Byron Batres  ~ Home Finances

 

Set and prioritize your goals

Plan ahead to achieve your goals

 

What things are important in your life?  Spouse, kids, employment?  Are you on that list?  Don't forget yourself.

 

Women outlive men by seven years, yet less than 1/3 has a comprehensive financial plan.  And women raising children often take a break from the workforce to stay home with children, which means that they contribute less to a pension.  Only 20% of women over age 65 receive pensions.  14% of women have saved more than $100,000 at the time of their retirement.

 

Goals and Priorities:

• Identify your financial strategies
• Develop a financial plan
• Prioritize
• Invest wisely
• Manage your liabilities
• Plan for retirement
• Save intelligently
• Keep your financial plan current

 

Transform your list of important things into a list of actionable items that you can DO to move toward achieving your goals.

 

Protection:

 

Wills and trusts; a will states your wishes if/when you die - who will take care of your children, how will your money be divided, transfers of assets, charitable contributions, etc.

Trusts are mostly for the wealthy, but if you have children with special needs, you should set up a trust to provide for the care of your child.

 

Durable power of attorney; establishes legal authority for someone to act on your behalf on all legal matters while you are alive.

 

Medical power of attorney (POA); establishes legal authority for someone to direct all your medical decisions if you are unable to do so.

 

There is software out there (you will need two witnesses) that you can use to establish a legally valid will.

 

About $300 will get you a will professionally done by an attorney.  Trusts will cost closer to $1,000 to establish and then you have to file annual tax returns (for each trust).

 

Things that are often missed:

 

Disability insurance; if you can't work in your chosen profession, you will receive a lifetime income (roughly 60% of the expected annual income you would have been receiving).  This is typically long-term disability.  Private insurance is not that expensive.

 

Life insurance; first you should get the bare minimum coverage that will just pay off your debts (mortgage, cars, etc.) then add more coverage to replace lost income and finance unfunded goals.  The sky is the limit depending on how much you can afford on a premium.

 

There is Term or Permanent life insurance.

Term: buy it for a term and when the term expires it's over

Permanent; invest in it throughout your life and pull it out at the end, or when you die.

 

If your life insurance policy is more than five or six years old, get a competitive bid and get it updated.

 

Liability insurance; Byron’s advice is to make sure your homeowner's insurance is up-to-date for coverage level.  Liability insurance protects you against lawsuit.  For those who desire extra coverage or have quite a bit to protect, an umbrella policy (covers over all the other policies if the other policies are maxed out) can cover that; $1,000,000 is a good amount to start with, but again it depends on what you have to protect.

 

Q: Where does Social Security fit in?

A: There is a retirement benefit and the social funding element.  Social Security disability pays if you cannot work...at all.  Survivor benefits pay, at set rates depending on your situation, at the time of death.  Retirement benefits can start at retirement age (which keeps going up and depends on what year you were born).  And Medicare kicks in at 65.  Whether or not Social Security will be around by the time we retire is not much of an issue, according to Byron.  Social Security will be there for most people when they retire; the questions is how much you GET versus how much you PAY IN, and HOW OLD will you have to be to retire.

 

Finance is not taught in school and now we have a generation who doesn't know how to talk about money.  Make a "money date" with your husband.  Don't try to talk about finance planning at bill-pay time, in bed, or in the car...set a time when you BOTH can get in the financial zone.  On your date, gather important documents, share goals, prioritize spending.

 

Know your “budget busters”.  What areas of spending do you have the most difficulty staying on budget with?  Is it home expenses, car, dining out, clothes?

 

Try taking the Seven-Day Challenge:  For the next seven days track every expense on paper.  It’s important to understand how you spend money so that you can begin to match your priorities with your spending (or vise verse).  Little things add up so record everything.  When you’re done, look at your spending and look at your checkbook.  Does your checkbook show evidence of what you value?

 

Savings:

·         Employer plans: 401K, 403B, IRA, employee matched

·         Personal savings: ROTH IRA, Traditional IRA, brokerage accounts, bank deposits (savings, Money Market, CDs)

·         Education IRA (Coverdell IRA) and 529 plans

·         Emergency account: a minimum of enough cash to cover one month worth of expenses.  It would be better to have six months or more emergency savings, but one month is a good start.  Consider having a line of credit.  Banks will only loan you money when you don't need it.  Getting a line of credit, when things are good, puts you in a better position if a real emergency comes up.  Having a LOC costs you nothing, unless you use it.

 

Debt:

·         Credit cards; PAY THEM OFF!  If you have several credit cards/debts consider employing what is called “payment stacking”.  Collect all the cards or list all the debts and stack them up with the highest interest rate debt on top.  Make minimum payments on the debts on the bottom and make as large a payment as you can on the one on top (the one with the highest interest rate).  When the top one is finally paid off, move on to the new top one.

 

Know and understand your FICO score.  It measures how much credit you have versus how much you have borrowed, AND the length of credit.  Getting new credit cards regularly, even if you shift other balances to the new card, is hard on your credit score.

 

Mortgages: when obtaining a primary mortgage compare rates and fees. Once you have the mortgage, making one extra payment each year can reduce your mortgage life  by up to several years.  It also significantly reduces the amount of interest you pay.

 

Did you know?

The average mortgage life, these days, is five years?

 

Second mortgage/Line of Credit:  do NOT use this to pay off credit cards!!!!  A line of credit is to be used for emergency expenses or short term problems only.

 

Education loans.  It is not uncommon for a young couple to marry burdening the load of two university debts; his and hers.

 

Something else to consider; if you are a church-going family you might consider tithing where you worship.  Tithing is simply giving back to God what He has provided to you.  Byron and his wife started giving to their local church and have received great blessing from the experience.  If tithing (giving) is new to you, start small and increase as you’re able... the blessing can be overwhelming.

 

If you are looking for financial advice, seek a professional.  Your best bet is a fee-for-service financial advisor.  These folks are trained/educated in the area of personal finance, but are not linked to a financial institution or fund group (from whom they receive incentives to sell their products).  You can use a CFP (Certified Financial Planner), but they often receive their commissions from an investment house.

 

Components of a good financial plan:

·         Retirement planning

·         Caring for others

·         Investments

·         Charitable giving

·         Estate planning

·         Business succession planning

·         Education planning

·         Contingency planning

 

Resources:

1. legalzoom.com
2. Oprah.com - lots of finance sites
3. suzeorman.com
4. Family Lawyer: software available at Staples
5. Ordinary People, Extraordinary Wealth: The 8 Secrets of How 5,000 Ordinary Americans Became Successful Investors--and How You Can Too by Ric Edelman, Publisher Collins, ISBN# 0062736868
6. Smart Women Finish Rich: 9 Steps to Achieving Financial Security and Funding Your Dreams by David Bach, Publisher Broadway, ISBN# 076791029X
7. (editor's favorite)  The Millionaire Next Door: The Surprising Secrets of America's Wealthy by Thomas J. Stanley and William D. Danko, Publisher Pocket, ISBN# 0743420373