Basic Steps to Financial Freedom

SIX STEPS TO FINANCIAL FREEDOM

Concept: In the United States, most people reach age 65 with less money than what they had at age 20.

Question: Why are you going to be different than 95% of the rest of the population?
Answer: You had better do something different. If you are ”just getting by” at the present time, no matter what your age, you must change your financial habits. The reason should be obvious.

It was recently announced that, for the first time in 37 years, there will be no cost-of-living increase payment for Social Security recipients in 2010…and also likely for 2011. My bet is that this is the end of cost-of-living increases. However, inflation has certainly not been done away with. Hint: do not rely upon Social Security income for financing your retirement .

Below, are listed some common sense answers to common financial leaks. By themselves there is no great change in retirement results, but collectively, there can be a significant addition made to your retirement funding.

First, and most important of all: Live within your means.

Dave Ramsey recently wrote, "Sports Illustrated recently published a revealing article about the financial struggles of many former professional athletes.
Within two years of retirement, 78% of former NFL players have gone bankrupt or are in financial distress because of joblessness or divorce. Sixty percent of NBA players are broke within five years of retirement."

Think about that. Eight out of every ten NFL players are bankrupt or under financial stress within two years of leaving the league. These are guys that have made an absolute minimum of nearly $400,000 a year!

So how does this happen? How can someone blow that much money in that short amount of time? It’s pretty simple, really. Athletes blow money the same way the rest of America blows money! There’s no difference!

Sure, they have more to burn through. But what’s the difference between a guy who is spending $50,000 a year on a $40,000 income and the guy who is spending $500,000 a year on a $400,000 income? Neither one has any clue how to make a plan for his money!

Too many Americans work their whole lives and have nothing but a MasterCard, student loan, and car payment to show for it. That’s stupid!” It’s ridiculous to work your butt off your entire life and retire broke. Professional athletes have no excuse for it, and neither do you.”

Concept: It’s all about choices. You are in the position you are now in – good or bad – as a result of choices you have made in the past. Your future will be determined by choices that you make today and tomorrow.

In order to change tomorrow’s outlook, you have to decide to change today’s habits. Take responsibility for your choices and do something about it….today.
Question: How much money will you need to have at retirement time?

Answer: It varies for everyone, depending upon their lifestyle and individual needs. This is where a financial advisor is helpful….but not necessary, because you can figure it out…if you decide to. There are all sorts of solutions available via the internet if you look for them.

Secondly:

Question: There’s too much month at the end of the money. How can I save when I’m struggling to just get my bills paid?

PAY YOURSELF FIRST. Most people who live month-to-month, somehow, find a way to pay their bills. By making believe your savings account is one of your monthly bills…and paying it before any other monthly bill, instead of hoping to save what’s left over at the end of the month, you will still muddle through and find a way to pay your bills.

Third:

ELIMINATE HIGH COST ITEMS OVER TIME. How much are you spending on your Auto?

You are NOT judged by what you drive. Just about the only person who cares about that is you….not others. More auto purchases are made as a result of ego and vanity than not. If you are struggling financially, you need dependable transportation that fits your budget. You don’t have to seek to impress others…..because they don’t care.

Stop leasing cars, period! An auto lease will do nothing but force continuous auto payments with nothing to show for the money spent.

Stop buying new cars. Let someone else pay for the 1st and 2nd year depreciation. Why would you want to do that? A recent model used car that still has the manufacturer’s warranty in effect will effectively serve your purposes. Over 21 years time, eliminating new car purchases every three years at $18,000 depreciation costs, will save you $126,000.

Stop trading in your vehicle every few years. Think about it. If you are making car payments of, let’s say, $400 per month, pay it off in 48 months and keep the car for four more years, and then put that $400 into savings….in 24 years at just 3% interest compounded, you will have an extra $82000 to fund your retirement.
Hmmm. Let’s see…combine the last two concepts and you have a $208,000 swing in retirement savings funds. And, that’s just for starters.

Now let’s go to another area of financial leaks….Insurance expenditures.
All of us spend a great deal of money on insurance of various kinds. Take Auto Insurance, for example. We’ve all seen the constant ads on TV for saving money on auto insurance. Have you ever checked it out and compared? Usually, you can save money if you have your home and auto with the same company. Why wouldn’t you do that?

Let’s suppose you can actually save $400.00 per year between Home & Auto Insurance. Over 30 years, at just 3% interest on compounded annual savings, the results to your retirement funding would be almost $21,000 (Now we’re up to $229,000 extra).

How about Life Insurance Expenditures?

You own term Insurance….20 or even 30 year level term insurance. Why? Well to cover debt risk, loss of income incase the bread winner (s) die prematurely, etc. Low cost. Makes sense, right?

Well, let’s take a closer look. Years ago, the mantra was, “Buy term & invest the difference”. This meant that you should buy a low cost term insurance policy and invest the difference in the cost of a higher premium “permanent” policy and invest the difference (usually using a 12% investment return figure), and you’ll come out way ahead of the game. Problem is, no consideration was given to market risk as has been witnessed in recent times. People have lost over one half of their life savings and more in Mutual Fund investments with not much prospect of recovering it. At present, despite what some politicians say, the outlook is not good at this time.

So, your term insurance policy is up in 20 years and now what? You still need income loss protection? However, your low cost term policy rates have exploded to the point where you can no longer afford to make those higher payments. You’ve just painted yourself into a corner with no way out. To make matters worse, you’ve paid, let’s say $50.00 per month over 20 years….an expenditure of $12,000, and have only receipts to show for it (not even a thank you).

What if you were able to save $150.00 per month for a Universal Life policy, getting a better return than bank savings, with a safety guarantee, and get all that money back, plus interest, plus having had the insurance coverage you needed tossed in…and still in effect if you needed it with the option of not having to make payments any longer if you didn’t want to. During those years, you should have been putting the extra $100.00 per month into savings anyway so why not use those savings to get “free” insurance? The result should be around $50,000 in available funds at age 55, and at 65…over $108,000 (now we’re up to $337,000 extra, not counting the $12,000 spent & gone for the term insurance cost).

Look at Health Insurance costs. Quite often I’m able to save my clients 20 to 40% on their monthly rates while giving them equal or better benefits. Let’s say you’re spending $550 per month for a family of four and you could save 20% on your monthly rates. That’s $1,320 a year…at 3% interest…I know, you get the picture, that equates to $202,375.00 over 30 years time. Amazing, how much money we spend & don’t realize it….We are now up to $539,375.00 in monies that we frivolously wasted while struggling to survive….and, what did we wind up with for all our efforts by not paying attention?

Again, it’s all about choices and decisions we make over our lifetime. I didn’t even touch upon the taxes we pay. There’s a fortune that most people throw away by not understanding the system and by overlooking deductions they could be making. Remember, CPA’s, Accountants, etc. jobs are to keep you legal…not to give you ideas on how to save unnecessary tax dollars that are going out the window.
If a person owns his/her own business, there are many tax breaks available that don’t apply to the W2 wage earner. So what’s stopping you from owning your own business….even if it’s part-time? For those who would like to take advantage of that area as well as the concepts mentioned above, I’ll be glad to help at no charge.
I hope this helps. The above concepts are but just the beginning of a way of thinking which will result in dramatic changes in your financial future.
For further information, I am but a phone call or an Email away.

Basic Steps to Financial Freedom

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