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Are Your Money Beliefs Holding You Back?

Have you ever stopped to take inventory of how you arrived at your current financial state of affairs? I don’t mean simply thinking about how you ended up in your career, what your net worth is or how much money you make. I’m referring to your early lessons about money that you picked up either through observation or activities during childhood and adolescence.

It starts early in life

These life experiences are often passed on from our parents or extended family and may represent overall cultural events. Money beliefs can be extremely stubborn and are difficult to change since they can become a part of our ongoing “money script” or life story that follows our financial behaviors. No matter where you are on the journey to reach your financial life goals, it’s always helpful to be aware of your past experiences with money whether they were positive or negative.

Four types of money beliefs

Money beliefs play a major role in guiding your current and future financial behaviors. These beliefs help explain key differences between savers, spenders, and people who try to avoid money matters completely.  According to research performed by Dr. Brad Klontz and Dr. Sonya Britt, professors at Kansas State University, three out of four primary money beliefs (money avoidancemoney status, and money worship) are linked to destructive financial behaviors. The other money belief, money vigilance, was not linked to problematic financial behaviors.

Which are you?

Generally speaking money avoiders tend to view money as negative, think the wealthy are greedy, and that they don’t deserve money.

Money worshipers believe that having more money will solve all of their problems, money leads to power and life satisfaction, and money is a scarce resource and there will never be enough of it.

People with money status belief systems tend to define their self-worth by net worth and place a great deal of emphasis on buying the hottest new items with leading brand names and quality.

Money vigilance is typically associated with themes of frugality and people with these money beliefs tend to focus on importance of saving, use discretion when discussing financial matters and express anxiety about saving for emergencies.

Are your beliefs a support or roadblock?

Are your money beliefs helping support your financial behaviors or are they creating roadblocks for your financial life plan? If you are having trouble following a budget, eliminating debt, or saving, your money scripts may be holding you back. You can take this quiz, which is the Klontz Money Script Inventory (KMSI) if you want to complete your own self-assessment to examine your own money beliefs.

It’s never too late to rewrite your script

The good news is that you have the opportunity to rewrite these money scripts. By learning what your belief system is, you can begin to examine how that may translate into your financial situation, then take mindful, deliberate steps to change.


5 Retirement Questions You Must Address As Soon As Possible

When do you plan on retiring? I often ask others this question during financial wellness workshops, webinars, and coaching sessions. Most people have at least a ballpark idea of when they would like to achieve a state of financial freedom where they will be able to stop working or transition to another season of life. In fact, some people completely light up with a lightning fast response of “yesterday,” “today,” or “tomorrow” when I ask about life goals related to a desired retirement date, but too many people state they will probably have to work forever.

Not surprisingly, financial wellness studies consistently reveal that retirement is a top financial priority. But in reality, there is often a disconnect between “desired” retirement dates and the actual realistic target date for retirement. With retirement confidence levels remaining low these days, perhaps there are other more important questions that should garner more attention than a date on the calendar. Here are five simple questions that should be thought about today…no matter how near or far that season of life may be for you:

What do you look forward to the most during retirement? This is a question that helps us frame what your desired retirement may look like. Unfortunately, I have worked with too many people who didn’t take time to really think deeply enough about this important question. If you are like me and retirement seems too far off to envision clearly, just think about the things that you currently enjoy spending your time doing and would love the opportunity to devote more of your time and resources toward.

Try to go beyond basic answers here and be as specific as possible (i.e., think SMART goals). How often do you plan on traveling? Where do you plan on living? Will you be taking on new hobbies or recreational activities that have some expenses associated with them? Will you be spoiling the heck out of grandchildren and want to have some extra money for them?

How long will your retirement last? This question is simply a pure assumption of how long you plan on living. It isn’t always the easiest question to address, but the reality is that life expectancy plays a major role in our retirement planning projections. The longer we live, the greater the costs of retirement.

