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| Q and A with Denisa - Life Cycle Planning |
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- Debt Management and Bankruptcy
- Life Cycle Planning
- Investing
- Home Financing
- Retirement
- Children and College
- Life Insurance
- Marriage and Divorce
- Budgeting and Taxes
- Business Planning and Opportunities
- Estate Planning
- Financial Identity
- Tips and Miscellaneous
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2. Life Cycle Planning
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Part 1 - Your 20s and 30s.
Your 20s are the perfect time to jump-start a successful financial future. It may sound like a cliché but look what you have going for you - Time!!! You can really harness the power of compounding interest.
So...whether you are a student or working, start with a simple budget and make savings a part of your monthly expenses. Set aside part of your savings for an emergency and invest the rest.
If you are employed take advantage of employer-sponsored retirement plans like a 401K. If your company does not offer to match your contribution, then open up an IRA.
Now - this is when everything begins to impact your credit report- so you need to manage your debt wisely. Start by applying for a couple of credit cards and don't be afraid to use them-- BUT make sure you are able pay the balances off each month.
If you are thinking about taking out a car loan, make sure you can afford it.
Get a financial plan in place NOW to map out your goals for the future.
In your 30s....
You may be buying your first home. Remember, we previously talked about how important it is not to end up house poor, so make sure to figure out how much house you can really afford.
Now - if you are ready to purchase a home, that must mean that you have already built your emergency fund, right?
You may be planning a family.
When you have children, you will also have to budget for extra things like: larger medical expenses, premiums for life insurance, and their extra-curricular activities. And you will have to beef up that emergency fund.
This is the time to plan for contingencies:
*Add life insurance to protect your family against the unexpected.
*Get or Update a Will. Don’t let the state dictate who would be guardian to your children should anything happen to you and your spouse.
This is the time when you will want to frequently evaluate the plan that you put in motion in your 20s to make sure you stay on track.
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Part 2 - This segment is dedicated to you Pre-retirees out there.
The reality is that many of you have lost a good chunk of your retirement savings in the stock market and you may need to adjust your goals. By now you should be in a solid habit of saving 20% of your monthly income.
Don't lose sight of your vision even if it means going to "Plan B". The lesson we have all learned from this recession is that our financial plan needs to be flexible. Your alternate plan may include postponing your retirement date or cutting back on your expenses, and making your goal more attainable.
This is the time to work with your financial advisor on:
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- Your retirement budget. Don’t forget to include the cost of healthcare, especially if you plan to retire before you are eligible for Medicare.
- Update your retirement projections each year as you get closer to your retirement.
- Re-allocate those investments. Once again your time horizon should extend past retirement age to cover the rest of your life. For example, a healthy 60-year old, retiring in five years should structure part of his investments more conservatively to cover 2-3 years of his living expenses. However the remainder of his portfolio should be invested to generate growth for the next 20+ years.
- Finally, have a discussion with your advisor as to which retirement sources you should tap into first.
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Colorado Residents: How have you been planning for YOUR retirement?
I'd love to hear from you.
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Your financial plan is a live document. It may not have a pulse like you do but financial planning is a process - not a commodity. That means that your financial plan will need to be updated on a regular basis, especially as your life circumstances change. It’s about achieving your goals and planning provides the road map to get you there. A plan also prepares you for the unexpected.
Each phase in our lives adds another layer of a financial planning need. For example:
Your 20s and early 30s are about developing the right financial habits that will set a tone as to how you manage your money for the rest of your life. You may be planning a family, and educational savings and insurance may need to be addressed.
For those of you in your late 30s and 40s, it’s about balance. You’ll want to know how to beef up your retirement savings while managing your cash flow and debt.
In your 50s is when you will want to stress test your retirement plan to see where you stand against your goals.
Life cycle planning is more complex than just learning how to save for retirement; it is also about protecting your savings, your earning power and your loved ones against the unexpected.
Over the course of our series, I will break down each life cycle phase and talk about what you need to stay on track.
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From: Terry
Age: 45 - 49
"I am 47 years old and I have just lost my job. What should I do with my 401K and how should I invest it in this market?"
ANSWER:
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Thank you for your question. I am sorry to hear about your job loss.
Probably the smartest option for your 401K in order to preserve this valuable retirement asset would be to transfer the funds into an Individual Retirement Account (IRA). Find an institution that offers IRAs (i.e. discount broker, your bank, etc.) and request a direct transfer. This way the 401K funds will be transferred directly to your IRA, eliminating any temptation to spend it. Most IRAs offer a wide constellation of investment choices, allowing you the opportunity to build a well-diversified portfolio. Make sure to consult with an investment advisor to help you allocate the funds within your IRA according to your time horizon.
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From: Alexandra
Age: 35 - 39
"My husband lost his job and we can barely survive on my salary. How do we tell the kids and what should we do financially to stay afloat? Thank you."
ANSWER:
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BEGIN THE MONEY CONVERSATION NOW
Teach healthy and positive values: which may require exploring your own money messages from childhood.
Explain that money is just a means of exchange. Don't attach a value to money such as love or grades. Then, if you experience financial hardship, you won't overcompensate by buying your kids brand name clothes or expensive toys.
Teach the importance of budgeting and enforce it. For example, if your child doesn't have enough money in the piggy bank for the latest toy, explain the need to feed the "piggy's tummy" one more month and then buy it.
Tell older kids about sudden financial hardship. If you are open and honest, older children should understand that this is temporary.
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Many companies are downsizing in these economic times...a number of you have asked-should I take a severance package or stick with my current position, which may mean future pay cuts?
Taking a buyout and leaving long-time employment involves some big decisions, which you may want to discuss with family and friends. One of the most important factors to weigh is the financial impact of accepting the offer.
First, understand what you are entitled to under your current employment contract...can you negotiate better terms?
How about the terms of the buyout? What exactly are they offering you?
This is important...look at how the new circumstances will impact your cash flow, especially if you have to sign a non-compete agreement.
And, what if your company offers different payout options? Should you accept a lump sum payment or allow them to pay you in installments? If the financial health of your company is not good--take the money up-front...it may be your safest bet.
These are tough times for all of us--it’s important that we take care of ourselves; be certain you retain your health insurance benefits.
There is so much to consider...it’s wise to also talk this over with your financial advisor or an attorney.
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Your Semi-Annual Financial Check up: The school season is almost over and the final grades will be sent out soon. Speaking about the report cards, what grade would you give yourself for handling your finances?
We are almost half way into the year and this is a good time for a quick financial checkup. The areas of your finances that you want to revisit are:
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- Your goals. Unless there have been significant changes to your goals you should not make any changes to your investments. Recent market volatility, although nerve wracking, should not drive you to any immediate action.
- Your expenses. Do you have a good way to tracking your expenses to prevent overspending?
- The unexpected. Are you setting aside any money into your emergency fund?
- Your debt. Are you following a debt reduction plan?
- Your retirement. Are you contributing enough?
- Your life insurance. Do you have the right amount and the right type?
- And finally your Will and beneficiary designations. Are they up to date?
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As always, I would love to hear from you. Colorado Springs area and Denver, CO area Resdients can
Email me and let me know how you would grade yourself in handling your investments, financial emergency and your retirement.
Please Call me at:
Colorado Springs Residents: 719-634-6944
Denver, CO Residents: 303-625-4071
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