Single Woman’s Guide to Retirement

Retirement planning brings challenges regardless of your marital situation. However, those flying solo face additional stress.

Roles People Play

The major phases of life include accumulation (saving and building wealth), independence (retirement and spending wealth), and finally, interdependence and dependence (the transition of increasing need of caregivers). Think about the following roles others may play in assisting you.

  • Emotional support
  • Financial management and decision making
  • Residential help and relocation
  • Daily living including food preparation, personal care, pet care, medical management and more
  • Legal representation and elder care
  • End of life planning

Ever Singles and Suddenly Singles

There’s a declining number of caregiving family members due to a fall in birth and marriage rates.

  • Today about one out of two adults are married compared to about three out of four in the 1960s
  • About 9 percent of those 50 or older have never married (U.S. Census)
  • One out of three Boomers do not have children, and others will age alone because of the death of a spouse or divorce (“suddenly single”), or have children who are unable to help them
  • Two-thirds of Americans age 85 or older live alone and only 15 percent of women were married at that age compared to 55 percent of men (Society of Actuaries 2017 report)

Have a Plan

A good financial plan can help guide you in building wealth to retire and stay retired and protect against life’s surprises. Protect yourself in your accumulation stage with sufficient cash reserves and consider disability insurance for protection in case of loss of job or sickness. Consult your attorney and have a Power of Attorney that designates the right people to help manage your affairs and make healthcare decisions should you become incapacitated.

Stay Connected: Create a Support Map

Social networks are crucial to your health and well-being. They can also serve as a resource pool. Designate the best people to serve the roles listed above. It’s best to get their approval in advance (no surprises). Prospects generally include your family members. What if you don’t have children (or don’t want them in the role)? Then consider siblings, nieces and nephews, and extended family, friends, members of your church or organizations, and talk with your advisors for recommendations.

Consider Where Your “Home” Will Be

Where do you want “home” to be and can you afford it as you age?

  • Home with design modifications and caregivers as needed
  • 55 and older retirement communities
  • Continuing care communities that help you make the transitions
  • Assisted living and skilled nursing facilities
  • New social and living models including Co-housing (separate homes with shared spaces for community activities) and Village concepts (promote aging in place)

Retirement planning has several components. One is about accumulation of wealth to fund a specified lifestyle. That part is generally straight forward. Another component is the personal side of retirement. Aging isn’t always a smooth process. However, life’s a lot better when you aren’t going at it alone.

Secure your future wisely.

This article can also be viewed on the Reno Gazette Journal.

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Moms Nurture Financial Health and Well-Being

Moms have a very special gift as nurturers. Nurturing is the process of caring for and encouraging the growth of someone or something. Security and comfort often top the list, and these goals transcend to their kids. Sometimes it is the hope that their kids do better and have a life better than she. If you are a mom with some of those hopes, we know that physical and emotional well-being, as well as being safe and secure are important to you. Planning for your kids’ education or helping with a first home might be on your wish list as well.

We believe that taking care of yourself should be your first priority so that you can better take care of others and your children. Here are some thoughts and tips on how to do so:

mothers dayUnique risks and challenges

Some moms have unique challenges that require more planning. These may include earnings disparity, a lifetime earnings gap, and longevity. The first two can result in lower savings (e.g. you earned less and left the workforce to raise your family) and lower Social Security benefits (based on your lifetime earnings). Longevity means that retirement monies need to last longer, and adjustments are required to cover longer periods of healthcare and assisted living costs. Other life disruptors include caregiving for aging parents or family members, and divorce.

Budgeting and building cash reserve

Spending less than you make and being real about what you can afford is a necessity. Changes in spending may be required today to maintain the desired lifestyle long term. Budgeting becomes a valuable tool. Also, building a cash reserve of three to six months of living expenses is commonly advised for emergencies such as a change in where you work or live, or unexpected major bills.