An average couple retiring at age 65 has a greater than a 50% chance that one person will live beyond 90. Before you can estimate how many years you will spend in retirement, you obviously need to figure out when you want to retire. If you are just not quite sure the age that works best for you or your retirement date is a moving target, you can use a few different retirement scenarios to compare your options for each realistic retirement date. I always suggest using a realistic (but optimistic) life expectancy but personalize your assumptions based on your own health and wellness history as well as your family’s history of longevity.

How much will retirement cost? The best approach is to start anticipating whether you plan on simply trying to maintain your existing standard of living or not. For anyone within 5 years of retirement, an actual budget plan for retirement becomes more important.

Otherwise, the general rule of thumb is to start with around a 70-80% income replacement goal and adjust this up or down depending on if you want to live a more active or conservative lifestyle. Just keep in mind this number is merely a ballpark estimate and reviewing your current and future budget is a more reliable method. A variety of other factors such as your planned lifestyle expenses, future inflation rates, health care costs, and whether or not you will have mortgages and other debt paid off impact the total price tag of your retirement.

How much will you need to save to reach your retirement goals? In order to replace about 80% of your pre-retirement income, most financial experts suggest you will generally need to save about 10 to 20 percent of your income throughout your working years. At first glance, that can seem like an insurmountable goal if you are trying to balance competing priorities such as paying off student loan debt or raising a family. But even if you are early in your career or find yourself focusing more today on goals such as paying off high interest consumer debt, at least try to contribute up to your employer’s matching contribution if one is provided. Otherwise, run a basic retirement calculation to assess your actual target savings amount to get you on track.

How much of your retirement nest egg can you afford to spend each year? Conventional wisdom among financial planners often relies on a “safe withdrawal rate” of 4% per year. The Rule of 25 is very similar to the safe withdrawal rate. It means that in theory, you need 25 times your first year’s additional income needs for your retirement nest egg.

For example, if you need an additional $100,000 per year in retirement expenses not covered by Social Security, pension, or other income sources, you may need $2.5 million (25 times $100,000) to reach this income goal. This is a general rule and the term “safe withdrawal rate” can be misleading. The key is to remain flexible during your early retirement years as the real safe withdrawal rate depends on the sequence of investment returns and inflation rates during the first 10 years of retirement.

It is no surprise that retirement planning remains the top financial planning priority for many American workers. The sad reality is that most people spend more time planning a vacation or a major purchase than how they will spend their retirement years or how much it will cost. However, the retirement planning process can be a little less daunting of a task if you simply focus on these five questions.

This post originally appeared on Forbes.com


7 Financial Steps To Take Before The Year Is Over

It’s safe to say that you will start to hear a lot of talk about New Year’s resolutions over the course of the next few weeks. Since money and wealth are integrated into many aspects of the life journey, it isn’t too surprising that financial resolutions are generally near the top of those well-intentioned “to do” lists for the new year. But if you’re like me, you’ve broken most of them before Groundhog Day.

That’s why this year I’ve decided to make and keep some New Year’s resolutions before the new year even starts. That’s my financial holiday gift to myself. Here are some actions you can take before the year is over as an opportunity to make sure you are doing everything to improve your own financial wellness during 2019 (and beyond):

Create a plan to aggressively fund your savings account. Over the past year, I’ve met with many individuals and families who are dealing with some major life changes and challenges that have made the emergency safety net a necessity. This may seem like a basic step, but most households report being woefully off track with this fundamental financial goal. According to a Federal Reserve report on financial well-being, less than half of U.S. households have enough savings to cover a $400 emergency without using credit or relying on friends and family.

A general guideline is to keep around 3-6 months of basic living expenses in an emergency savings fund. Some people are better suited maintaining an emergency savings fund of 6-12 months of living expenses (especially those in an uncertain job situation or with concerns about the economy). If paying off debt is a current priority, you should at least maintain a starter emergency fund of around $1k-2k even if you are in debt reduction mode. In addition, consider contributing to a Roth IRA or HSA since these accounts provide tax advantages and may also be considered a supplemental part of your emergency fund. Just be sure to keep your core emergency savings in relatively stable, liquid assets that are not subject to market volatility.

