leave you more for investing. Roth 401(k)s are appealing to some because having one will mean your retirement years will be tax-free. But keep in mind that Roth 401(k)s are subject to many conditions, and you have to be in a certain high tax bracket to enjoy all the benefits. On the other hand, when you have more to invest with a traditional IRA, you will have more to spend in your retirement years.

Plan for a Self-Directed IRA

After you have opened an IRA account, you will have the option to convert it into a self-directed IRA. The advantage here is that you will be able to diversify your investments into stocks, real estate, and importantly, precious metals. If you want to add gold to your IRA, you will need a self-directed IRA. Precious metals like gold can hedge your cash assets against future financial uncertainty. It’s recommended that the overall risk of your retirement savings are lowered with a precious metal. You will first need to appoint a trustee to your self-directed IRA, and then contact a reputable gold dealer like Lear Capital to acquire the metal.

Make More by Matching Employer Contribution

Matching your employer’s contribution will practically earn you free money for retirement investing. Say your employer matches 50 percent of your contribution up to 5 percent of your monthly salary. For an employee earning $50,000 annually, that gets about $1,250 from the employers’ side, if the employee contributed $2,500. This is really an impressive amount. So do your best to match your employer’s contributions.

And don’t forget to automate your savings as well. Instead of spending and saving each month, save first and spend later. Otherwise, you will be tempted to squander away the money you should be saving to ensure your future financial security.  

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Five Retirement Expenses That Will Cost You Big Time

Every family budget is different. Maybe you like spending your extra money on gourmet cheeses while your neighbor has no intention of giving up her commitment to exotic orchids. But for most retirees, these individual idiosyncrasies aren’t what drive the costs of retirement. It’s the daily, recurring expenses that quickly accumulate.

If you want a smooth-sailing retirement, then you need to reel in these expenses before they control your life. The good news is that there’s much you can do to get your budget under control before you retire.

Needless Luxuries and Impulse Buys

Do you really need that $5 mocha at Starbucks? What about the $2 bag of chips you stop for every day on your way home from running errands? These small purchases are easy to make because they feel so trivial, but they add up over time. If you make coffee at home you can easily save a few dollars each day–$1,000 or more over the course of a year. Look long and hard not just at your big expenses, but on the needless expenditures and impulse buys that are ingrained into your everyday existence.

Retirement and Debt

It doesn’t matter how much you have saved. Debt almost always carries a higher interest rate than savings, which means your debt will run through your retirement income faster than your savings accounts can accumulate interest. Debt payments are essentially payments toward nothing. All that interest disappears into the ether, rather than settling into an interest-bearing account that works for you. The sooner you pay down your debts, the fewer interest payments you will make. And the fewer interest payments you make, the more money you’ll have in your pocket—and in your retirement accounts.

Retirement and Health Care Costs

The average senior will need almost $250,000 to cover out-of-pocket health care costs incurred during retirement. You might have even more if you live a long time or develop a serious illness, such as Alzheimer’s, that necessitates intensive long-term care. It’s no wonder, then, that medical bills are the leading source of U.S. bankruptcies. Though you can’t altogether avoid health care costs, you can talk to your doctor now about what you can do to remain healthy in retirement. A few minutes of exercise each day, a reduction in your sodium intake, or a few simple steps to control your stress could all help you achieve better long-term health.

Retirement and Taxes

You won’t be stuck paying payroll taxes any longer, but you will still have to pay some taxes—including on Social Security and on dividends and interest from your retirement accounts. Some states are kinder to retirees than others when it comes to taxation. So if you have large investments or are concerned about the long-term costs of taxes, consider moving to a state with a lenient tax policy that helps you keep more of your money.

Retirement and Housing

Your home is likely your largest investment and your biggest expense. Even if you’re no longer paying a mortgage, housing expenses such as home repairs, furniture, homeowners insurance, and upgrades can quickly add up. If you have more house than you need, or are concerned about a creaky older house, consider moving to a smaller, newer place. No one wants to fix a hot water heater or clean a flooded basement on a fixed income. If you need additional money to fund a home repair and are over the age of 62, a reverse mortgage is an option for covering your expenses.

