Top Three Financial Worries

Many people spend far too much time worrying about their financial affairs. If these worries leave you restless during the night or keep you from enjoying your time with family and friends, then you need to confront them head-on. Rather than spending the time worrying about them, wouldn’t you rather address them, deal with them, and begin to take the necessary steps to tackling these problems that take up your time and energy?

 

1)   Will I have enough money to retire? 

How much do i need to retire?

It’s important you’re taking the right steps to get to the numbers you need to retire comfortably

This is probably the number one concern on most of our minds. A very comprehensive answer can be found in our Udemy “Master Retirement Course“.

For the shorter answer…in order to address this issue we first need to determine how much monthly income we will need in the future, after we retire. Many people assume their monthly income needs will decrease drastically once they retire, since spending will usually decrease for items such as clothing, gasoline, retirement funding, FICA taxes, etc. However, what they fail to take into account is the additional costs of medical insurance, cost of prescriptions, medical and long-term care, inflation and perhaps spending more on travel once they retire. Obviously these items require additional spending and you need to account for this in your retirement budget.

Next, you need to consider any monthly income you are expecting from social security and other pension benefits. You might also want to account for any known inheritance income you will be receiving. However, you should be careful here—many people count on a certain amount of money from inheritance, only to find when the time comes that due to unanticipated costs (like those mentioned above) the accounts to be inherited have been reduced significantly. Now you’re aware of what the monthly income shortage (or surplus) is that you’ll be required to withdraw from your retirement accounts in order to fund your retirement needs.

Now you will need to go through the agonizing process of coming up with your best assumption as to how long you’ll live after retiring. The Social Security Administration (SSA) has a page on their website which enables you to calculate what the actuaries have determined to be your life expectancy. Of course you will need to adjust this number up or down according to your health and family history. This isn’t exactly the most fun number to come up with, but it’s only an estimate based on history and statistics. Don’t get bogged down as to the accuracy of the number, or what it means. Round up and overestimate if you can, because it’s better to be left with too much money than it is to come up short when you most need it.

Lastly, you will need to make some calculations as to the present value of your income needs at the time of retirement based on the information listed above. Then you can determine if you have any expected shortfall which will need to be funded between now and the time of your retirement. Use a savings calculator with your desired monthly income as determined above, along with your number of years left once you retire, and projected monthly interest rate you expect to earn on your money. Once the present value is determined—if there is a shortage—it’s time to begin to take action to get toward that number.

At least now, you will know what is needed and you can develop a working plan to get where you need to be. Find out how to get the rate of return you need with the money you currently have. Work on where you might be able to increase those returns, or lower your future monthly income at retirement. This all might sound complicated, but once you dig in and get it done, it really is fairly straight forward. Here’s a post from the Coaches’ Blog where we detail an example of a couple going through the “How much do I need to retire?” question themselves.

 

2)   How do I know where to put my money? 

Savings bank

Always know where your money is and be in charge of how it’s working for you

Many people are relying on financial advisors to determine where their money should be invested and to watch over their accounts. However, whether or not you are working with a professional, you still need to be involved at least on a quarterly basis to see, for yourself, how things are going. Be sure you know what you are invested in and why you are invested in those particular assets. You are the one who cares most about your money and financial position, so you should always remain involved and fully aware of what is happening in your accounts.

If this level of involvement is new to you, it certainly can seem to be a daunting task. However, remember, the purpose of this article is to help reduce some of your financial worries. You don’t need to become a financial expert, you simply need to become more financially independent and able to make some of your own educated financial decisions. You can get help in the areas in which you need to expand your knowledge. Whether that is in the stock market, foreign currencies, owning a business, real estate, or any other investment type, seek out help and additional trainings or studies. Despite what the financial industry tells you—it isn’t beyond your ability.

 

3)   How can I get out of debt?

According to statistics found on “nerdwallet.com” as of April 2014,the U.S. household consumer debt profile looked like this:

  • Average credit card debt:       $  15,191
  • Average mortgage debt:        $154,365
  • Average student loan debt:    $  33,607
Debt hole financial worries

Getting out of debt can be managed in a series of steps and plans for how you’ll climb out, or how you’ll increase your income

Regardless of the statistics, we know that many of us have far too much debt and we are worried about how to rid ourselves of this burden. If you currently maintain a high debt load (and you know if it’s too high by the fact that it is a cause for worry), then the best approach is to stop using credit cards and other debt immediately. We should use our available credit only for those emergency expenses which pop up when we are the least prepared instead of continuing to purchase or pay for things we don’t truly need. If you don’t begin saving now, or continue to pile up debt, your retirement years will be full of stress and worry, rather than the easygoing years you’ve dreamed of. Help your future self and family now, by dealing with these issues today.

Once you have stopped the bleeding by no longer increasing your debt, you can come up with a workable plan for paying off the debt you now have. Begin by calculating how much payment you can afford to make on your debt and how many months it will take you to pay off the current balance. Here is a calculator to help.

A good approach to get started is to begin by paying off your smallest balance loans or debt. Even though you’ll sometimes hear advisors say pay off your highest interest debt first, many times it can be discouraging to not see any of your debt actually being paid off. By paying off your smallest-balance debt first, you can clear those off your record quickly, then go on to tackle the larger ones.

Once you have a plan, you start to take away the financial worries about your debt and you can have peace of mind. The same approach can be used for your mortgage debt, as well as any other outstanding debt you might have. Begin to deal with it now, and let the financial worries go away.

Live Your Dreams

 

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Randy Tudor is the VP of Investment Research for Margin of Safety Investing, LLC. He has over 35 years of experience in financial services, real estate, taxes, and accounting. He currently resides in Phoenix, Arizona, where he heads up the investment research and analysis team by focusing on companies with strong fundamentals, a durable, competitive advantage, honest and talented management, and which can be acquired for a margin of safety price.

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