Basically, Family Finances are Boring—8 Boring Rules to Live By

Apr 24 2014

Whether I’m talking with individuals, in front of groups or to you on the pages of our publications, I work hard to cover matters that you hope you like or need to know. Sometimes I’m left with the feeling that there should be something more cosmic or at least a lot more interesting. That leads me to this. Generally good financial planning is boring. If you find it exciting, stressful, regretful, depressing, combative or any other state of high emotion, you’re probably doing something wrong. Here are eight boring financial rules to live by to live a happier financial life (in no particular order).

Live within your means. Zzzzzzzzzzzzzz….wake up! That’s right folks this radical bit of news is a major challenge for some families. If you can’t live within your means, you’re doomed and the rest of your life is made miserable as a by-product. Credit is not a valid method for supporting a family. You know how it’s said that finances are the major cause of relationship difficulties? This first point is a major culprit.

If you are already in trouble, start living within your income today. Sketch out a common-sense budget, cut expenses, make a plan to pay off the debt, start an automatic savings deposit at some minimal level. “Cut expenses!” That’s right you heard me. Every expense falls into one of two pots—an absolute requirement, no questions asked or a desire, a want, a luxury. Guess what? Bye-bye luxuries. When the debt is paid off, bulk up the automatic savings and investment amounts and live off what is left after savings and investments. Who left the coffee pot empty!

Make a plan for your future. Without a plan, you are walking through a totally dark doorway with no idea what’s on the other side. Don’t go crying to momma when you end up somewhere undesirable. Your plan should be pretty simple. Starting today, make your objective a small financial footprint as you go into retirement. Financial footprint = your living expenses. Ideally and relatively speaking, a small financial footprint either requires less retirement income or allows you to live a larger life on the income you created. Win-win.

Protect your family. Noooooooo not insurance! I’m sorry but I warned you. Splash some cold water on your face and hang with me. Death will strike us all at some point. Tragically some earlier than others. If death takes away your family’s living income, you must have alternative sources of funds available for them to continue to live at a reasonable standard of living. Role play your or your spouse’s death and see what happens. Where will the survivors turn? How much will they need? How long will they need it? How will they manage their funds? Who will help manage the funds? Consider all these questions at different ages because your needs will change over time. Also, home, auto, health, disability, long term care, liability—protection for worse-case scenarios. Now was that so bad?

You must invest. However, it doesn’t have to be complicated. There are several posts in this blog about investing; the who, what, where, when, how and why. Bottom line…

• You should be contributing to your employer plan (401k, TSP) or an Individual Retirement Account (IRA); or both.
• Keep your investment expenses cheap.
• Contribute every pay check.
• Have the right allocation of funds in your account.
• Rebalance to your original allocation of funds annually.

All of these concepts are described in this blog in other posts.

It doesn’t have to be complicated as I said and you can do this easily. But it does take some reading and understanding on your part or you’ll fall into all the dumb and expensive mistakes people can make. A few test questions for your consideration. It’s open book and the answers are in this blog.

• What’s the difference between “risk” and “risky?”
• How can risk be managed to minimize risk while investing in stock funds that ensure long-term wealth creation?
• Most people think the stock market going down is the risk but why must the stock market go down for you to build wealth?
• How can you use your fund allocation to manage risk?

Take a little time to become familiar with investing basics and these questions will be easy.

Have a savings account. How mind-numbingly basic must I get? You must have access to quick and stable value money. Why? So you don’t go into hock or debt for one thing. You occasionally need money for emergencies, large purchases, expenses after a job loss, a splurge every once in a while (you have to live a bit sometimes). Remember, credit is not a valid way to pay for life. Have money available at all times.

Consolidate (and eliminate where possible) accounts. KISS! I mean Keep It Simple “Silly.” Too many accounts complicate your life. If you were a juggler, you can juggle only so many balls in the air. You take on too many and balls start falling to the ground. Fewer accounts, better control, easier management and realized objectives. Accounts to consolidate/eliminate: credit, loans, retirement, savings, investments, etc.

Pay your bills on time. Seriously?! I seriously have to mention this especially to the folks who have a problem with the first rule above. Paying on time (and when possible more than required) positively affects your credit rating. The better your credit rating, the cheaper future borrowing rates can become. Plus it allows for better or more financing options for you should you need credit. Creditors prefer to do business with people they can trust.

Get you and your spouse on the same page. You cannot be working against each other. This one may not be so boring. These actions are the basic building blocks to financial success—like the foundation of a home. To disagree or disregard these actions is risking ruin.

You do these things and you are on the road to happiness because you’ll have your financial house in order. Please pass the No-Doze.

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How to Figure the Value of your Retirement Annuity

Apr 11 2014

calculator3Occasionally I get a question about how to peg a value on the Service retirement annuity. I suggest you use an on-line calculator like the ones at Dinkytown.net. Click on the “Investment” choice and use the “Present Value” or “Future Value” calculators. Of course, both of these values are only approximations.

Present Value calculates the lump-sum amount you would need today to generate the annuity income amount you will receive over your lifetime.

