Monday, January 30, 2012

Taking Responsibility for Your Future

The art is not in making money, but in keeping it ~ Proverb

In yoga philosophy, there is a concept called Samskara. Loosely defined, Samskaras are behavior patterns that are repeated over and over and create a “groove” that sets people’s thoughts and reactions on auto-pilot. These mental and emotional patterns are difficult to break. A pattern is repeated so many times that a person may truly believe that the way things are cannot be changed.

I have witnessed this behavior over the years. A woman is convinced she can’t move forward because of something she has internalized. Examples include: I can’t save, I don’t make enough money, my spouse spends too much - the list goes on and on. I’d like to show you how to turn a negative pattern into a positive one. I talked about social security in my last blog and today I am going to discuss the first step in taking an active role in saving for your future. Stop creating self imposed limitations and decide to take action now to prepare for your future.

Let me introduce you to a very common long term savings plan called a 401(k). If you work for a company that employs more than one or two people, there is a high probability you have a salary reduction plan sponsored by your employer, which could be a 401(k) plan. In simple terms a 401(K) is a tool to save money for your future. Money is taken from your paycheck before tax via payroll deduction by your employer and sent to an investment company. Both the salary reduction and the potential earnings on the money you save will avoid taxes until you are ready to use the money in your future for supplemental income. Currently you can start making withdrawals after you turn 59 ½ without penalty.

Let me use an example to illustrate the concept. Let’s assume you currently are in the 28% income tax bracket and you want to save $1,000. If you take that money from your paycheck you will have $720 after tax to invest.(280 is 28% of 1000 dollars).

In order to save $1,000 after tax you would have to earn almost $1,400 dollars ($1,400 less 28%, $392 equals $1008). By having your employer take the money pre-tax, the full $1,000 goes to work for you. It is equivalent to the IRS giving you a tax free loan of $280 to put towards your retirement. Many employers provide a “match” or what I like to call free money. How does that work?

The plan I offer my employees offers a 4% match if the employee saves 5% of their salary. On a salary of $35,000, an investment of $1,750 will receive a $1,400 match from me, the employer. That represents an 80% return on your money before it is even invested. If that is not enough incentive to run to your employer and sign up, then go back and re-read this blog entirely. Even without a match from your employer, it is still a great way to put money to work for you that otherwise would be paid to the IRS. The savings depend on what your income tax rate is.

Jack Canfield said, “If you don’t like your outcomes, change your responses!” You must take 100% responsibility for your own life. In order to do this you have to stop making excuses and justifying why you do not participate in a program that can have such a positive influence on your future.

No 401(K) available at your job? Don’t fret. My next blog will discuss what’s available for individuals to save for their future.



Note: Due to industry regulations on communication, we are unable to allow for public comments on this blog. Please feel free to email me your questions and/or comments to kathy@fishandassociates.com. Thank you. Securities and Investment Advisory Services offered through NFP Securities, Inc., Member FINRA/SIPC. NFP Securities, Inc. is not affiliated with Fish & Associates.

Thursday, January 12, 2012

“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.” – Ayn Rand

Ayn Rand’s comment is about the importance of being in control of your money and your finances, rather than your money being in control of your life. We make choices about our life every day. You probably don’t get in your car without a destination in mind. You know where you are going, and you know you may have choices on which route to take. For instance, the most direct route may take a little longer than utilizing a short cut. How does this translate to money?

I’ve written several times about the importance of planning. The next few blogs are going to address the different sources and strategies for long term savings to start building a secure investment strategy for your future.

Let’s start with one of the most overlooked sources, Social Security. If you have done nothing up to this point, the fact that you or your partner or spouse has a job means you have already started planning for your future. For every dollar you earn, your employer is obligated to contribute 6.2 cents into a fund for your future income. For 2011, your employer deducts 4.2 cents from your paycheck and sends it into the social security administration on your behalf (this is scheduled to go back to 6.2 cents after 2011).

You might be thinking, “What is this really worth to me and my spouse?” Saving pennies on the dollar may not seem like much money, but let’s look at how this translates into real dollars for your future.

Let’s say social security estimates that you are eligible for a $1,200 per month benefit in future dollars and you can start collecting this benefit at age 62. You would need a lump sum of over $225,000 today to create that amount of income (source: immediateannuties.com). If you did not work outside the home you are entitled to ½ of this amount as a spousal benefit, which has a value of another $112,000. (These are approximates and should only be considered as an illustration based on the current interest rate, for educational purposes only). So a deduction of 6.2 cents by you and your employer can equal $1,800 a month for life!

If you are currently working, or you just got out of college and are ready to start your first job, you have to start a plan for your financial future. IMPORTANT POINT: Social Security is intended to SUPPLEMENT your own personal savings and investments. It was not intended to be the ONLY source.

The average social security benefit in 2012 is a bit over $1,200 per month (source:http://seattletimes.nwsource.com/html/businesstechnology/2016875243_burns04.html).

In future blogs we will talk about what you can do to save for your future. We will look at short- cuts that can help you save more money, and we will explore what investment tools are available to help you reach your goals. In general, women are planners and successful investors. They are educated on the how- to’s and the whys. My goal is to help take you down the path of feeling confident enough to start the journey to your own personal destination. You can take the lead and be the driver whether you are married or divorced, single or widowed. Let’s get behind the wheel!

Note: Due to industry regulations on communication, we are unable to allow for public comments on this blog. Please feel free to email me your questions and/or comments to kathy@fishandassociates.com. Thank you.
Securities and Investment Advisory Services offered through NFP Securities, Inc., Member FINRA/SIPC. NFP Securities, Inc. is not affiliated with Fish & Associates.