Protect yourself and your family

Old-timers tend to say: “If we don’t have the cash, then we can’t afford it.” This is generally good advice. There are exceptions for cars, homes and maybe student loans where the terms are reasonable, and returns are attractive. Payoff debt for good. And have adequate insurance to cover major losses – cars, homeowners (and umbrella liability if appropriate), medical, life and disability. Life and disability are to protect against loss of earnings. However, also consider life insurance for the stay-at-home spouse to cover the valuable services he or she provides – jobs that don’t end at 5 p.m. such as child care, transportation, keeping peace in the house, and more.

Earnings potential

Re-entry into the workplace may be difficult after a career gap from raising a family. Consider keeping a foot in the door. Keep your skills engaged or develop new ones and retain networks. Options include working part-time, consulting, volunteering or completing online certificate programs.

Saving for your future

Saving and investing are important. Building your financial knowledge is also key because it will help you make smart financial decisions and reduce anxiety and stress. Numerous tools are available including books, online resources, your partner, and of course, your financial advisors.

Helping your children

Wouldn’t it be nice to be able to write a check to help your child get their education or job training, or get them into his or her first home? But what if your nurturing taught them how to be financially responsible, showed them money lessons, and instilled in them values and beliefs that will pay them dividends for their lifetimes? Some of the greatest lessons I learned from my mom were life skills and independence.

Secure yours and your child’s future wisely.

This article can also be viewed on the Reno Gazette Journal

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Estate Planning Actions for the Small Business Owner

Two things people avoid talking about are death and money. Combining the two is estate planning—the process of arranging for the management and disposal of a person’s estate while minimizing gift, estate, generation skipping transfer, and income tax. Estate planning includes planning for incapacity, reducing or eliminating uncertainties over the administration of a probate, and maximizing the value of the estate by reducing taxes and other expenses.

Conversations about estate planning, though difficult, provide clarity and prevent conflicts. If you are a business owner, there are three estate planning conversations you need to have.

estate planning for small business ownersConsider What You Want

Would you respond with a blank look if a friend asked, “What do you want your estate to do?” Do you think someone else should figure it out for you?

Remember this: Your estate is yours, no one else’s. Think about what your legacy will be from your point of view—not your childrens’, not your employees’, and not your friends’.

Estate planning is not just about splitting up the goodies. Your legacy is about what makes you unique, what wisdom you picked up over the years, and what you want to leave to those who are here after you die.

Of course, your exit strategy will be a significant portion of your estate planning. If you decide to sell or transfer ownership of your company, you’re making an important decision about your legacy as your company will live beyond your lifetime.

Talk With Your Significant Other

If you’re clear on why you want certain things to happen, share them with your significant other. You and your life partner should have a real conversation about your reasons.

Don’t be surprised if there are some areas where you have different ideas. If both of you are clear on your reasons, it’s easier to find a resolution. If your reason is “just because,” then think harder. Consider those you’re leaving behind and the difference that your estate will make and the effect your exit strategy will have in their lives. After all, you’re going to be dead (sorry, but it’s true). This is about your legacy and their lives.

Share Your Thoughts with Your Heirs

The next step is one that too few actually do. That is to sit down with your heirs and let them know what you think and why. Listen to what they have to say. Your decision will affect their lives and the way you’re remembered. If you care about either of these issues, having this conversation is really important.

Our society doesn’t do a great job of respecting those who are older. That’s too bad. You have the opportunity to change this in your family by explaining your reasoning and making the right choice. This process helps those in your family learn about what your motives are and what you hope to accomplish.

Discussing your estate plan with your heirs also prevents unintended consequences. You might assume that the family business should be split equally between your children. This arrangement almost guarantees to end up in a major fight between children in the business and those who aren’t.

Clarity is what makes a good estate plan. You really want to ask lots of questions and have an open conversation about what you want. I know it’s hard to talk about death, but we’re all going to have one. Wouldn’t you rather be prepared?

Estate Planning 101

After talking with your loved ones, you need to start framing your plan. To simplify this process, it can be helpful to consider three estate planning essentials: organizing your financial information, communicating your plans and, of course, taking action.

Organizing your financial and estate information

Create an organized record that details your accounts and legal documents, so your family can easily locate them. Include items such as:

  • Professional and family contacts
  • Location of estate documents
  • Disability and life insurance
  • Home and auto insurance
  • List of financial institutions, accounts and account numbers
  • Credit cards
  • Beneficiaries of retirement accounts
  • User names and passwords (including those to social media websites or online photo storage)

We tell ourselves we can get organized later, when things finally calm down.

