6 Signs That You Are Ready For Early Retirement

Early Retirement

People work because they like to work or because they have no choice. Some of them find work that they love, and at best, they may ease off on their workload because of other interests or commitments. Others work to earn money and build a nest egg for their later years. In either case, you can always pursue your dream of early retirement if you have prudently planned your finances. 

How Do You Make Early Retirement A Reality?

How do we know when we have enough money to live on? This requires determining a reasonable estimate of how much money we will need after retirement, after adjusting for cost inflation, and the foreseeable future trends of the economy. While the economy and inflation are factors that can be uncertain, we can have greater control over our basic needs and even build a cushion for the extras. 

We can start by understanding our present financial standing and then make a plan for early retirement. Ask yourself the below questions, and the answers should help you make a detailed plan to turn your dream of early retirement a reality.

Are You Debt-free?

Being debt-free means you have no future payments to account for in your budget. Therefore, ensuring that your debts are cleared has to come first. Your monthly expenses may need to be cut down drastically while you are still working so you can pay off your debts that much faster. 

Have You Saved Enough? 

Saving money towards retirement from the time you start working may sound a little restrictive. But, it is a sound step towards building enough savings to retire on. It’s an added incentive if you plan to retire early and pursue other interests. Whether you have saved adequately can depend on your financial needs post-retirement. Retiring before social security kicks in could mean that your savings should cover the expenses that would have otherwise been covered through your social security. 

Is Your Healthcare Covered?

Healthcare is one of the most significant expenses and can make a deep dent in your savings unexpectedly as many people know since the ACA law went into effect driving up health care costs and limiting choices. Retiring earlier than the age when you become eligible for Medicare means having a backup for health insurance. There are two ways to achieve this. You can either go on your partner’s health insurance plan or get coverage through private health insurance. Starting a Health Savings Account (HSA) earlier would be helpful.

Can You Stick To Your Budget?

Retirees have to live on a fixed income, and it is usually lower than they had when they were employed. So, creating a reduced monthly budget and sticking to it is imperative. You may want to start this plan a few months before you retire to get into the habit. To be safe, have two lists drawn up: one that covers only the basic expenses that you can’t do without, and the other a slightly relaxed budget to include a few you don’t need but would like to have. 

Some of us may manage to save substantially with a basic budget bringing the retirement age even closer. Others may desire a slightly relaxed lifestyle and may plan a later retirement. Regardless of the plan, a healthy financial lifestyle is one where you have a budget, and you cultivate the habit of staying within that budget. 

Have You Made The Right Investments?

Fixed income post-retirement suggests that you aim to maintain rather than grow your income. This means that you must plan for lower-risk investments. While the returns may be lower, they are also less risky investments. Talking to a financial planner when you are still working and can make a few investments to help you later would be wise. 

Do You Have A Plan For Unexpected Expenses?

If nothing else, the COVID-19 or Wuhan virus pandemic has taught us that life is unpredictable. Unexpected expenses may crop up post-retirement. It’s smarter to have a backup plan by either accumulating a few assets that can be sold for better returns or building them into your savings plan. You may still have to prepare yourself for taking up some part-time work that can tide you over.  

Key Takeaway

Retirement brings about a profound change in our lives, no matter whether it happens early or late. It would be wise to think beyond financial security and include other retirement aspects such as the free time now that you are not working. Perhaps, a plan to occupy yourself with something you have always wanted to do but never could is in order? Having a backup plan for happy times post-retirement could be a poignant incentive to make you work towards early retirement.

10 Wealth Creation Principles That Always Work

Wealth

A lot of people mistakenly assume that true wealth is simply growing your financial net worth. If you think like that, you could not be more wrong. Wealth is a balanced and holistic concept. In this post, we have listed 10 principles that can help you in achieving true wealth in a deeply personal as well as a purely financial sense.

1. Be Deeply Motivated

You cannot sit back and let luck take over when you want to build wealth. Your motivation needs to come from somewhere deeper than regular external trappings. You need to find a cause that will transform your life and drive you to overcome all obstacles which keep you from attaining financial freedom. Internally driven goals can be:

  • Charity
  • Freedom
  • Growth
  • Leadership

2. Add Value to Whatever You Come Across

Everyone is better off when they add value to the world. Giving more will only help you in the long run. This is an important step in building true wealth. You can greatly improve your life when you help others get better. Exploitation may bring you initial riches, but they won’t provide fulfilment and happiness.

