Twila Van Leer

What the Founding Fathers Said About Budgeting

October 8, 2017 By Twila Van Leer

This time of year, Americans look back to the beginnings of the country and honor those who sacrificed to make it happen. The Founding Fathers not only set the scene for a new nation, they also had cogent things to say about money and personal finances.
Here are a few of their bits of advice:

John Adams: “All the perplexities, confusion and distress in America arise not from the defects of the Constitution, not from want of honor or virtue, so much as from downright ignorance of the nature of coin, credit and circulation.” (Letter to Thomas Jefferson, 1787.)

Thomas Jefferson: “But I know nothing more important to inculcate into the minds of young people than the wisdom, the honor and the blessed comfort of living within their income, to calculate in good time how much less pain will cost them the plainest style of living which keeps them out of debt, than after a few years of splendor above their income, to have their property taken away for debt when they have a family growing up to maintain and provide for.” (Letter to Martha Jefferson Randolph, 1808.)

Benjamin Franklin: “It is a singular advantage of taxes on articles of consumption that they contain in their own nature a security against excess. They prescribe their own limit, which cannot be exceeded without defeating the end purpose, that is, an extension of the revenue.” (Federalist No. 21)

“In this world, nothing can be said to be certain, except death and taxes.” (Letter to French scientist Jean-Baptiste Leroy, 1798.)

“A penny saved is a penny earned.” (Poor Richard’s Almanac.)

Alexander Hamilton (as described in the currently-popular musical): “The ten-dollar founding father without a father got a lot farther by working a lot harder, by being a lot smarter, by being a self-starter. By fourteen, they placed him in charge of a trading charter.”

Abigail Adams: “Learning is not attained by chance, it must be sought for with ardor and attended to with diligence” (Letter to her son, John Quincy, 1780.)

George Washington: He was a man of few words, but a stickler for keeping track of his personal finances. Appointed commander-in-chief of the Continental Army in 1775, he did not accept a salary, but asked only for reimbursement of his expenses after the war. He then recorded everything from brooms to mutton to payment for his soldiers, meticulously keeping track of every penny in expenditures. He never went into debt, as some of his contemporaries did and died a rich man.

Marquis de Lafayette: “I read, I study, I examine, I listen, I think and out of all that I try to form an idea into which I put as much common sense as I can.” (Letter to his father, 1776) Though not officially a “founding father,” he was a trusted confidant of Washington and played a pivotal role in the colonists’ struggle for independence. He was the point man for the colonists’ relations with France and showed a great example of thrift and carefully money management.

What Do You Know About Stocks?

October 6, 2017 By Twila Van Leer

If you are beginning to think about investing some of your money in stocks to create a retirement cushion, but don’t have enough information about stocks to start, here’s a quick primer of the basics:

Up front, understand that the stock market can be risky. Fortunes are made and broken every day and you have to be smart enough – or lucky enough – to stay in the positive lane. From the opening bell at 9:30 Eastern Standard Time to closing time at 4 p.m., the U.S. stock markets are in a continuous process of making or breaking investors. Knowing as much as you can is the best protection.

In the earliest days of American history, President Gorge Washington made what proved to be a brilliant move. He appointed Alexander Hamilton first Secretary of the Treasury in 1792. Under Hamilton’s guidance, the first stock exchange was created in Philadelphia in 1792. These small beginnings were the forerunner to today’s New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ) both headquartered in New York.

Other cities, like Boston, Chicago, Philadelphia, Denver, San Francisco and Los Angeles have exchanges as well. Major international cities such as London and Tokyo ditto. The United States continues to operate the largest exchanges, but other markets around the world are emerging. More than 600,000 companies’ stocks are publicly traded and billions of shares change hands every day.

The U.S. market is located on Wall Street. There was, in fact, such a wall. It was a 12-foot stockade built by Dutch settlers to protect them from Native American and British attacks.

There actually are two markets: The primary market offers shares for sale to large investors directly from the corporations issuing them. In the secondary market, where most of the investors buy much smaller shares from among the many offerings buy and sell among themselves. In this market, buying and selling takes place without any involvement of the companies who issued the shares.