But sometimes later can be too late. Most people believe they will live a long and healthy life, but one never knows. A major illness or death may occur before plans are in order, leaving loved ones scrambling to make sense of incomplete information and financial unknowns during a very stressful time.

Discussing your estate plan with family members

Any time you update your estate documents, communication is key. When you name your friends or family members to any role in your plan, you should notify them right away. Confirm that they are willing to take on the responsibilities of the roles, and explain your intentions.

Discussing these matters with children can be sensitive. Here are tips on how to make the conversations age appropriate:

  • For children in high school and college, let them know that you have plans in place. Tell them who you name to important roles (grandparents, aunts and uncles) and why.
  • For young adult children, you may choose to name them to primary roles in your documents. Let them know if you plan to do so, and show openness to engaging them in this discussion in the years to come.
  • As children reach middle age, giving them full knowledge of your financial situation is important. Mature adult children can help parents navigate the challenges that come with aging.

Taking Action

Proactive planning requires careful consideration of possible future scenarios and a good understanding of yourself and your family. It also involves communicating your wishes to those close to you.

Finding the time to discuss death and finances in your busy life is difficult and unpleasant. But since one never knows what the future holds, it is best to be prepared.

Know that I’m available to help you create an estate plan that meets your wishes and should ease some of those uncomfortable conversations.

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Seven Savvy Gift Ideas for College Graduates

Every generation brings something unique, but this graduating class is very different. They are the last of the Millennials and eclipse prior generations in size, education level and diversity. Most live in urban centers, shun time-honored institutions such as political parties and religion, less likely to be military veterans, and defer marriage and having kids. They strive for a better work-life balance, yet they are entrepreneurial. They value life experiences, same-day delivery and absolute convenience, and they are digital nomads.

And while they have incredible wealth building opportunities, they have unique money challenges. One of their biggest financial concerns is massive student debt with an average of $48,000 driven by rising college costs or bad decisions. Finances are just one reason why some students choose associate degrees and vocational schools as an alternative. Some aren’t ready for four years of college, others have a specific job in mind, while others want to get a jump on earning a paycheck.

Before running out to buy a gift card or stashing some cash in a congratulatory card, consider these seven financial-savvy gift ideas for the college graduate in your life:

Match savings contributions

Help them develop good savings habits and open a savings account. You could make the initial deposit and match his or her savings. For 2019, you can give $15,000 to a recipient free of gift taxes (a couple can gift $30,000 per recipient).

Student loan payments

You could accelerate loan payoff or reduce monthly payments for the graduate by offering help during the six-month grace period following graduation. Many loans have a six-month deferment period as the student lands a job. Interest may or may not accrue during this period depending on the loan. Your payment options include writing a check, using a gift card such as (can go directly to the student’s loan account), or spreading your gift in installments.

Assist with bills

What gaps can you fill in the graduate’s budget? Pay their health, auto or disability insurance for a specified time period? Contribute to the rent, buy a Trader Joe’s gift card, or assist with an upcoming expense (moving, furniture, etc.)?

Retirement contributions

Help them enroll in their company’s 401(k) plan, walk them through the investment menu and match their contributions. The contribution limit to your 401(k) plan for 2019 is $19,000.

Help them start an Individual Retirement Account (IRA). They may have a one-year wait for 401(k) eligibility, no employer plan or be self-employed. The contribution limit for an IRA this year is $6,000.

Give stocks with youth appeal

Did you get a Disney stock certificate from your folks when you graduated? Open an account for the graduate and seed it with familiar stocks. Here are some examples (do your homework though; I don’t know your specific situation) – Apple, Starbucks, TripAdvisor, Facebook, Amazon, Netflix, Chevron, etc. If your budget is smaller, checkout Stockpile where you can buy a gift card in the amount of $25, $50, or more, and buy fractional shares of stock ($50 card with say 0.025 shares of Amazon).