3. Don’t Compromise on Integrity

People think they need to sell their soul to get rich. That’s not true. You don’t need to do things that would prevent you from meeting your father’s eye. You don’t need to harm others, encroach on their property, or violate moral law despite what we may see the FBI doing and all those rioters undermining their own cities. You don’t need to lie, cheat, insult, or damage the environment in your pursuit of wealth – we’ve seen that too much in certain cities in America that many people have moved away from.

You don’t even have to stretch the truth even though we see that all the time in California and New York politics and the White House. Never compromise on your integrity for expediency. There is no amount of money that can replace a clear conscience, a good night’s rest and a peaceful mind.

4. Be Brave and Courageous

You need to have courage to be responsible and a self-starter. You need to be brave to develop new skills and walk new paths. Courage is needed to put extra efforts for standing out from the crowd. In short, you cannot build wealth if you don’t have what it takes.

5. Stay Disciplined

Wealth is an accumulated mass of many small things that are compounded together over a person’s lifetime. Your daily habits play an important role in making and breaking your success. Investing, reinvesting, saving and growing your business and financial intelligence are vital to building wealth. You need to be consistent and persistent in your efforts. You risk falling prey to procrastination without discipline in your life.

6. Don’t Indulge in Conspicuous Consumption

Wealth is not instant gratification. Instead, you become wealthy when you invest your today’s wealth for a more comfortable tomorrow. You should consider living modestly in terms of time, energy, and money. Happiness is not directly related to material trappings. They only keep one from fulfilling their purpose. You have a decision to make every day – consume today or be wealthy tomorrow.

7. Create Supportive Environment

Life has an endless stream of distractions that can sidetrack your plans for building wealth. You can overcome these distractions with focused, persistent and consistent action. The best way to do this is by creating a support system which helps keep you focused on your financial goals.

Your relationships, family environment, financial habits, work environment, and daily rituals should be designed proactively for keeping you interested in creating wealth. They should support and reinforce your plans.

8. Build Wealth by Applying Leverage

You cannot get wealthy on your own. You cannot build wealth by trading time for riches. You need to work smarter instead of harder. These are a few principles of leverage you need to apply:

  • Marketing Leverage
  • Network Leverage
  • Knowledge Leverage
  • Financial Leverage
  • Time Leverage
  • Systems and Technology Leverage

9. Make Your Wealth Work

Wealth is not a one-off standalone concept. It is similar to a business entity. You need to run your money the way you would run a business. Use competitive advantage, accountability, accurate record keeping and leverage to get where you want.

10. You Don’t Possess Wealth

You need to understand that you are a steward to your wealth and not the owner. You would eventually need to move it to others. Money comes with tremendous responsibility. You need to ensure that you create maximum benefit for others who come across the wealth created by you. This can be done using your temporary stewardship wisely.

9 Ways to Spend Your Money Wisely

spending money

Are you expecting to receive some money? What are your plans for it? You can always splurge these surplus funds on a luxury trip or buy an expensive gadget. But there are smarter ways to spend your money which will give you both peace and happiness. These are a few options for you to consider.

1. Get Rid of that Pesky Debt

One of the best ways to employ money you didn’t expect is to use it to pay off your debts. This can be student loans, regular bills, or credit cards. Debt repayment is really the best return on money. Typical credit cards carry a 15% interest annually. You could save that amount and make your wealth grow by paying off the cards.

2. Spend it On Job Training or Education

You are the greatest asset to invest in. Job training and education are more often than not required for personal and professional growth. You may finally get that promotion you were eyeing by completing that certification. People that love their jobs and are satisfied with their career growth tend to be happier.

3. Build Your Emergency Nest

It can be a true nightmare to have to pay for a major expense when you least expect it. But, there is nothing you can do to prevent emergency situations. If you have a medical bill or a car repair, you will have to pay for them. You can use your additional money to create an emergency fund.

You should also think about making monthly contributions to the emergency fund. Tax refunds are the best way to jump start savings funds. Think about your emergency funds as buffers. You can also earn some interest by parking the rainy-day fund in a savings account.

4. Spend Freely on Hobbies

When was the last time you entertained yourself actively without looking at a screen or doing something where content was shoved down your throat? There are times when you want to Netflix and Chill, but you should consider using the extra money to pick up a hobby.

Think about whatever you like and invest in it. It could be purchasing a new music instrument, enrolling into language class, buying tools to finally build that tree house or new utensils for baking.

5. Plan a Vacation

You should have at least one decent holiday in a year. This is to keep you healthy and happy, both physically and mentally. Holidays are expensive. But, you don’t have to mess up your financial goals. You can utilize a little bit of the surplus fund or use the entire amount to pamper yourself and your loved ones.