Review your income tax withholding. Are you looking for a quick and easy way to increase your take-home pay so you can free up extra dollars to save in 2019? You may need to adjust your income tax withholding if you’ve had any changes in your income or expenses so far this year or if you’ve received a large tax refund in the past and you’re tired of loaning your money to Uncle Sam at zero interest. It may seem easy to continue with this forced savings program right now, but with a little discipline and a few simple changes to your Form W-4, you can put that money from your upcoming paychecks to work for you right now rather than waiting to file your tax return. For a calculator you can use to figure out your recommended tax withholding, visit the IRS withholding calculator or this alternative version from TurboTax.

You may also want to proactively prepare for the pending changes related to the tax reform bill while the final details are still being sorted out. One certainty is the need to adjust your tax withholding based on the projected changes. Stay tuned to the final version of the House and Senate bills. Tax calculators like this one from Tax Act can help you see how your tax situation may be affected by this new legislation.

Establish a separate savings or checking account for irregular expenses. It may be too late to save for travel expenses over the holidays if you do not already have a plan in place. However, it’s not too late to start planning for upcoming vacations or to start setting aside money for the 2019 holiday season or annual expenses such as taxes and insurance.

This is where a planned spending account comes into play. You probably have heard of this concept a time or two before, but not everyone has a formal plan in place to prepare for irregular expenses. In fact, these non-systematic expenses are usually the ones that can blow up a budget and create financial stress.

This effective money management technique simply requires us to create a separate account for those expenses that don’t occur on a regular basis but still belong in your personal spending plan. Rather than turning the calendar to December and wondering how to pay for those holiday gifts, taxes, insurance, HOA dues, etc., you can go ahead and work them into your spending plan right now. For more information on setting up a planned spending account system, check out 5 Steps to Successful Money Management.

Schedule a “money talk” with a spouse, significant other, or friend. It is important to have regular conversations about your financial goals if you are married or in a committed relationship. Regardless of your money personality or who normally handles different financial roles (paying bills, spending money, investing, planning, etc.), regular money dates can help couples overcome prior roadblocks to working together as a team. If you do not have a financial planning partner or your significant other is creating significant roadblocks on your path to financial freedom, you can reach out to a trusted friend or family member to serve as your accountability partner or voice of reason. Then again, some of our friends aren’t the best models of financial responsibility so you can always reach out to a CERTIFIED FINANCIAL PLANNER™ professional or financial wellness coach for additional guidance.

Review your membership accounts and subscription fees. With all of the different account subscriptions and memberships that we maintain in today’s connected world, it is easy to lose track of the actual costs of these conveniences. That is why it’s advisable to complete an annual inventory of these type of accounts. As a result, Amazon Prime, Netflix, Hulu, Spotify, etc. each have to answer the same question at least once every six months – are you still worth keeping?

Verify your debt reduction plan is on track. Not surprisingly, debt consistently remains at the top of the list of obstacles holding people back from reaching their important goals like retirement or simply building up savings. Our latest research suggests that many households are still in need of a plan to reduce or eliminate high interest debt.

If debt reduction is near the top of your financial to-do list for next year, check out our Debt Blaster Calculator to see if you are on track to get those credit card balances and other creditors out of your life. If you don’t have a plan, your new year financial checkup should provide you with an excellent place to start. Check out these 5 Steps to Getting and Staying out of Debt for some tips on creating a game plan.

Re-balance your investment portfolio. One investment best practice behavior that most financial professionals recommend is to re-balance your portfolio on at least an annual basis. If you haven’t reset your target asset allocation for current and future investments, the end of the year is an ideal time to do so. Take advantage of automatic re-balancing if it’s available through a retirement plan at work to simplify this process with a click of the button. While you are examining your retirement portfolio, you can also review your answers to important questions about the status of your own retirement plans.

Taking all seven steps between now and the end of the year is an unlikely goal for most of us. But a little dose of financial awareness during the busy holiday season can provide you with lasting gifts of financial wellness. Try choosing 1-2 of these action steps and commit to checking them off your “to do” list. Don’t wait until next week or next year to start turning those good intentions of yours into a meaningful financial life plan!