Give appreciated shares of stock

If there’s likely to be some wealth remaining when you die, then consider transferring some wealth to your graduate now by gifting appreciated stock. They can sell and reinvest the way they want or pay down student loans. The strategy is to transfer wealth tax efficiently and works if the graduate is in a lower tax bracket than you. And like all tax strategies, consult your CPA or enrolled agent for tax advice.

529 Plans

Investigate broader uses of these plans. They can be used for qualified expenses for college and vocational school expenses, including tuition and fees, books, computers and tools, and room and board. They were expanded with up to $10,000 for tuition to eligible public and private K-12 schools. Current bills in Congress have provisions permitting wider use of 529 monies – to pay down student loans, homeschooling costs and expanding qualified K-12 expenses.

These wide-eyed graduates are off to their new adventures. Help put things in their favor and guide them in their financial success.

They too can secure their future wisely.

This article can also be viewed at the Reno Gazette Journal

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Never Too Early: How to Plan for the 2019 Tax Season

How did April 15 go for you? Was your tax bill in the ballpark or was it a big surprise? Most financial decisions have tax impacts. You can ignore them or plan ahead, but we highly suggest tax planning for 2019 and beyond. Tax planning is about arranging your affairs to postpone or minimize taxes. Benefits include higher probability of achieving your goals and planning your cash flow with greater certainty. Live your life as you choose but do it in a tax-smart way.

Here are some tax-planning topics to discuss with your financial advisor and tax professional:

Coordinated planning and total wealth framework

Tax planning is a part of your personal financial planning. They are done together, not separately. Also, tax planning should incorporate your total wealth – your earnings, Social Security, pension (human capital) and your personal, business and retirement assets (investment capital).

smart plan for 2019 taxesA means to the end

Tax minimization is a worthy goal. However, there are other considerations in making life choices besides tax avoidance. I’ve seen this case many times: “This property is becoming a burden, but we can’t sell it now…the kids inherit a stepped-up basis after we die,” or “I can’t sell this heirloom stock… the gains will kill me.” Don’t let the tax tail wag the dog.

Complexity and uncertainty are common in long-term planning. Nevertheless, wise mentors coached me to generally plan under current legislation and adjust as tax reform occurs. Here’s an example – some mature investors want to convert their retirement accounts to Roth IRAs. They feel taxes are high or will continue to increase for the next three to five decades for them and their kids. That’s a long time for future Congressional tax reforms. Maybe Congress will eliminate inherited Roth’s except for surviving spouses. Do you prefer to pay income taxes for your kids or have them pick up the bill?

Life stages and tax effects

There are generally four major life stages for adults – three adult stages (young, middle and older) and retirement – and each has unique tax issues

  • Income sources generally shift from wages to investment income over time (plus Social Security and pension in retirement). Income is taxed differently – non-taxable, capital gains (zero, 10 or 20%), dividends (ordinary income or capital gains), ordinary income (max of 37%), and the 3.8% so-called Medicare Surcharge Tax. What’s the best way to shift to the lowest brackets?
  • Your asset base starts at ground zero, then grows and accumulates, and begins to deplete in retirement and investment strategies shift. Invest tax efficiently!
  • Adjusted gross income tends to start low, then higher and highest, and then lower.
  • Deductions often parallel with your adjusted gross income’s (AGI) path. Deductions are most valuable when AGI is highest. Do you maximize retirement contributions, payoff the mortgage or both?

Tax advantages support certain financial goals

Homeownership provides deductible property taxes and mortgage interest (with limits). Retirement savings are encouraged with tax-deductible contributions (limits) and tax deferral. And there are advantages for education and healthcare savings (e.g. 529 plans and Health Savings Accounts), as well as charitable giving strategies.

Unanticipated events

Inheritance or gifts generally do not create immediate tax consequences to beneficiaries, but investment income and capital gains do. Personal injury settlements can be non-taxable (physical damages) and taxable (punitive damages) depending on the case. Casualty and theft losses or medical expenses can have tax consequences.

Business owners

Numerous planning opportunities include employee benefits (healthcare and retirement savings), compensation design, structuring capital investments and succession planning.

Tax efficiency is important in financial planning. At the end of the day, you get to spend, gift or reinvest what remains after Uncle Sam takes his share.