6. Make the Money Work

You may consider investing in financial markets. You can create a comfortable retirement fund by starting right away. It is never too late to start planning for the future. Here’s a tip – never place all your money in individual stocks if you are not a diligent investor. Instead, you may want to play around using exchange traded funds and mutual funds to spread the risk a bit because in this violent world with crime going up – we are all already taking enough risk.

7. Buy Those Healthy Meals

Healthy food costs money. If you have the cash, you should consider taking a step in the healthy direction. Go organic. While you are at it, you may want to buy a gym membership as well. You will automatically start feeling better when you eat healthy. Health is something nobody really appreciates until they lose it. Using your money towards taking care of your health is a poignant way to spend it even when food costs are going up.

8. Go Have Fun

Live a little with your windfall. You are allowed to have fun. But, before you think about spending it on stuff, ask yourself whether you really need more stuff. Won’t you rather spend the money on experiences? Maybe take a rollercoaster ride at the local fun park or throw a party for your friends. You could also just use it at a spa to give yourself a memorable experience.

9. Visit Friends and Family

Satisfying relationships and happiness are correlated. But, it is expensive maintaining good relationships with family and friends. We all have family members or friends that moved away and never visited again. You still love them. You are still in touch with them through digital mediums. Why don’t you go visit them?

Annuity vs. Mutual Fund: Which Makes More Sense For Retirees?

investment options

Two of the most prevalent investment options for retirees are mutual funds and annuities. Like all financial and investment products, investing in either of these options comes with a set of benefits and drawbacks.

Let us discuss in detail and try to find out which one of these two investment options makes sense for you if you are about to retire.

What is an Annuity?

In an annuity, you can invest an amount of money, as a lump-sum payment or in parts, as a part of a contract between you and your insurance company. In return, you can choose to receive guaranteed proceeds either for a fixed tenure or for as long as you live. Whether the payments start immediately or after a fixed period, depends on the terms and conditions of the annuity you invest in.

Based on the likely rate of return, annuities broadly fall into two types of categories, namely, fixed annuities and variable annuities.

Fixed Annuity

A fixed annuity, true to its name, provides an assured return for the tenure of the contract. The insurance company guarantees reimbursement in advance, regardless of the market performance.

Variable Annuity

The variable annuity payouts are neither fixed nor assured. They may increase or decrease based on the market performance.

A key advantage of annuities is that investors defer taxes on interest, dividend, or capital gains for the duration of time their money is in the annuity. The taxation, at withdrawal, is only on the capital gains and not on the amount contributed towards the annuity. Also, as their name suggests, the annuities can be annuitized. You can make a guaranteed income stream for a fixed period.

Annuities are basically insurance products and not investment securities and hence the insurance companies provide the guarantees to back them. However, you should keep in mind that the Securities and Exchange Commission (SEC) regulates only the variable annuities and not the fixed ones.

Annuities are a useful means to defer taxes on investments and generate assured regular income in retirement which is even more vital in a rising cost and energy environment because of new policies.

What Is a Mutual Fund?

In a mutual fund, investment companies collect money from investors and invest it on their behalf. The money goes into a mix of investment securities and money market instruments to maximize returns.

You can set up and use a 401(k) account, a brokerage account, or an individual retirement account (IRA) to invest in mutual funds. Investment specialists and money managers run mutual fund portfolios and are responsible to generate the maximum possible returns for their investors consistently.

There are several types of mutual funds, each based on its investment strategy and the nature of securities that it invests in:

  • Equity Funds invest entirely in stocks
  • Index Funds imitate the investment mix of a market index, and their performance is directly linked to that of the index
  • Exchange-Traded Funds trade on stock exchanges
  • Money Market Funds invest in debt instruments
  • Fixed Income Funds invest in bonds
  • Balanced Funds invest in both stocks and bonds
  • Sector Funds invest in a particular sector
  • Global Funds invest in overseas markets

Annuity or Mutual Fund: Factors to Consider Before Investing

Here is a comparison that may help you choose between the two types of investments:

Safety

If you do not foresee having a steady income post-retirement, a fixed annuity may be the best option for you. In a fixed annuity, the insurance company guarantees to pay you a particular amount until the end of your contract period. Variable annuities do not guarantee a specific amount, but some may have a minimum rate of return guaranteed by the insurance provider.

With mutual funds, there is no guaranteed income. The rate of returns on the money you invest varies a great deal depending on the market performance.