Five Retirement Expenses That Will Cost You Big Time – Final Thoughts

Entering into retirement can be a fun and exciting time in one’s life.  It’s important to keep these five highlighted expenses that will cost you big in retirement at the front of your mind.  With some planning and forethought, you can work to minimize these big ticket expenses as much as possible.  This will help you live a long, stress-free and enjoyable retirement.

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How to Protect Your Retirement Savings

How often do you think about retirement? Probably not much, if you’re anything like 68 percent of Americans. In fact, even if your employer offers a 401(k), chances are decent you haven’t even touched it.

Who can blame you? Retirement is still 20, 30 or even 40 years from now, and 401(k)s aren’t worth the trouble. Why worry about tomorrow, when you have enough problems on your plate today?

Well, it’s precisely because retirement is so far into the future that you should be worried. Anything can happen between now and the point when you’re officially considered a “senior citizen.” Taxes can go up, interest rates can go down and economies can collapse. As anyone who’s lived through those events will tell you, it’s not pretty.

Luckily, it’s not too late to save for retirement. For starters, you can follow this general guide to making your senior years as cushy as possible.    

Check Out Your Retirement Plan Options

Your 401(k) isn’t the only option. You also have the traditional IRA, the Roth IRA and other plans you may be eligible for. In case you’re overwhelmed by all those choices, TIME has a table of retirement plans.

Keep in mind, however, that many of these plans require you to meet a certain set of criteria, so check those before you apply.   

Match Your Company’s Contributions

If your company puts four percent into your 401(k), put in four percent. If they put in six percent, put in six percent too. Since contributions are pre-tax dollars, you’re essentially reducing your taxable income today.

That’s not to say you won’t pay taxes in the future. After all, your 401(k) is tax-deferred, not tax-free. Even so, the taxes you’ll pay once you hit retirement age will be far lower than the taxes you would’ve paid today had you chosen not to match your employer.

(Re)Allocate Your Assets

Obviously, you can’t put all of your income into your 401(k). If you want to build a solid retirement plan, you’ll need to decide which of your assets should be tied up in what, and how much.

Take cash, for example. It’s the easiest financial resource to tap into when you’re in a pinch. But when prices go up at a rate higher than the rate on your savings account, you lose purchasing power. For that reason, you also need to put part of your cash into bonds, stocks or commodities.

Have a Conservative Outlook

When we say “be conservative,” we’re not suggesting you don’t take any risk at all. Taking risks is necessary to make money in any economy. However, those risks need to be calculated.

Picture your worst-case scenarios. Factor in your current financial situation, the general state of the economy and history. What would happen to your finances if you get disabled? If prices go up by a certain rate? If the government decides to raise taxes for any reason?

Given what you know, decide which financial instruments can help you weather those worst-case scenarios. Check how easy it is to bail out of an investment in case you read the cards wrong.        

Get Expert Help

Unless you’re already an expert, the idea of making financial projections 10 years into the future may be too difficult or time-consuming. If you don’t have the time, energy or resources to study the technical side of asset allocation, get a financial planner on board.

Of course, you shouldn’t choose just any financial planner. This person should have tons of experience to back them up. If you’re lucky, you can get someone like Keith Springer, who’s had 20 years of experience as an investment advisor and has made multiple appearances on CNBC, Bloomberg, CBS and other high-profile media outlets.   

How to Protect Your Retirement Savings – Over to You

Now that you have a general blueprint for retirement success, let’s hear your thoughts. What strategies have you implemented, if any, to save towards retirement, and which ones worked — or didn’t work — for you? We’d love to hear from you in the comments!  

Anum Yoon is a personal finance blogger and writer. She created and maintains her personal finance blog Current on Currency. You can subscribe to her blog newsletter right here for her weekly updates.

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Will Social Security Be Around When I Retire?