Secure your future wisely.

This article can also be viewed on the Reno Gazette Journal.

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Mitigating Risks for Small Business Owners

Creating a Risk Management Plan

Small business owners make up most of the U.S. economy. While the statistics are not often reported by the media, according to the U.S. Small Business Administration (SBA), almost 50 percent of Americans either own or work for a small business.1

Further, the SBA states that small businesses account for:

That’s the good news. The not-so-good news of small businesses is as sobering as the good news is exciting. According to data from the Bureau of Labor Statistics2 about:

It’s important to note that these statistics reflect all small businesses, but the reality is that the facts are different when you look at business success and failure by industry. And while there might not be statistics to support this next statement, creating a risk plan that touches on four major categories should improve the chances that a small business will survive. Let’s examine the four major risk categories.

Market Risk

Market risk is a broad topic that can cover just about any aspect of your business. But it makes sense to focus your market research on two key groups: your consumers and your competitors. Marketing 101 suggests that you need to understand your consumer base and your competitors well before you launch a small business—and you probably do. But have you gathered empirical data to support your business ideas? Start by answering these basic questions:

  • First, is there a demand for your product or service?
  • If there is a demand, how many people would be interested in your offering?
  • Are there competitive options that are already available to your customers? And if so, what do people pay for these alternatives?
  • How is your offering different? The answers to these questions will lead you to additional questions and information. By taking time to answer them, you will better understand your opportunities and limitations for gaining customers.

Credit Risk

There are many reasons why 50 percent of small businesses fail by their fifth year, but there are a few reasons that seem to recur more often than others. At the top of the list is a lack of funding. In fact, according to an analysis by CB Insights, 29 percent of small businesses failed because they ran out of cash (interestingly, 42 percent failed because there was no market demand for their products or services).3 But cash flow is not just tied to start-up capital, it is also very much tied to accounts receivable— when your customers pay you. And since many business transactions are conducted on credit, it’s important for small businesses to understand their clients and their clients’ ability to pay. If you open a coffee shop and your clients pay with cash or a credit card, then your credit risk is not very high. But when you open a business where you don’t ask for payment before (or when) you deliver your product, then your credit risk increases. It sounds simple, but make sure that you check the credit of any customer that you’re extending credit to.

Operational Risk

Investopedia defines operational risk as “the risk not inherent in financial, systematic or market-wide risk” [and] “includes risks resulting from breakdowns in internal procedures, people and systems.”4 That’s a big one. Small business would do well to summarize operational risk as “human risk” and recognize that:

  • It changes from business to business and industry to industry; and
  • A business with less human interaction will by definition have lower operational risk.

Do you know the operational risks in your business? You might have the best product, but are there weak links in your supply chain or internet security or with your aging (or young) sales force?

Reputational Risk

Reputational risk is the one that probably keeps most small business owners up the at night. It’s also the one that can be very challenging to manage. Reputational problems often begin inside the organization. But third-party relationships also heighten reputational risk as more companies are being held accountable for the actions of their vendors or other business partners. In addition, perceptions will often vary from location to location, so an issue that threatens a location in Connecticut, for example, might not matter in Arizona. But as Warren Buffet said, “it takes 20 years to build a reputation, and five minutes to ruin it.”

Create a Risk Management Plan

Owning and operating a business—no matter its size—will bring you a number of risks that can dramatically alter your business and potentially cause you financial hardship. But you can protect against those risks by creating a risk management plan in a few very simple steps:

  • Identify the risk.
  • Assess the likelihood of the risk.
  • Attack the risk.
  • Periodically monitor and review the risk.

Ways of Dealing with Risk

There really are just four ways of dealing with risk. You can:

  • accept it;
  • transfer it;
  • reduce it; or
  • eliminate it.

And good risk management will improve the likelihood of your business succeeding.

Let me know how I can help you build a customized risk management plan for your business.

Secure your future wisely.