Expenses

Annuities have some of the highest associated expenses among the investment products.

Mutual funds, especially index funds, are very low on expenses.

Tax-Deferral

Tax on any income from annuities is deferred until the time of withdrawal. On withdrawal, only the capital gains are taxable.

In mutual funds, you are liable to pay taxes on dividends and capital gains. However, if you invest through an individual retirement account (IRA) or a 401(k) account, you are liable to pay tax only at the time of withdrawal.

Return on Investments

Mutual funds may offer variable returns based on market performance, while annuities offer assured returns. On the other hand, there are many charges and fees associated with the annuities, which, when deducted from your gains, tend to make the returns on investment much lower. 

Liquidity

With mutual funds there is no lock-in period, making it easier for you to sell and exit anytime you wish. 

With annuities, however, there can be a lock-in period, as long as 10 years sometimes. Any early withdrawal can attract high surrender charges which hurts even more in a slow growth or no growth economy.

The Bottom Line

If you are looking for absolute safety, annuities are the best option for you. But if you do not mind some added risk with the potential to earn higher returns, you should invest in mutual funds. 

Personal Finance Tips to Follow When You Get Your First Job

Personal Finance Tips

Congratulations! You have landed your first job. It is an exciting time full of new experiences and challenges. Even as you are going about your responsibilities in the new job, you are probably looking forward to your first paycheck and have already begun a list of things you want to buy.

This is the right time to exercise some caution and have a concrete financial plan in place which is vital in a rising cost and tax environment because of new policy. Developing sound financial habits from your first job will stand you in good stead as you grow your career. Here are a few tips on how to manage your money right from the first paycheck.

Write down your financial goals

It’s critical to write them down as that will bring you greater clarity. Make a note of both short and long term goals. It is all right if your goals change at some point or when you have met one of your short term goals. You are doing this to help you plan your budget and to know how much to save and how much to spend.

Make a budget

You know what your income is and you know your priorities. Some expenses are unavoidable. Set aside a portion of your income to meet those expenses. With the leftover money, you can exercise a greater level of control and where it goes. Remember, you have a goal. Put aside another portion of your income towards that goal.

Keep track of your accounts

You may want to do it once a month or bi-weekly. It will keep you on track with your spending without running short at the end of the month. Keeping your checking accounts balanced will also ensure that there have been no unauthorized debiting of funds. 

Start saving

It is never too early to start saving. Set up a retirement fund from your first job. If you are only able to set aside a small portion of your income towards a 401K offered by your employer or any other available retirement funds, it is still alright. Ideally, you should plan to invest 15% of your income to this fund but you may want to consider investing more with higher energy prices and other costs that are rising in this new environment. 

Shop wisely

If you must shop, shop wisely. Make a list of things you need and stick to the list instead of getting tempted into impulsive buying. It will help if you make a separate list of things you want to buy and mull over the items for a day or two. You may realize that you can do without some of them, or at least prioritize your shopping list between the things you need and the things you want. 

Find the best deals

Scouring the various deals online would give you an opportunity to compare prices and choose the best deal. This is a smart habit to cultivate. There are plenty of deals on every item in the market from clothes to household articles. You will save quite a bit of money by doing your research before shopping. 

Irregular expenses

If you have a desire to travel, you may choose to set up a holiday fund and start adding to it with each paycheck. You will enjoy the trip more when you know that you are not dipping into your funds set aside for necessities and other savings.  

Incidental expenses

It is always best to be prepared for the odd incidental expenses that may come up. It could be as small as your phone bills or tips to porters. Or, it could be the odd repair work that needs attention. Keeping such expenses in mind will ensure that you do not sway from your original budget.

Watch your credit report

You do not want to be caught unawares when you are building your credit history. It is essential that you keep an eye on the credit report regularly as it will help ensure that you are not slipping to a lower rating because of some oversight in settling your bills. 

Monitor your progress

Every couple of months, you could study your accounts and compare the expenses incurred. It will give you a better idea as to your spending and saving. You can also plan for an improved lifestyle as you grow in your career and your income increases. 

The bottom line

Armed with these tips, you can feel secure and in control of your finances. No one can have a better idea of your needs and wants. Stay focused on growing your wealth as your income grows while you progress in your career. 

Best Practices to Take Control of Your Personal Finances

Personal Finances

You could win the Powerball jackpot and still end up broke simply because you did not manage your money well. You could also be earning a huge salary and find that most of the money’s gone before the month is out, leaving you strapped until the next paycheck (Allen Iverson almost knows about this – as do many others). That’s why it is good to be proactive and take control of your finances instead of asking yourself where the money went.

