Archives for May 21, 2018

Getting control of your personal finances is really quite simple – but it is not easy. If it were so, most all of us would not be reading this article. In fact, recapturing your personal financial health is one of the greatest stresses a family can experience.

Millions are spent each year on books and training on how to get out of debt and become financially secure. Why, then, do so many people still find themselves financially strapped or completely underwater?

The answer is mindset. If you are among those feeling trapped or squeezed by too many expenses, growing debt, and an inadequate fund for your future, it’s not a lack of information that holds you hostage. Instead, it’s the need to make the mental shift necessary to take actions leading to success.

Indeed, recognizing a limited mindset and the strategy needed to break through, are often enough to help you adopt those habits that will support good financial health.

Here are the top 5 mindset shifts to make in order to finally get control of your finances:

1. Confront your situation head-on

Get a clear picture of your financial situation. Why do people avoid looking at their finances? The limiting mindset here is, “out of sight, out of mind!” Those who steer clear of confronting their financial picture often fear what they will find if they look.

They prefer, instead, to feel the stress and worry that comes with having too little money at the end of each month. What’s the mindset shift that’s needed here? “Knowledge is power!” Get courageous and get a clear picture of where you are financially. Review your credit score. Take stock of your debt, your assets, and any other financial obligations. Know what you are working with.

2. Set an accountability pattern

Track your spending. After all, there’s a reason why you feel you’re on a sinking boat, and it’s necessary to identify all the leaks in order to put together a game plan to set you afloat. This is a tough one for couples, as you may have secret spenders or hoarders, or differing opinions about where to spend your money.

What’s the limiting mindset here? “If we don’t track it, it doesn’t exist!” And of course, this isn’t true.

What’s the mindset shift needed here? “The truth will set you free.” Gaining financial health means working in full transparency. So, whether you’re married and working with a spouse, or simply working with the two parts of yourself – the Wild Spender and the Hopeful Financial Steward – take responsibility for your part by identifying where the money is going.

3. Set healthy goals

Make a budget. This means trimming, curbing, readjusting and all those things you’ve feared will need to happen. And yes, this process does need to happen! Change doesn’t happen by itself.

What’s the limiting mindset here? “I don’t want to give up anything, so let’s not have any conversations about what’s necessary – and what’s not.” Consequences? Same sinking boat, different day.

What’s the mindset shift needed here? “Everyone involved is going to have to make some tough decisions for the moment – and these will pay off exponentially later.”

4. Replace a poor habit with a better one

Get a game plan for paying off the debt. You have freed up some money by creating and adhering to a budget. Now, get smart and get strategic. This means deciding which cards to pay down first, whether you will keep a credit card or not, how this card will be used, and a game plan for staying within your budget in order to pay off right away any new charges incurred.

What’s the limiting mindset here? “I can use the card when I need to; I won’t rack up charges like I did before.” This doesn’t work. Why? You are operating with the same mindset that helped you get into debt in the first place. What’s the mindset shift needed here? “I need to adopt a new strategy that keeps me out of debt.”

5. Plan for the future

Create a savings account for emergencies and set up a retirement fund. Look forward to what’s to come, rather than worrying about how you will care for yourself. The limiting mindset here is that “tomorrow will not come, or that ‘somehow, things will work out.’ ”

Instead, the shift that needs to occur is: “The future is coming. Let me get smart and make it secure.”

Want to get smart about doing this right – so that you have to do it only once and do it without a hitch? Get help. The limiting mindset here? “I can do this myself.” The shift that needs to occur? “Let me tap into the brain trust of someone who has best and latest information, skills, and resources, so that I am set up for success and accountable.”

If you’re getting your college grad a gift of money, you might want to include a book on how to put that present to good use. Financial planning might not be a priority — 70 percent of grads are finishing school with significant debt. But with U.S. employers adding an average of 200,000 jobs per month in 2018, your grad could be working — and doing some financial planning — soon.

Here are some personal finance books for grads recommended by Marketplace senior economics contributor Chris Farrell, keeping in mind economics and English majors alike.

1. “A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing” is a classic. Originally published in 1973, Burton Malkiel’s book is the place to start for new investors. If your grad isn’t ready to invest in stocks, Malkiel would probably endorse staying away. He advises index funds and details other types of investments, like money market accounts and real estate. The title is derivative of the “random walk theory” of stocks, which your grad can explain to you after a read.

2. If your grad’s questions about investing are more like “index what?” then you can also pick up the shortened version of his book, titled “The Random Walk Guide to Investing.” Makiel condensed his original in 2003 to 10 guideposts for novice investors. He cuts down on jargon and lands on a thesis anyone can understand: “The past history of stock prices cannot be used to predict the future in any meaningful way.”