Future Value calculates the final total value at death of the annuity payments you collected over your life.

Let’s start with the Present Value calculator first; the lump sum amount would you need now to last a period of time.

Say you get $2000 a month in gross retired pay, you expect to live 30 years and you expect the cost of living increases to average 2%. Plug these numbers in:

Start date is today. End date is 30 years from now. The future value will be zero because all the money will be used up 30 years from now. $2000 is withdrawn monthly. Compound interest (COLA) is annual. Check the deposits at the beginning box. If you were to deposit a lump sum today and live off it for 30 years at 2% interest withdrawing $2000 a month, it would take $544,425.

Next Future Value; the future value of all your monthly payments.

I’ll use the same numbers. Start today and end in 2044; 30 years from now or projected date of death. Initial deposit is zero. Rate of return is 2% COLA. Periodic deposit (pay) is $2000, monthly. Interest is annual. Check the box for deposit at beginning. You will receive $986,203 in payments over your lifetime.

You can see how the Future Value calculator can also help you with your savings and investment projections. You have kids or grandkids? You can show that teenager the value of starting a savings or investment account early.

Johnny starts early, in his 20s, and invests for 40 years with average contributions of $250 monthly and average returns of 8%. Johnny could have $811,000 for retirement. On the other hand, Johnny starts in his 30s and investment for 30 years. Everything else is the same. Now Johnny has $355,000. “Time is money” has new meaning for Johnny now that he really knows the value of time and money.

If your objective is net worth determination, I would go with the Present Value.

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Should You Work with a Financial Adviser?

Mar 26 2014

financialadviser_webDisclaimer: I have no bias in this discussion. MOAA doesn’t provide financial planning services from our staff so I’m not trying to make a case one way or the other. Maybe we can help each other by sharing our life experiences so others can either benefit or prevent heartache.

Reasons to Work with a Financial Adviser

  • You are not interested in financial issues.
  • You don’t trust your knowledge level.
  • You believe it is too complicated.
  • You believe it is too risky.
  • You are too emotional about your money.
  • You have better things to do with your time.
  • You don’t mind paying for services.
  • You like outside advice.
  • You are afraid marketing and media will negatively influence your decisions.
  • You prefer to work with an expert.
  • You think it gives you the best chance to succeed.

Reasons Not to Work with a Financial Adviser

  • You are interested in financial issues.
  • You are challenged by achieving your objective.
  • You are willing to learn.
  • You trust your knowledge.
  • You don’t let emotions dictate your decisions.
  • You are not swayed by marketing and media.
  • You understand the biases of financial firms and their advice.
  • You understand investment concepts and strategies.
  • You are willing to invest some time in the process.
  • You understand it doesn’t have to be complicated.
  • You aren’t willing to pay for something you can do.
  • You understand risk can be managed and how to do it.

Share your thoughts. Why do you use an adviser? Why don’t you? What lessons have you learned; the good and bad about managing your money. Has an adviser helped or hurt you?

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TRICARE for Guard and Reserve Members

Feb 27 2014

While not new, for those who haven’t heard the news…

TRICARE has two health plans for Guard and Reserve members. Both plans meet the essential coverage requirements under the Affordable Care Act.

35to49testsTRICARE Reserve Select is for Guard or Reserve members assigned to the Selected Reserves. You cannot be eligible or enrolled in the Federal Employees Health Plan. It is a premium based plan that must be purchased. It works similarly to TRICARE Standard. You can see any TRICARE authorized, network or non-network provider; costs will vary depending on the provider’s network status. The monthly premiums are $51.68 for an individual and $204.29 for the family plan. In addition, there is an annual deductible of $50ind/$100fam for E4s and below; $150ind/$300fam E5 and above. You also pay 15% of the bill, after your deductible, for network and 20% for non-network providers. Maximum out of pocket expense is $1000 per family per year.

TRICARE Retired Reserve is for retired members prior to age 60—in the gray zone. It is also similar to TRICARE Standard and Reserve Select above; but the costs are different. You must purchase the plan. The annual deductibles are $300ind/$600fam. The monthly premiums are $390.99ind/$956.65fam. After deductibles, you pay 20% of bill for network and 25% of bill for non-network providers. Maximum out of pocket expenses are $3000 per family per year.

Go to www.tricare.mil/Welcome/Enroll to learn more and enroll.

Looking for more in-depth information on TRICARE dental coverage, insurance rates and pharmacy options? MOAA members have access to the latest updates on health benefits at http://www.moaa.org/health.

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An Introduction to Concurrent Receipt–CRDP/CRSC

Feb 24 2014

servicemember_WEBI was asked to conduct a presentation recently about the basics of the concurrent receipt programs–CRDP and CRSC. Here is the presentation walking through some of the programs’ details. I hope you find this presentation helpful as you plan around your pay issues.

To find explanations to go with the slides, refer to our MOAA web pages on CRDP and CRSC by visiting: http://www.moaa.org/payissues.

Or find more articles on the subjects on the MOAA Financial Frontlines blog at http://moaablogs.org/financial. Search for CRSC and CRDP on the blog site.

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