Here are 10 prudent tips to help you manage your personal finances effectively.

Set up separate bank accounts

You must set up a savings account and a checking account as soon as you land a job. Keeping your salary in these 2 accounts will ensure that you only spend the money from your checking account leaving the savings account intact for future goals.

Save first, spend later

Make sure that you have set up automatic withdrawal and deposit on the same day that you get paid. The deposit might go towards a retirement fund or an emergency fund. Do not miss out on the retirement plans offered by your employer (even the US military has TSP). What is important is to not wait until the end of the month to make that saving. Your spending budget should not take your entire income into account. Automatically moving a percentage of your income first will make sure that you can only access the spending money you have allocated in your budget.

Set up short and long-term financial goals

It is always best to set specific goals, for instance, do you want to buy a property when you reach a certain age? Do you have a clear idea of how much it will cost, even if it cannot be an exact figure as land and property prices can fluctuate? Then, count backwards to calculate the amount you will need to have on hand when that time comes and start saving. It will help to write your goals and the saving plan and place it where you can see it regularly.

Budget

Make a budget and stick to it. This is an important step to take if you wish to be in charge of your finances. When you list down your monthly expenses, you will find that it helps to know the bills that are to be paid routinely and the amount that is left over for saving, investing, or extra spending. This is vital when taxes and costs for goods are increasing because of new policies.

Monitor your spending

Once you know your monthly income and your budgeted amount for monthly bills, you will have a clear picture of how much money you can spend. This requires careful monitoring because it is way too easy to spend money thinking that you can just because you have paid all your bills. This will also help you see if there is an expense you can do without.

Live within your means

It is frugal living that fattens your bank balance. When you understand that you are not deprived of anything by living within your means, you will also realize that it is pretty easy to maintain a lifestyle that takes care of your needs without going overboard.

Set aside money for emergencies

Set aside some of your income each month towards emergencies. If there are no emergencies, you can be happy with the fact that you have saved a lump sum. If there is an emergency, you won’t have to panic and wonder where you will get the money from.

Educate yourself

You would do well to keep abreast of the latest tax laws to make sure that you maximize your savings. Keeping yourself well informed of the stock market and following the financial news will allow you to find safe investment opportunities.

Go for the discounts

There is no shame in looking for discounts and taking advantage of the offers made by retailers. If possible, take a more direct approach and master negotiation skills by working with small businesses. It can be a win-win for the business and you. Buying in bulk could get you a discount just as much as a long term relationship with a vendor. The idea is to avoid wasteful spending.

Take care of your health and property

Health – The body can throw in a lot of surprises along the way. It is best to be self-aware and maintain a healthy lifestyle. Make sure that you schedule regular doctor appointments, including dental care. Eating right and exercising will also keep you away from avoidable health risks.

Property – Regular upkeep and careful handling of the things you own, big and small, can shave a lot of repair costs from your monthly expenses. This is a great habit to cultivate and will also teach you to value what you own.

Regardless of how much money there is to manage, these tips can help you stay on top of your spending and saving, and leave you financially secure.

9 Worthwhile Ways to Spend Your Money

Spend Your Money

It can be tempting to spend all your money on a fancy new something or a big night out. However, there are several smarter ways of spending the cash you have. You may want to consider the fact that the way you spend your money may affect the level of your happiness. You may think that buying that large screen TV or a bigger car is a worthwhile purchase, but it may not provide you the most smiles for your buck.

These are a few worthwhile ways of spending your money.

1. Pay off Your Debt

The best way to spend your money is often the easiest and something that will help you in the long run. You should pay off your student loans, credit card debt, and other bills which may have increased during the Covid-19 or Wuhan virus pandemic. Debt repayment often offers the best return on money. You need to know that the typical credit card may have a 15% interest in a year. This may not seem like the most exciting way of spending your money, but you would appreciate this in the long run. It is a win-win situation to not think about paying more interest while reducing your debt.

2. Spending on Hobbies

Passive forms of entertainment will only get you so far. You may want to relax in front of the TV (Bosch, 24, Ray Donovan) sometimes, but you shouldn’t be habitual of it. Try spending more on yourself and in developing hobbies. You can always buy board games, tools, or a musical instrument to get the creative juices flowing.