Download “Mitigating Risks for Small Business Owners”




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10 Smart Ways to Use Your Tax Refund

It’s that time of the year when tax preparers and CPAs are busy preparing tax returns and their families are left to fend for themselves. In past years, about three-quarters of tax filers got an average refund of $3,000. This year will be interesting because of the Tax Cuts and Jobs Act that was signed in December 2017. Tax Policy Center estimates four out of five will see a tax decrease this year. However, some will have higher tax bills. Others may have smaller refunds because less tax was withheld from their paychecks.

Most Americans love their tax refunds. Some hate surprises including having to write another check to the government. Others consider it part of their annual savings plan or spend it as an annual treat, even though it’s an interest-free loan to the government.

Here are some smart ways to use your tax refund. I’ve put them in the order of smart money decisions to life-changing and refund

Payoff debt

The average American owes $38,000 in personal debt (excluding mortgages) and two out of 10 allocate 50% or more of their income to debt repayment per a 2018 study by Northwestern Mutual. Paying off an 18% credit card is better than having a bank balance earning 2%. List your debts and pay off the smallest balances first (it could be a quicker “victory” for you than attacking the highest interest rates).

Top off rainy day fund

Escape living paycheck to paycheck and have three to six months’ living expenses in cash reserves. This protects you in emergencies and gives you flexibility such as switching jobs. Discipline and a budget are key.

Save and invest

Fund your goals such as retirement, college or trade school, home purchase and others. Participate in your employer’s retirement plan at a minimum to get the “free money” match. Invest savings to match the time horizon – if money is needed in two years for a house, then it may be better to avoid stock funds (volatility) or investments with surrender charges.

Close gaps

Are you properly insured (life, disability, umbrella, long-term care, etc.) and is it time to update your will and estate plan? Meet with your general insurance agent and attorney as needed.

Finish chores

The refund might not cover a home remodel, but what other repairs or improvements can be done for your car and home? Paint? Smart technology including thermostat, lighting and security?

Treat yourself

Prepay a family vacation, upgrade the flight for more leg room or take to the skies with a drone.

Get the kids started

If they’re working, then consider helping them fund an IRA or Roth (maximum limits are $5,500 and $6,000 for 2018 and 2019, respectively). Show them online applications to help them organize and track their finances, and blogs such as

Invest in yourself

Consider programs and classes that help advance you personally or professionally. Maybe a quilting conference at Asilomar, SXSW 2020, advanced welding course or hiring a personal trainer.

Pure endorphins

What’s on your bucket list? Adventure travel, photo safari or snowmobile trip to see the Aurora Borealis? This is like shifting funds to the memory bank. Remember that time when…

Good Karma

What can you do to help make this a better place, or make a difference for others? Mother Teresa said, “If you can’t feed a hundred people, then just feed one.”

These are some thoughts not only for your 2018 tax refund but also for planning ahead.

Secure your future wisely.

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Spring Clean Your Finances

Every time a season changes, there are thoughts and plans to change things in your life. Clean the house, the yard, or start something new. Perhaps a new start you can consider this season is spring cleaning your finances. Here are some steps:

Get organized

Finances can attract clutter with statements, contracts, notices and more. Having a filing system – paper, electronic or combination – simplifies your life and will help if others take over your financial tracking. Store them in secure places – safe deposit boxes, fireproof safes and digitally encrypted files.

Go digital

Getting rid of paper is low-hanging fruit as you move to be more efficient. Main advantages include ease of storing and retrieving and security. Make a list of your accounts and passwords, store the physical and digital copies in safe places, and inform your wingman of their locations.

Re-tune the budget

If you are among the 59 percent of Americans who enjoy saving money more than spending it, this section is for you. Continue to switch to better deals from online FDIC insured money markets, consider cutting the cable (maybe even Amazon Prime and Netflix) and reviewing home and car insurance payments. Also, business owners can reduce financing charges by moving from monthly to annual payment for insurance, software and more. Finally, review and adjust tax withholdings and payments.

Fix your debt

We’ve previously talked about the importance of eliminating credit card and student loan debt, and while important, today we’re discussing house “debt.” Dave Ramsey refers to being mortgage free as the new status symbol. It may make sense to own one of our largest assets (house) free of debt. Those driven to pay off the house can synthetically create a 15-year mortgage out of a 30-year mortgage by making extra payments and reduce the total interest paid by half – while still having the flexibility to fall back to the lower 30-year payment if you hit a rough spot financially.

