Beneficial Financial Tools

As the average debt in the United States increases daily, many Americans are seeking a better way to manage their personal finances. Have you ever surfed the Internet trying to figure out easy ways to manage your finances? There are so many options. There are numerous free financial tools available to all of us, however you must learn how to take advantage of them. Throughout this newsletter we will cover various ways to help you secure your financial situation.

01.  Money Management Tools
02.  Investing
03.  Investment Options Over The Years
04.  Retirement Planning

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Money Management Tools

Finances are the number one reason for divorce in the United States. It is considered a top ten topic of conversation in households. The Internet is full of money related web sites. Regardless of the time when you put the television on you can find an advertisement or show in regards to investing or saving money. Our newsletters have covered different ways to budget and increase savings. It is amazing that finances occupy so much of our attention and time, yet many people have no idea how to handle their own money. Is there a right way to manage your finances? Below are some simple questions that anyone can use on a daily basis to get a handle on finances.

Are your income and expenses in balance?
Several people will answer this question yes without thinking twice. The justification behind it is simple. People assume that if they do not bounce checks and have money in their checking account than they are financially stable. Unfortunately, this assumption is not correct. Let me ask you this, how much money did you put in savings last month verse how much you spent on recreational expenses? The answer will probably surprise you and may be a rude awakening. Don't be too alarmed though over 50% of Americans are in the same situation. You can take the steps to increase savings and budget once you realize this.

Did you make more money than you spent?
I am sure many of you are thinking that would be the best scenario. However, since you should be investing money that is left over after all expenses are paid there should be no surplus. If there is funds left over research all investment opportunities.

Did you spend more than you made?
This is a sure fire way of knowing that you are heading to financial troubles. Unfortunately with the economy the way it is many of us turn to credit and loans to cover everyday living expenses. Try to avoid doing this when possible. It will cost you money in the long run due to rising interest rates and fees.

There are many tools available to everyone to begin budgeting and taking control of your finances. If you are able to answer these questions then you have accomplished the first step. Once you see your financial situation you are able to figure out the best course of action to improve it. The most imperative thing you can do is to realize your future financial goals.

Please visit our education section of the website to learn more about budgeting.

Investing

With the possibility of social security and pensions being a thing of the past for our generation, investing is a necessary step to secure your financial future. The term investing sounds really complicated and can be overwhelming. Although everyone's investment plan will be customized to fit your special needs there are some general steps you can all start with.

The first step is to start by setting realistic goals. As an investor you must be aware that you will not become a millionaire overnight. On average CD's returns are at 3%, whereas a stock market you can expect a 12% return on your money. Depending on the types of investments and the risks you take the return may vary.

How much do you want to invest? What goal are you trying to reach? What is the time frame you have to achieve this goal? Write down the answers to these questions and then think about the best way to achieve them. Take some time and look into all options available to you. Once you have decided on an investment plan, be sure to stick with this plan. 85% of people who start an investment strategy never follow through. On the flip side, 62% of people who follow through with their investment plan succeed within the planned time frame.

Investing money especially at a young age is imperative to your future. Be sure to do a lot of research and know all risks involved, never invest any money that you cannot live daily with out. Be sure that you fully understand the investment option that you have chosen. There are many different options out there and any advisor will tell you diversify. In simple terms don't put all your eggs in one basket. Look into a lot of options and pick a few. This way if one option fails, you have a chance of making up the loss on the alternative investment option. Below are some charts of 3 of the most popular investment options.

Investment Options Over The Years

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Types of Investments	Risk Factor / ROI (Return on Investment)	Term
Certificate of Deposit (CD's)	None / Low	Varies (3 months to 5 years)
Mutual Funds	Limited / Medium	Short Term / Long Term
Stocks	High / High	Short Term / Long Term
*The data in these may not be exact figures

Retirement Planning

How do I plan for my retirement? How much money do I really need to save? These are questions many of us have thought about and yet really do not know the answers to. The way to create wealth is to save. When you are ready to retire the funds you save may grow many times over. The sooner you start the better you will benefit. Take advantage of compound interest. Compound interest is the interest paid on the principal as well as the interest from past years. For instance, if I received 20% on my $1000 investment the first year and then reinvested the money into the original investment, the next year I would receive 20% interest on the $1000 plus the $200 I reinvested. It will work to your advantage.

401k plans are one of the best tools available for retirement. Although, not all employers offer this option, those who do should take full advantage. All companies have varying matching levels, however most employers match your contribution. For example, if you choose to take 3% the employer matches 100%, whereas if you choose to take 5% the employer will match at 50%. Look into your company's policy. Take full advantage of this it is free money being put towards your retirement fund. You will notice the balance growing quickly due to tax deferral and automatic savings. There is a penalty for early withdrawals, which may work to your benefit. People generally are less likely to withdraw from this account due to penalty; therefore it will be there for your retirement.

Individual Retirement Accounts are also a great tool. These are often referred to as an IRA. This is an account that is opened through a brokerage, mutual fund company or bank. This account is used to save pre-tax dollars. This money can then be put in investments such as stocks,CDs, or mutual funds. The benefit of an IRA is the funds you deposit into the IRA you do not have to claim on your taxes as income. There is a limit on the amount of money that you do not have to pay taxes on and this varies depending on age. Any gain on the money is deferred until the funds are withdrawn from the IRA and at that point the money is taxed as ordinary income.

An annuity is a long term investment. You purchase an annuity through an insurance company. Unlike IRAs there is no limit as to how much money you can deposit. The issuing company signs a contract with you to make periodic payments to you. There are 3 different types of annuities available to you.

Fixed annuity. This pays a rate of return for a length of time. Since the rate of return is fixed you will know how much you will be earning. One of the benefits of the fixed annuity is that you are able to make your own payment schedule. Take advantage of the tax deferred benefit.

Immediate annuity. These are single premium annuities. They help you modify your assets into regular income. Generally, they supplement the income you receive from Social Security or other investments.

Variable annuity. This is a long term investment. Your funds are invested in managed portfolios. The value will vary over time depending on the performance of your investment.

Types of Investments	Advantages	Disadvantages
Annuities	You can decide if you want to make lump sum payments or periodic payments; No start up fees; Guaranteed rate of return; Tax deferred	Up front fees
401K	Employer match contribution; Tax deferred	Short Term / Long Term
IRAs	Early withdrawal penalties	Limited amount of money allowed to be deposited due to tax benefit. Early withdrawal penalties