3. Spending on People You Love

Money can buy a lot of happiness as long as you know the people you want to spend it on. Satisfying relationships, happiness and gifts are strongly correlated. It can be expensive maintaining relationships with family and friends. For instance, if your family doesn’t live close to you, you could seriously drain your savings visiting them which is not good when energy and food prices are increasing because of current policy. Being invited to an offbeat wedding is another way of losing a lot of money.

4. Spend on Job Training or Education

You are the greatest asset you can invest on. Job training and education are often essential for getting the job you want. This may also help in seeking promotions at your current work. You may find this obvious, but if you are satisfied with your job, you would anyway tend to be happier.

5. Purchase Sporting Goods

Exercise and happiness go hand in hand with one another. It is scientifically proven that exercise releases endorphins and other chemicals in the brain that makes you feel good. Additionally, being physically fit is just going to make you feel better on top of regular prayer.

6. Taking a Vacation

Everybody requires a decent holiday at least once a year. This is to ensure that you break the monotony. However, you should know that holidays can get expensive really quickly. Your financial goals may get messed up if you don’t plan for the vacation. However, holidays are one of the best ways to spend your money on.

7. Eating Healthy

Healthier food is definitely more expensive than regular food. But, this is an expense that makes sense. You would feel better when you eat healthier making the additional payment worthwhile. Health is something you would miss only when you are not longer fit. It is better to be proactive and take care of yourself.

8. Saving for an Emergencies

Another way you can make use of extra cash is by creating an emergency fund. Life doesn’t always work out the way you hoped it would. By creating an emergency fund, you can have access to quick cash whenever you need it. The minimum amount you should put in your emergency fund should be at least $1,000. The average person needs this kind of money if they are without work.

9. House Remodeling

Investing in your home will bring you the same happiness that investing in yourself would. A house is one of the largest financial assets that a person may own. You could use any money you have saved up to beautify the outside of your home. You could also add energy efficient features to your house. Improving your home is a sound investment and will increase the quality of your life. This can improve your financial future by boosting the resale value of your house and perhaps even make a friend or relative a little envious along the way! Nothing wrong with that!

Financial Planning And Strategies For Your Elderly Parents

Financial Planning

The 65-and-older population has seen rapid growth since 2010, as baby boomers born in the two decades after the second world war begin to gray. Based on the US Census Bureau reports, the country had more than 54 million residents aged 65 years and older as of July 1st, 2019.

The day may not be far when your aging parents are unable to take care of their own financial duties. Your parents might go through a deterioration of their cognitive abilities as well as a risk of falling prey to scammers looking to swindle them out of their hard-earned savings.

The financial responsibilities of your elderly parents need careful planning on your part.

Here we discuss some of the steps you can take to manage your parents’ finances.

Start the Conversation with Your Parents

Your parents may not need your help right now, but that should not stop you from starting a dialogue. As per the National Institute on Aging guidelines, you will need your parents’ written consent in advance to discuss their personal financial and medical matters with financial representatives, doctors, and Medicare executives.

Starting a conversation now will give a better idea of the degree of involvement expected from you, over time. Moreover, privacy laws may inhibit such conversations later.

Make Gradual Changes

They might need your help, but maybe hesitant to ask for it. The onus will be on you to be sensitive and work with them in a manner that takes care of their needs without making them uncomfortable.

Be wary of rushing in to take charge of your parents’ finances. Instead, extend your support only when needed at first, and then increase it gradually, so that it gives them time to be comfortable with the new arrangements.

Compile all the Important Documents

Take inventory of your parent’s account numbers, contacts, and legal documents. Prepare a list of insurance policies, certificates, deeds, and wills; and make sure that everything is up to date, and valid. While compiling this data, ensure the safety of all sensitive information and the security of the storage location.

Execute a Power of Attorney

A capable adult can sign a power of attorney to assign powers to another person to exercise choices and act on their behalf. A power of attorney can have a limited or broad scope, utility, or duration, and cover general, medical, or financial decisions.

A power of attorney on behalf of your parents provides you the legal authority to make the necessary decisions when your parents are not able to do so. An attorney conversant with elder law can help you to draft a power of attorney document according to your needs. These are the three documents you might need, to begin with:

A Durable Power of Attorney

This document appoints someone your parents can trust to look after their financial responsibilities should they be no longer capable to do so themselves.

A Health Care Proxy

Your parents can assign powers to a trusted individual to make medical decisions when they are incapable to do so.

A Will 

This legal document includes your parents’ wishes related to the division of their assets once they pass.

Executing these documents can be emotionally taxing, but you will need legal documentation if there is a sudden deterioration of your parent’s health, making them incapacitated to carry out these tasks.