Though stocks are considered a risky investment option, they have performed better over time than any other type of security, even gold. Most investors find that for long-term real returns you can’t beat the stock market. The shares are easily

The huge variety of stocks being bought and sold every day makes it possible for “small” stock owners to have a diversified portfolio. There is a wealth of information at the fingertips of newcomers to the market. You can track the technical, historical and analytical data for any stock on the list with ease and the data are updated constantly. Stocks are among the easiest assets to liquidate, so when you need cash, you can get it fast. Many investments fall within the “income stocks” category that pay regular dividends. But expect sudden swings where stock values rise or plummet fast. Regardless, the experts stick with their opinions that stocks, over the long haul, offer the best returns for investors. Their advice is to stand pat through the occasional downturn unless there are very cogent reasons to dump a stock.

There are many sources for getting information about the stock market, including the book, “Stock Market 101: A Crash course in Wall Street Investing,” by Michele Cagun.

Stocks can be affected by politics. The market has tended to do better with Democrats in the White House.

Ways To Maximize Investment Earnings

October 4, 2017 By Twila Van Leer

It’s a sad statistic. Barely 8 percent of college students who responded to a survey regarding personal finance management could have received an A for doing it right. And in a 2014 survey among adults, only 18 percent showed top grade knowledge in personal finances.

It isn’t all that hard. One financial expert and University of Chicago professor reduced the basic elements to fit onto an index card.

To help, here are seven steps, compiled by Suzanne Woolley, to get you into the groove and keep you there:

First, save early and automatically. Some companies now enroll new hires directly into the company 401(k) so they are saving automatically. Others wait until the employee opts in on his own. If you can, save up to the maximum allowed by the employer so you get the benefit of their declared match. Many companies start to chip in when the employee savings reach 3 percent of their earnings. The benefit is that the money is withdrawn before you get a chance to see it, so you don’t miss it.

If your company does not offer a 401(k), start a savings account elsewhere, but aim for an automatic withdrawal of funds. Even a small amount, faithfully put aside, will grow over time. Try to find an option that offers the best interest. The idea is simply to make saving a habit.

Second, expect financial emergencies. It’s a rare individual who gets through life without one – or more. Almost half of those surveyed in a Federal Reserve analysis said they couldn’t cover a $400 emergency without selling something or borrowing.. However, experts caution that saving for an emergency should not come before saving for retirement. Do what you must to meet both needs, if it means eating Ramen for awhile. The older you are and the higher your salary, the larger your emergency stashes should be. Emergencies such as job loss, which often means the loss of health care coverage as well, are devastating. You should have enough savings tucked away that you could continue meeting expenses for at least six months if at all possible.

Third, set an asset allocation. It’s an investor’s most important decision. A rule of thumb is that your allocation should equal your age. Consider your risk tolerance and then be aware that you won’t really know what it is until it has been tested. The risk tolerance varies from one individual to the next. The market always holds risks, but a bad market, especially when you are already in retirement, can be disastrous.

Fourth, keep fees low. With the current expectation that future stock market returns will be dampened, the drive to keep fees low is greater than ever. If you are using an adviser who receives fees and commissions if you buy the products he or she recommends, your returns are likely to be at least 1 percentage point lower each year, according to the White House Council of Economic Advisers. The council estimated the cost of conflicted advise on IRA assets at about $17 billion per year. Keeping your investments simple and bypassing the advisers may save you money. Warren Buffet, in an annual publication, advised putting 10 percent of your money into short-term government bonds and 90 percent in a very low-cost S&P 500 index fund. The long-term results will likely be better than those attained under the advice of a high-cost manager, he says.

Fifth, if necessary, use an adviser who is a fiduciary. A clip from Last Week Tonight With John Oliver gives succinct advice: “Financial analyst is just a fancy term that doesn’t actually mean anything.” An adviser who gets a commission on an investment you make at his urging may be looking more to his own return than yours. Ask your potential adviser if he or she is fiduciary. If the answer is “no,” run, the clip advises.

Sixth, spend less than you earn. This basic, common sense advice seems unarguable. But some 23 percent of millennials and 19 percent of GenXers ignore it, spending above their earnings. No wonder they have no emergency fund. The end of every pay period is an emergency. Lifestyle creep – the tendency to spend more as we earn more – is a trap too many mid-lifers fall into. Saving really is easier than paying interest on a loan you have been forced into to take care of an emergency.