Anticipate life changes

Best ways to reduce stress include exercise, plenty of sleep and having a written financial plan. Prepare for the major expenses and shifts that lie ahead including: replacing a vehicle, changing homes, having a kid, funding education and retirement. Then consider the risks that can set you back – long-term sickness or disability, death of a breadwinner or assisted living. Can you self-insure (have plenty of assets) or should you consider expanding your insurance?

Mind your retirement accounts

Make sure you’re saving enough to maintain your desired lifestyle in retirement. IRS limits on IRAs, 401(k)s and others increased a little – and there’s no limit on what you save after-taxes. If you don’t already, enroll to qualify for the free employer match. Say the company will match your contributions up to five percent, contribute five percent and their match has automatically doubled your savings. Then gradually increase your contribution rate annually until you hit the maximum. Check your investments. If you didn’t like what happened during the final quarter of 2018, then adjust before it gets worse, or better yet, get a good dose of confidence from your financial advisor.

Secure your future wisely.

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Build Your Wealth with Real Estate

Is it buy low and sell high? Or buy high and sell low?

Steel industry pioneer Andrew Carnegie said, “Ninety percent of all millionaires became so through owning real estate. More money has been made in real estate than in all industrial investments combined.” Carnegie amassed a fortune of $350 million by 1890, equivalent to about $5 billion today. So, what are some lessons we can glean from his success?

First is generosity – he gave away most of his wealth. Second is change – his wealth today would rank about #400 on Forbes list of billionaires illustrating the shift from the Industrial to the Information Age. Nevertheless, real estate plays an important role in your financial planning puzzle.

I recall a story about a successful real estate investor, Coni. Coni went to her credit union 20 years ago for a line of credit and was told to come back in six months with what she had saved. She ate tuna fish, saved $500 a month, qualified for a $9,500 loan, and used that money to purchase a piece of property adjacent to an airport. She kept eating tuna, paid off the loan and she sold the property to the airport for double what she had paid for it.

Coni then bought a duplex that generated monthly income. Her goal was to buy more properties capable of making her as much money as her current salary. She accomplished that in five years and learned much about property management.

Coni’s story is like other successful investors – have a plan, take action and work the plan. The difference is she chose real estate as her primary investment.

Real estate’s role in your wealth

Real estate represents a significant component of household wealth. Different types of property include residential, commercial, industrial and land. According to a recent report from the Federal Reserve, real estate comprises about 25 percent of overall U.S. household wealth. Real estate is important because it’s one of the essential human needs (food, shelter and clothing) and tangible (you can “see” it). Investment-wise it plays two key roles. (Note: Home doesn’t normally count as an investment – it’s a “use” asset). First, it’s a major asset class in portfolios (stocks, bonds, cash, commodities and real estate) – they complement one another. Secondly, investments generally pay one of two types of returns – income and capital appreciation – real estate can provide both.

Active owner or investor?

There are two ways to own real estate – direct or indirect. The main difference is about control. Direct investment means outright ownership or partnership, and you’re responsible financially and to manage. Indirect investment is through a limited partnership, a corporation or real estate investment trust – you do not have control, others manage the property. Each form of ownership has unique advantages. For example, Coni wanted to be hands on; however, down the road, she may gladly pass on the management blisters and headaches to someone else.

Is now the time to invest in real estate?

It depends. What are you trying to accomplish? How large is the investment?

Huddle with your trusted advisors – Is it purely for investment or part of a strategic business expansion or relocation? One involves your personal wealth and life plan, and the other may be more urgent and complex with banking, tax, regulatory and other issues. Also, “real estate” is not homogeneous – every property, type and region are unique.