Separate Your Finances

Avoid mixing your parents’ finances with your own, even if it seems convenient at the time. It is important to keep your funds and assets separate and not put your own financial and retirement goals in jeopardy while helping your parents.

Keep Your Loved Ones Informed

It’s vital to communicate with the other members of the family, especially siblings, yours as well as your parents’. This can reduce any chances of misunderstanding apart from the fact that relatives can extend their support in managing some of the responsibilities. 

Additional Practical Suggestions

  • Try to curtail your parents’ vulnerability to fraudsters by placing their phone number on the Do Not Call registry
  • Ensure the safety and security of all legal and financial documents
  • Keep copies of all financial transactions handled by you on your parents’ behalf
  • Make a budget and open a savings account
  • Consult an investment advisor for the assessment of your parents’ investments
  • Seek advice on when your parents should start withdrawals from their social security payments

5 Things That Differentiate Billionaires From Others

Billionaires

Billionaires are different from the rest of us – clearly in terms of their enormous wealth. Now the big question is this – how did they achieve exceptional financial success? Are they exceptional because they are born that way, or did they consciously develop some habits and best practices that made them so wealthy?

Her are 5 extraordinary traits that are common across billionaires, contributing directly to their incredible success. And the best part, these traits can be consciously developed in any one of us! Let’s take a look.

1. They are unafraid of the grind

Now we all love to work smart. But if you look in, there’s a subtle resistance to working hard, constantly and continuously, in order to achieve our desires. Billionaires are successful because they have crossed this hurdle.

Take the case of Bill Gates, perhaps the most famous billionaire – even despite some hiccups in the last few years. But what you cannot ignore, is the sheer amount of work put in by Mr. Gates himself to create his billion-dollar company.

  • Working after office hours? Always!
  • 60-hour weeks? Huh, this is child’s play, 90-hours is more like it!
  • Working every weekend including all holidays? Absolutely! That’s the American spirit. Take care of yourself – pay your own way! Can I work from home when I am not at work? For sure!

In fact, his own team has shared how they struggle to keep pace with his hours, despite putting in 80+ hours every week at work!

Then there’s General Electric, which still deserves respect after some NBC hiccups many years ago. GE’s own CEO Jeffery Immelt has always lead from the front, as he slogged through 100-hour weeks for 24 straight years. Think about it, many of us don’t even last 40-hour weeks for 24 years!

2. They embrace renunciation

Don’t let this word scare you away. Renunciation is not about giving up on your family or your personal wellbeing. But can you renounce the need for frequent vacations, like Mark Cuban of Dallas Mavericks did, as he stubbornly chose to work through every vacation for 7 supremely productive years? This is also true of many a young Billionaire who’s doggedly worked through his/ her entire 20’s.

If you aren’t ready to take this plunge yet, you can still make significant progress with tiny steps. Defer settling down with your favorite bestseller book and choose to work instead. Give up a few hours of TV every week, so you can spend this time amplifying your productivity. Spend less time partying in the 20’s, so you can sit rich and pretty in the 30’s.

Like that old adage goes, “A little pain can go a long way in creating tremendous long-term gain”. True that!

3. The buck stops with them, especially during failure

In order to be successful, it is key that we learn to be successful at failure. Yes failure, that terrifying possibility that most of us deny. Ironically, billionaires welcome this possibility, proactively planning for it, so they know how to gracefully address it.

We try to work forwards, towards our goal. So, we end up getting frustrated and disheartened when we’re surprised with failure.

Billionaires work backwards, from their ultimate goal, including the possibility of failure, so they feel less confronted when they inevitably have to deal with it. Here, financial investor Charlie Munger offers a brilliant suggestion. If we understand all the possible ways we could fail, we could create a fool-proof plain to avoid them. Nice!

4. They don’t give up, ever

Here’s a secret that billionaires know: failure isn’t as devastating when you decide not to give up. They decide, again and again, to keep going. So, should everybody who desires wealth and financial success.

A classic illustration of this is the extremely resourceful Elon Musk, the founder of SpaceX and present owner of Tesla who’s expanding his empire into Texas after having some issues with California’s polices. Furthermore, he did not become a billionaire or a household name by accident, and faced many a hurdle in his journey to success.

For instance, when his team failed in their 2008 attempt to launch their first rocket, obviously costing him millions of dollars, he did not get overwhelmed or blame anyone else. He hit the grindstone, inspired his team with the promise of additional funds required to try again, and ultimately made it successful.

Having a resilient leader who can inspire even during failure is a boon to any company. Billionaires consciously seek to become that worthy.