3. But investing or saving for retirement probably isn’t your grad’s priority right out of college. And Beth Kobliner understands that financial headspace. Her book, “Get a Financial Life: Personal Finance in Your Twenties and Thirties,” speaks to the economic mindset of millennials strapped with college debt and memories of the financial crisis. Yes, they should get ahead with investments, but not without the essentials: paying taxes, getting out of debt and boosting credit scores.

4. If you’re worried your grad doesn’t want another book after four (or more) years of college, then get them an index card. A few years back, University of Chicago professor Harold Pollack claimed everything you need to know about personal finance can fit on a 3″-by-5″ index card. So he wrote a book, “The Index Card: Why Personal Finance Doesn’t Have to Be Complicated.” His book explains how the index card rules can actually work better than advanced financial strategy. Some of these tips include saving 10 to 20 percent of your income and maxing out your 401(k).

5. For a deep dive into index funds, follow in the footsteps of Vanguard Group founder and former CEO John Bogle. “The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns” is another classic on the financial bookshelf. His advice? Do what he did: “Buy and hold all of the nation’s publicly held businesses at very low cost.” Sounds simple, right?

6. Elizabeth Gilbert, after years of success from her New York Times best-seller “Eat, Pray, Love,” wrote a creative instruction manual for life: “Big Magic: Creative Living Beyond Fear.” Her central thesis encourages readers to live out of curiosity rather than fear. While not strictly personal finance advice, it has practical applications for achieving goals, and a little creative encouragement will send grads out into the world ready to invest in their future.

Are you close to retirement? Are you not as prepared as you’d like to be? If you’re LGBTQ, do you have a support system? You’re not alone. Our friend and fellow Forbes contributor, David Rae of FinancialPlanner-LA.com, shared with us on Queer Money™ how you can get prepared.

Objects in the mirror may be closer than they appear. This applies to many parts of life, not just looking in your rear-view mirror. For example, how are you doing with your New Year’s resolutions? If you’re thinking that you have plenty of time until next year, remember that we’re almost halfway through the year.

Five Surprising Statistics

1. Only 25% of the general population and 18% of the LGBTQ population feel confident they’ll have enough money to last through retirement

Much of this may be attributed to the downturn in the markets in 2008 and 2009. That being said, much of those losses, if you didn’t pull your money out of the market, has been recouped. Unfortunately, many older Boomers were concerned about the prospects of a long-term bear market and did withdraw their money.

If you pulled your money out of the stock market, it doesn’t mean all is lost. Working with a financial advisor to create the right financial plan for you, you can build a plan that will help mitigate losses and retain enough money to last you through your lifetime. Rae suggests that preparing for retirement by cutting expenses may be the best course for those not confident with their retirement savings.

2. More Boomers than ever are getting divorced, leaving them without dual social security benefits

“Gray divorce” is a relatively new trend in retiring populations, which in some cases may mean that older, single individuals are spending more money to maintain two households.

An additional concern is that this trend may leave some older retirees without the benefit of dual social security checks, versus their married counterparts. Missed Social Security benefits, such as the Spousal and the Survivor benefits, are issues that many LGBTQ seniors have been struggling with for decades. Marriage equality should equalize this, but divorcing and establishing new relationships in retirement will make receiving such benefits more complicated.

3. 42% of Boomers have nothing saved for retirement

Although the 401(k) was only introduced in 1978 and the Individual Retirement Account only four years prior, in 1974, when Boomers were in their late teens to early thirties, many still weren’t aware or took advantage of them.

For any working Boomer and some retired Boomers, increasing retirement account contributions, if possible, is a great way to catch up on retirement savings. For example, you can contribute up until the age of 70 ½ if you have earned income. If you are over 70 ½ but your spouse is younger with earned income, they can make a spousal contribution to your retirement account on your behalf.

If you don’t currently have earned income, consider taking up a side hustle. Side hustles aren’t just for Millennials. They’re for Boomers, too. Even just a few hundred dollars a month invested for a few years can offset expenses. In fact, this Boomer blogger has a list of 60 side hustles for seniors.

4. Four years equals $140,000 or more

All our medical advancements are paying off and we’re living longer, which is a good thing. In fact, Boomers are expected to live an additional four years longer than the previous generation. Unfortunately, that means your retirement dollars need to stretch further, or you need more retirement dollars. Taking into consideration how fast health care costs are rising, you may need even more of them in the future.

For many gay and bisexual Boomers, life expectancy has surpassed what they imagined in the 1990s, especially for those impacted by HIV/AIDS. Much of this is thanks to medical advancements and education around safe sex. Although for those living with HIV, medical costs are higher than the general population. Another reason for higher savings.