Happy New Year everyone!!  While on Thanksgiving break, my dad and I had a chance to sit down and discuss all kinds of things about personal finance.  Naturally, our conversation drifted to savings, retirement, and Social Security.  Here’s an email my dad sent me after our discussions where he answers the question: Will Social Security be around when I retire?  My comments to his email are in green below.

 Are the Politicians To Be Believed?

As we spoke about Social Security and retirement you repeated something that I hear very often—that Social Security won’t be around when you reach retirement age.  If Social Securityisn’t around, that would be the least of your worries.  Social Security will collapse after much more important social institutions have fallen to ruin.

Let me explain why Social Security remains secure despite comments made by irresponsible and ignorant bloviators.  Let’s do the math.  Social Security pays to retirees about 30% of what they were paid in their working years.  For each working year, 15% of the worker’s income is paid in Social Security tax.  So, if a worker puts in the expected 40 years, it would mean he has paid for 20 years of retirement at 30% of his earnings (40 years * 15% = 20 years at 30%).  The math checks out

How Does Inflation Effect Social Security?

Critics say, Yes, but what about inflation?  We know the the Fed has a goal of 2% inflation per year.  Right now inflation is a bit below that.  Remember, inflation is the intentional action of the federal government.  The dollars have little meaning.  What matters is the ratio between one’s income and the GDP.  Your income is a certain per centage (or fraction) of GDP.  Inflation changes both the numerator and denominator of the fraction, but this is meaningless.  Remember how you were taught that this value “one fourth” can be expressed as 1/4 or 2/8 but the value is not changed because the value exists in the ratio of the numerator to the denominator.  That’s how inflation works.  This means that as the economy expands, because the population is growing, all things expand at the same rate.

Social Security Has Less Workers Contributing Today Than It Did in the Past

I know that some claim that when Social Security began there were 10 workers to each retiree and now there will be 2.5.  Again, that doesn’t matter.  When Social Security began in the 30s there was almost instantly a large number of retirees but the ratio between workers and retirees was managed by adjusting the benefits.

Social Security and Cash Flow

What matters is not what happens thirty years hence.  All that matters is a balance between revenue and benefits.  In other words, how much will Social Security pay in benefits in 2014 and how does that balance out with revenue?  If it doesn’t balance, the benefits may be adjusted or the tax may be adjusted.

The absurd belief is that if in all the benefits I receive in retirement amount to $500K, that for Social Security to remain solvent there must be $500K in savings, otherwise Social Security is broke.  Anyone who looks at how insurance companies operate knows this is absurd.  All that matters is cash flow.

Social Security and Government Investing

Then it is argued that Social Security funds should not be “borrowed” by the federal government.  The funds should be invested so that they might grow in order to meet future obligations.  This likewise is absurd.   If the government invests Social Security funds rather than use them for ongoing expenses, how will the federal government be financed?  Well, it could go out on the market and borrow funds by selling bonds.  The cost of interest for the bonds would reduce funds available for use.  The wiser course of action is to create a ledger account and spend the revenue when it is received and continue this policy into perpetuity.

There is one other problem with “investing” Social Security funds.  When the government sells bonds, who purchases the bonds?  Not poor people.  Bonds are bought by the rich.  When the bonds are being serviced, who pays the interest?  Certainly not the rich.  The poor pay the interest.  This amounts to a re-distribution of wealth from the poor to the wealthy.  Yes, the wealthy also have written laws that exempt income from federal bonds being taxed.  How neat is that?  And then, the government has laws which means it cannot sell the bonds directly but must sell them indirectly through banks.  The banks skim fees off the top.  So  again, the poor are robbed.

Social Security and Retirement

When you retire, the value of your retirement will be measured on the basis of a ratio.  Your income will be a fraction of the GDP.  What matters is that the fraction at retirement is close to the fraction that existed during your working years.  Each dollar in your hand is a claim you make against the entire economy.  What does the economy owe you in goods and services for the dollar you have?  Do you have enough dollars to represent the ratio as it presently exists, or will it become a mere fraction.  If it is a mere fraction of what it is now, then the government has screwed you over.

