Building Your Nest Egg: How Much Should You Save?

Posted on March 13, 2012 by acollins

Depending on whom you consult, you’ll hear all kinds of ideas on how to save:

• Pay yourself and take a percentage off the top.
• Pay all your bills and then save all that’s left over.
• Don’t save anything until your bills are paid off.

Needless to say, it can be a little confusing.

While you can certainly follow any number of people’s advice, ultimately the answer will depend on your unique financial picture—both immediately and into the future. A business owner may choose to save 30% of gross income in a business savings account for taxes and other expenses, in addition to 20% in a personal account. On the other hand, another person who works in a 9–5 job may save 5–10% while systematically paying off bills.

What may be more important than the percentage you save is that you develop a habit to save money regularly. Whether you’re putting away $5 a week or $500, get yourself into the habit of saving money that you don’t touch. Your goal should be to develop the proverbial nest egg: a substantial amount of money that you have available for a rainy day. Emergencies will happen, so be prepared with some set-aside money. Be sure that you are investing at least a portion of your savings, preferably in an IRA of some sort. Again, the amount is reliant on how soon before you plan to retire and how aggressive you want to be to grow your investments.

At the end of the day, how much you save isn’t as important as the fact that you are building a nest egg for the future. Pat yourself on the back, no matter how much or little you’re putting away, and rest easy knowing that you are investing in yourself.

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It’s Never Too Early to Learn Fiscal Responsibility

Posted on March 1, 2012 by acollins

child with moneyDid you know that some Phoenix-area schools don’t mention cash management as a topic until third grade? Yet most children have an idea of how money works before they turn two. By that point, they’ve joined their parents at the grocery store, mall, and restaurants and begun to form their own buying patterns based on what they’ve seen. If you ask a two- or three-year-old where money comes from, however, he’s likely to respond with “the bank,” “the ATM,” or even “Mom’s credit card.”

There’s no reason to wait so long for your child to start learning about money. It can start pretty young by providing rewards for chores, birthday money from grandparents, and even cash from the Tooth Fairy. Some financial advisors encourage parents to teach children to do four things with their money: (1) spend some, (2) save some, (3) donate some, and (4) tax some.

Children live in a world of instant gratification, so they need the ability to (1) spend some of the money right away. But there are probably some things they want that are more expensive, so they should make a habit of (2) saving some for larger purchases. As a citizen of the world, children should learn the value of giving back. Whether to a religious or secular group, children can (3) make a gesture of donating a portion of their earnings. And then there are taxes. While children’s income typically isn’t tapped by Uncle Sam, parents can teach them about their civic responsibilities by (4) creating a tax savings account—which can be given to the child when he’s older, perhaps for her first car.

How would this work in practice? Say your child receives $5 each week for allowance. Have him save 10% for larger purchases ($.50), 10% for donating ($.50), and 20% for taxes ($1). The remaining $3 is his to spend now and how he chooses. Don’t put parameters on how he spends his “now” money, no matter how frivolous.

By setting your child on the right path now, you’ll see her fiscal responsibility grow, and she’ll retain these foundation lessons well into adulthood.

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Life Insurance: Insurance for the Lives You Leave Behind

Posted on February 23, 2012 by acollins

Insurance can be a confusing idea, purchasing something on a “possibility, and that idea is even more confounding when it’s life insurance. Many people are unsure why they would even need a life insurance policy, but financial advisors are equally unsure why consumers aren’t buying them—especially when policies are at a 50-year low. Perhaps the hardest concept to grasp is that the life insurance policy isn’t for the person who purchases it; instead, it’s for the loved ones who are left behind after that person’s passing. Call it “death insurance” and you may be a little closer to understanding why it’s so vital in a well-thought-out financial plan.

Unfortunately, while dying is certain, it doesn’t always occur at the most opportune time. And there are always things left incomplete after someone passes away: bills, education, mortgages, etc. A life insurance policy helps to ease the fiscal burden that occurs when someone dies, whether that person was the primary breadwinner in the family or the stay-at-home parent. By purchasing a life-insurance policy, you are creating a financial safety net for your family. You are enabling them to move forward more peacefully by covering those expenses for which you were responsible. And don’t think that a parent who didn’t work doesn’t need life insurance; if Mom stayed at home, consider the costs of childcare until the children are self-sufficient.

It’s nearly impossible to put a price tag on an individual, so what you need to look at is the cost of everything your family and loved ones will incur if you’re no longer in the picture. Even the simplest funeral can cost thousands of dollars. And there’s so much more to consider down the road! Given the low cost of policies and the varying types that allow you to borrow against them or draw dividends, it’s a wonder that so few people have included life insurance in their investment portfolios.

If you have questions about which policy is best for you, and how much, contact us for an evaluation.

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