Seventh, maximize employee benefits. A career isn’t forever. The working years are when you need to build your retirement accounts. Financial Engines conducted a survey that showed only one in four employees had taken full advantage of their company’s 401(k) benefits. The survey was taken among 4.4 million participants at 533 companies. An average loss of $1,336 was experienced by those who failed to contribute the maximum their 401(k) allowed. That’s about 2.4 percent of annual income. Low salaries and budget constraints are the usual excuse given by employees who fail to make full use of the savings option, but even many employees in the upper reaches of the salary scale don’t do it. Most large companies also provide disability insurance as a benefit. If you choose to pay the premium, the tax-free provision could be big. Watch for changes in your employee benefits, such as the addition of flexible spending accounts, a health savings account or a commuter assistance program. Such perks lower the amount of salary on which you have to pay taxes.

Slow And Steady Wins Savings Race

October 2, 2017 By Twila Van Leer

When you’re working on a significant financial goal such as buying a house, saving for retirement or trying to get old student loans off your plate, the progress can be discouragingly slow.

Just don’t let it sidetrack you from the ultimate object. Researchers have discovered that the longer you pursue a goal, the farther away the end seems. It’s kind of like being on hold on the telephone. The longer you wait, the more certain you become that you’ll go on waiting forever. Under that scenario, it is easy to cave in and lose sight of the ultimate end toward which you are reaching.

Counterintuitive it may be, but studies show that it is true. And if your final target seems to be receding, you will be better able to talk yourself into taking the money you were going to save and splurge on the new boots that are beckoning.

How to ensure that your end goal stays steady? Set a specific time when it will be achieved, the experts say. Make it as concrete as possible. The more specific you are in your planning, the more likely you are to stick to the details. Work with a financial planner, if necessary, to set deadlines and arrive at the method you will use to achieve your objective.

Then divide the “big picture” into manageable smaller goals. Focus on the activity of saving itself, not on the future outcome. The objective, for instance, should be on setting aside $300 per month for retirement, not on the greater total that you have decided you need for a comfortable retirement.

A study published in Psychological Science concluded that people who break their savings plan down into particular time frames, such as weeks or months, save 78 percent more than those who are focused on some far-off, unforeseeable future goal.

Checking on your progress can help. Say at six-month intervals, compare what you have with what you had. It can be satisfying to see steady progress toward the ultimate goal. If you don’t feel satisfied with the results, make a course correction. Don’t let little hiccups have a greater impact than they should.

Don’t let retirement savings preclude an emergency fund. Having a six-month cushion in the event of an emergency has to take precedence over the future need. Maintain adequate health and disability insurance and make a concerted effort to reach zero credit card debt. Taking care of today makes it easier to ensure financial security in the future.

Saving Shouldn’t Be Hard

September 30, 2017 By Twila Van Leer

Too many Americans fail to save enough money to meet emergencies and prepare for retirement. But it isn’t a matter of math, according to personal finance author, radio personality and money guru Dave Ramsey. It’s a matter of priorities. People start saving when future needs become more important than current wants.

The problem is apparent. A Federal Reserve survey found that nearly half of Americans couldn’t cover a $400 emergency without borrowing or selling assets. Most Americans profess a desire to save, but it can’t compete with their immediate desire for a pizza, Ramsey says. Going into debt to fulfill those immediate desires is even worse than taking money that should go into savings to satisfy the craving.

The secret to saving is to make a zero-based budget before a new month begins and then stick with it. That is the best way to know how much you are currently spending and how you can fit savings into the plan. What’s a zero-based budget? It’s what you have when your income compared with your outgo equals zero. In other words, you are assigning every dollar you have to a category.

Start with the necessaries – housing, food, clothing, insurance and bills. Then fill in the rest of the budget, including saving, with the leftovers. Dave offers a budget app, EveryDollar, that will help. You can track transactions on the go, making budgeting easier.

Finding time to work with a budget is a challenge in our society, but a few minutes every month is worth the effort. The budget program saves time by replicating the previous month’s budget as a starting point. Then you just make adjustments for the current month.

Having a concrete copy of your money income and outgo helps you to make decisions. It doesn’t matter how much money you make. It makes a difference how you decided to divvy up what you have. Keep some goals in mind. College, a major purchase (home, car appliances, etc.), a vacation, whatever, all take money and you get that money by putting it aside. Some for emergencies, some for retirement, some for your future plans.

Starting with a zero-based budget, Ramsay says, makes a statement: “I choose to put my future needs before my current wants.” When to begin? Now.