Social Security and Life Expectancy

So back to the funding for Social Security.  Retirement at full benefits has been adjusted from 65 to 67.  The next question is: What is the life expectancy for US males?  Right now, it stands at about 73 (actually 76 according to the link from USA Today).  So, the average worker has twenty years of retirement funds after working forty years.  According to this calculation, the average retiree will have six nine years from retirement to his wooden overcoat.  What will be done with the funds for the remaining thirteen years?

Will Social Security Be Around When I Retire?

Anyone who says Social Security is going broke, won’t be around, etc. is simply a fool—or a liar, or perhaps both,  The government will make adjustments from time to time–always has always will.  But Social Security will be there.  Think about it, Bismark in Germany established Social Security in the 1880s.  Since then, Germany has lost two major wars, gone through incredible political upheaval and deep depression.  Social Security in Germany remains–with much better benefits than are provided here.

Finally, Chile and the UK both decided to permit workers to invest their retirement funds rather than entrust them to the government.  In both countries workers lost money–even when their funds were invested honestly.  Sadly, bankers being what they are, many workers were stolen blind and now the governments are struggling to find a way to make these workers whole.  It will not be easy because really big thieves wear three piece suits and never are made to pay for their crimes.

More on Social Security and If It Will Be There

For more on Social Security and if it will be there for you when you retire, check out these great articles:

• Yes, You Will Get Social Security
• The Future Financial Status of the Social Security System
• Will Social Security Be There For Your Retirement?

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Investment Tips – Fund a Roth IRA

I’m back with another great investing tip!  The latest copy of Forbes magazine has a list of 365 tips on investing to get rich.  I thought I’d go through some of the ones I found the best and expand on them to provide a more detailed discussion.

This investment tip is: Fund a Roth IRA if You’re Eligible; Your Money Will Grow Tax Free for Retirement, and You Can Withdraw Your Contribution Back Without Penalty!

Investment Tips – Fund a Roth IRA – Background

Without trying to get too complicated here.  You can generally contribute $5,500 (in 2013) to a Roth IRA if your income is less than $112K or your combined household income is less than $178K.  Check here for more information on eligibility.

In a Roth IRA, you contribute AFTER tax money up to the annual limit.  Then, all of the interest you receive grows tax free when you withdraw it!  You can begin to withdraw the contribution plus any interest after age 59-1/2 without any penalties at all.

An added awesome benefit is that you can withdraw your contribution amount (that $5,500 you’ve been putting in every year) without any penalty at all at any time!!!!  That’s right, this can work perfectly for those worry-warts that want a cash emergency fund saved up but don’t want 0.4% interest from their bank to hold all of their money.  You get the best of everything here!

Investment Tips – Fund a Roth IRA – My Take?

This is one of the best investment tips I’ve run across.  I used to put myself in that worry-wart category where I’d have a lot of cash sitting around in the bank.  If I would have known that I could withdraw my after tax contributions from a Roth IRA at any time without penalty, I could have been investing my saved cash for the past 12 years of my working career!  Between my wife and I, we’ve missed out on more than $100K of authorized contributions.

But no more!  Now that I recently ran across this tip, my wife and I setup Roth IRA accounts in 2013 and started our first contribution.  I’m so excited I can hardly contain myself!!!  If you’re not maxing out your Roth IRA contribution, you make less tha $112K by yourself, or less than $178K combined (if married), and you have an emergency stash of cash just sitting around, then what the heck are you waiting for?!?!?  Start a Roth IRA today and get on the road to retirement savings!!

Investment Tips – Fund a Roth IRA – Final Thoughts

I love this investment tip – it is pure gold!  I wish I would have run across this Roth IRA info when I first started working.  The idea that you can easily withdraw your contribution amount without penalty is such a great feature for those savers among us that worry about emergencies.  This means that you can basically take your emergency fund money and put it to work to help you save for retirement.  Hopefully you’ll never need the money.  But, but if you do, you’ll be able to access it without penalty if the worst does happen

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