5. They pick their battles

This may be shocking, but billionaires cannot afford to engage in pointless ego-driven battles. They consciously pick their battles, and for this, they are unafraid to respond with an “NO” – to pleasant yet time-consuming habits, to every-day distractions, to self-victimization, to blaming others. They are unapologetic in their quest for success, and thus undoubtedly blessed with it.

Some people want to bash billionaires but that right to pursue success helps elevate so many other people. The countries with the most billionaires seem to have the highest quality of life.

In closing, remember these words of soccer legend Pele: “Success is no accident. It is hard work, perseverance, learning, studying, sacrifice, and most of all, LOVE of what you are doing or learning to do”. Touché!

Checklist For a Perfect Year-End Financial Planning

Financial Planning

An unprecedented year with far-reaching economic consequences is coming to an end. It has had an impact on everyone’s personal finances in one way or another, and you need to reassess goals and firm up your year-end financial strategy more than ever before. Here are some useful tips and a checklist to assist you with that.

Managing Income and Investments

  • To offset capital gains, it is prudent to sell losing investment positions near the end of the year. But it may be sensible to wait this year, with the prospect of higher taxes in 2021.
  • Short-term losses are best at offsetting capital gains. Wait a minimum of 31 days before buying back a holding sold for a loss to avoid the IRS wash sale rule.
  • It may also make sense to accumulate and declare income in 2020 and defer declaring expenses into 2021, with the prospect of higher taxes in 2021.
  • Appraise if you need to defer buying mutual fund shares until 2021 to avert capital gains on brand new investments.
  • Bunch your itemized medical expenses within the same year so as to meet the required maximum percentage of your adjusted gross income in order to claim deductions.
  • In December, make your January mortgage payment (i.e., the payment due no later than January 15th) so you can claim deduction of the interest on your 2020 income tax return.
  • If possible, make sure that you maximize contributions to 401Ks, IRAs (not due until April 15th), SEPs (due April 15th or extension deadline), Simple IRAs (April 15th deadline), or other qualified accounts.

Retirement Planning

  • A Roth IRA allows for assets to grow tax-free and also for distribution to be taken that aren’t subject to taxation (certain restrictions apply). At times, when either your income or the value of your account is lower, are especially good for converting a traditional IRA to a Roth IRA.
  • Roll over unspecified 401(k) accounts from a previous employer.
  • 2020 was an RMD (Required Minimum Distribution) holiday. You can re-contribute any RMDs taken in this calendar year and save on taxes if you plough it back.

Charitable Gifting Strategy

  • A DAF (Donor Advised Fund) is a low-cost, effective strategy that provides the opportunity for annual charitable gifting and allows the donor to take a full tax deduction in a single year. For tax filers who file an itemized return, the normal maximum deduction for a cash charitable donation is limited to 60% of Adjusted Gross Income (AGI), yet the CARES Act allows for a deduction of up to 100% of AGI in 2020.
  • You can still do Qualified Charitable Contributions (QCDs) from IRAs if you’re over age 70½, up to $100,000.
  • Money already in the DAF can be used to make gifts, in case there are cash flow constraints this year due to issues related to the pandemic. You can also use your IRA to make QCDs.

Estate Planning

  • Beneficiary designations on IRAs and 401k accounts supersede your will, so confirm to review and update appropriately but we know that surviving this Wuhan virus situation is paramount as well.
  • The annual gift tax exclusion is $15,000 for 2020. Those with large estates might want to revisit their estate planning tax strategy keeping in mind that the higher than normal exclusion for estate, gift, and generation-skipping taxes is set to expire in 2026, or possibly earlier.

Review the Basics

  • April is the tax deadline to make an HSA (Health Savings Account) contribution, which is strongly recommended, given the account’s triple tax benefits.
  • Consume the Flexible Savings Account (FSA) remaining balances. If you don’t utilize the balance in the account by December 31st, you lose out on the chance to spend that money.
  • If you got a partial refund for tuition owing to an extended spring break, and if that money came from a 529 plan, you need to put it back in there or be prepared to pay penalties and tax on that non-qualified distribution.
  • Check with your CPA to see if you’re on track with your payroll withholding. If you didn’t withhold enough throughout the year from your paycheck, you’ll be subject to an underpayment penalty.

Lessons Learned from 2020

Save money to fund your emergency account and put aside more for the future. Invest in insurance to protect your and your family’s financial future. Ensure that you have medical and financial power of attorney in place. Finally, work on building alternative income streams even in a lower tax environment.