Real estate can be capital intensive. Also, prudent investors diversify and use leverage sparingly. Consider the example of buying a long-term rental. A median priced home in Reno is $360,000. Renting for $1,900 a month will yield about 5.4 percent in cash flow (before income taxes). That assumes a 15 percent expense factor (property taxes and insurance; no expenses for utilities, repairs or turnover). The total return (income plus appreciation) averaged about 8.1 percent for the past 15 years. Not bad! However, what if you had $60,000 for a down payment and borrowed the rest? Mortgage payments would leave only $95 in monthly net cash (for repairs, etc.). You’re praying for no repairs, no recession or bad tenants, and counting on appreciation. Or you look at alternative ways to invest in real estate such as liquid real estate investment trusts. The FTSE NAREIT All REITs Index returned 8.4 percent for the past 15 years. This is just an example to consider for diversification, liquidity and convenience.

Real estate is an important part of a three-legged stool investment approach. And hopefully, when you hear Mark Twain’s quote, “Buy land, they’re not making it anymore,” you have additional insights on how you can diversify your portfolio.

Secure your future wisely.

This article can also be viewed at the Reno Gazette Journal

Posted in Planning Tips and Goals | Comments Off on Build Your Wealth with Real Estate

If you track your heart health — why not track your financial health? Here are five tips.

Health professionals say we’re going to die of one of two reasons – accident or chronic illness. Our job is to move those markers out as far as possible by making positive lifestyle changes – buckle up, eat right and in moderation, exercise, get plenty of sleep, and more. Why aren’t we doing similar things with our financial health – moving the markers out so we don’t run out of money, avoid the “big investor mistakes,” and leave plenty for our loved ones and beneficiaries? And if money is a leading cause of stress, and stress is a leading cause of disease, how can we better take control of our own health and financial well-being? Here are five tips to help tame your finances:

Change Your Habits

Achieving your health or financial goals require making adjustments. For example, no one gets rich by spending more than they make. What is important about your goal whether it’s building an emergency fund, paying off debt, saving for retirement, and why is it important to take action now? Creating new habits and dropping old ones can be difficult.

Track It

Our health professionals drill us on healthy numbers – keep cholesterol under 200 mg, blood pressure under 120/80 and BMI in the range of 18.5 – 24.9. Similarly, in personal finance, the successful investors set budgets and their wealth targets for financial freedom. They periodically track their progress and make adjustments as needed. Goals that are measured are more likely to be achieved.

financial healthGet Aligned

Annually, the Prudential Wellness Census summarizes the top financial priorities and concerns of Americans. By objective measures – income, assets and debt – America is split between those who are financially healthy and those who are struggling. However, more than a quarter have perceptions that are at odds with reality. For example, 12 percent possess a high level of financial health by objective measures yet are pessimistic about their finances. Another 17 percent fall on the opposite side with their objective financial health low, but they perceive themselves in good financial shape. Such misalignment has implications. Those who are relatively affluent can suffer higher stress, be too cautious in investing or deprive themselves or family of quality of life. And those who are at the lower rungs of financial health but optimistic about the future can overlook changes they need to make now.

Deal with Debt

Consumer debt – credit cards, personal loans and lines of credit – are wealth detractors. They’re easy to get, easy to over-extend and are expensive. Design an aggressive debt repayment plan such as the debt snowball method. Write down each of your debts (and their terms) line by line excluding your mortgage, budget a monthly repayment amount (greater than the total minimum payments), prioritize your debts (either smallest balance first down to the largest, or highest interest rate first to the lowest – I recommend the smallest balance first for the earlier emotional win), pay the minimums on all the other debts and throw the balance at the debt on the top of the list. Once the top debt is fully paid, repeat the process with the same total monthly payment and target the next debt. The payments on the priority debt and payoffs escalate as you work down your list – hence the term “snowball” – and you become debt free!

Save Money

A brilliant investment strategy seldom helps if you haven’t saved enough. The financially fit work savings into their budget – emergency reserves (safety net or rainy day funds), major expenditures, retirement or a college fund. And don’t pass up “free money” – at a minimum, fund your 401(k) plan to earn matching company contributions.

In closing, a healthy lifestyle is critical for a long, prosperous life. Start your journey to take control of your health and financial well-being, and stick to it.

Secure your future wisely.

This article can also be viewed on the Reno Gazette Journal

Posted in Planning Tips and Goals | Comments Off on If you track your heart health — why not track your financial health? Here are five tips.