We can only imagine that for GenXers and Millennials, the average lifespan will keep increasing and so should our expectations for retirement savings. GenXers and Millennials have more information today at their fingertips than Boomers, so we should and can be better prepared for retirement.

Do you know your retirement number? Use this calculator to find it.

5. The average cost of 1 bedroom assisted living in 2017 was $45,000

Queer or straight, that housing cost is concerning. The average duration in an assisted living facility is 28 months. That totals nearly $100,000 for an average assisted living facility for the average patient. If you hope for a better-than-average assisted living facility for you or a loved one, you will need to save even more money for retirement. Unfortunately, for the LGBTQ community, there are even fewer assisted living facility options where we can continue to live outside of the closet and get the nuanced care we need. This means higher assisted living costs for queer people.

If you haven’t planned ahead for the late stages of life, consider obtaining long-term care insurance or adding riders on your life insurance. In most cases, these protections can be used to supplement assisted living expenses.

These statistics and Rae’s comments highlight a growing concern for Baby Boomers, especially LGBTQ Baby Boomers who are less prepared for retirement than the general population. All have many tools and resources available to them. Seek out and use them before these statistics become your reality.

First-time home-buyers are often surprised by the requirements of obtaining a mortgage, especially when it comes to the down payment. One way you can improve your chances of getting a home loan is by putting at least 20% down at the time of purchase. For existing homeowners like me, coming up with a 20% down payment usually starts with selling the home I’m in right now and using the equity to make a down payment on my next home.

But what about someone that may be buying a home for the first time? Coming up with a $50k down payment on a $250k home may take several years of aggressive saving, but your retirement account may not be a bad place to go for the additional funds needed to get you on the path to home ownership. In fact, the IRS offers certain breaks for taxpayers that choose to use retirement assets to purchase a first home. Here’s how it works.

Who qualifies as a first-time home buyer?

Interestingly enough, you don’t actually have to be buying a home for the first time in your life to be considered a “first-time” home buyer. IRS publication 590 defines a first-time home buyer as any home buyer that has had no present interest in a main home during the 2-year period ending on the date of acquisition of the new home. In other words, as long as you haven’t lived in a home you owned for the last two years, you are considered a first-time home buyer even if you owned a home previously. If you are married, your spouse must also meet this no-ownership requirement.

Using your IRA

Most people know that when you take money out of a traditional IRA prior to age 59½, there is usually a 10% penalty for early withdrawal. However, the IRS offers an exception that allows you to withdraw up to $10,000 over a lifetime without penalty for first-time home purchases. Keep in mind that while the distributions are not subject to penalty, they are still subject to income taxes. $10,000 probably won’t be enough to cover your full down payment, but it can help.

Does it make a difference if I use a Roth IRA?

It does. If you’ve owned a Roth IRA for at least five years, any distributions used for a first-time home purchase (subject to the $10,000 lifetime limit) are treated as qualified distributions. That means the amount distributed will not only be exempt from penalties, but also income taxes. If you have not owned a Roth IRA for at least five years, your distribution may still avoid penalties but some or all of it may be subject to income taxes.

How to use more than $10,000 from your Roth IRA

One thing you should understand is that any money you put into Roth IRAs comes out first and is not subject to taxes or penalties. After all, you already paid taxes on the money before it went in. Therefore, the first-time home purchase exception described above is really only applicable after you have withdrawn all of your contributions, so many people find themselves withdrawing all of their initial contributions PLUS $10,000 of growth with no tax consequences.

Using your 401(k) or 403(b)

The same exception doesn’t apply to your retirement account through work. The only way to withdraw money from your employer-sponsored retirement plan (e.g. 401(k)) for a home purchase while you are working and under age 59 1/2 is through a hardship withdrawal. Buying a home is one of the reasons allowed for a hardship withdrawal, but you will pay that early withdrawal penalty if you’re under age 59 1/2 and any pre-tax withdrawals or growth in your Roth 401(k) will be taxed as well.

Using a plan loan instead

Some people use the 401(k) loan provision to access those funds to buy a home without the tax. Many companies also give you longer than the standard 5 year pay-back period to repay a residential 401(k) loan, but you may have to prove that you actually closed on a home. Finally, the interest you pay goes back into your own account but will be double taxed when you withdraw it.

So is it a good idea to use retirement assets to purchase a home?

That depends. If you plan on using the equity in your home as supplemental income in retirement, some investors may consider this a good way of diversifying your retirement portfolio. However, if you have trouble making payments on the loan, not only could you end up losing your place to live, but you may also jeopardize part of your retirement nest egg. Read this other Forbes article for more things to consider and like with all financial decisions, you should weigh your options carefully before deciding which approach to take.