Escape These 5 Common Retirement Pitfalls

If you’re already contributing to a 401(k) or other retirement account, superbly done!  Pat yourself on the back, because there’s one thing about saving for retirement— it’s easier the earlier you start. Making contributions regularly will certainly help fluff your retirement pillow, but few actually have a savings goal in mind.  Knowing where you’re headed is half the battle, along with avoiding these other common retirement pitfalls.

1. Not knowing how much you need to save.  Many people have not even considered the actual number they need to reach in order to live comfortably after retirement.  You can use an online calculator, or talk to a financial planner. The number, at first, may be overwhelming, but remember that you have compounding growth on your side.  Having a goal to reach may ignite a newfound passion to make regular contributions.

2.  Not knowing how much you spend.  To better understand a retirement budget, you’ll need have to have a grasp on your current budget.  If you don’t know how much your spending on a daily, weekly, or even monthly basis, you probably won’t know where your money is going in the future.  Start tracking your spending in order to come up with a plausible retirement budget.  Keep a meticulous record for a few months, then sit down and estimate which of those costs could fluctuate up or down in retirement.  Expenses for children will likely drop, along with your dry cleaning bill or commuting costs.  Big bills such as mortgages are likely to be paid off as well.  However, keep in mind the type of lifestyle you’d like to lead once retired.  More travel, more leisure costs, etc.

3.  Not accurately budgeting for health care.  Before the word “Medicare” falls from your lips, stop to think about what won’t necessarily be covered.  Most eye exams and dental care, as well as any long-term care, aren’t covered under Medicare.  There are tools you can use, such as AARP’s health care costs calculator, that will help you estimate out-of-pocket costs you might incur.  

4.  Guaranteeing losses by responding rashly to market fluctuations.   It’s easy to panic when the stock market takes a nose dive and change your mind to a safer bet.  However, if you respond to losses rashly, you won’t be around for the gains, either.  Converting some of your holdings to cash doesn’t provide growth.  The best way to protect yourself is by diversification.  Talk to an investment planner and they can help you further diversify your portfolio beyond just stocks, bonds, cash.

5.  Keeping your head in the sand about fees.  Many financial institutions charge fees for their 401(k)s.  Some charge flat fees, others percentages, but the bottom line is you need to know what you’re paying.  Until the financial planning industry wins it’s battle for transparency when it comes to fees like this, you may have to search the fine print.  Paying even a 2% can wind up being a huge chunk of your savings.  Typically fees up to 0.5% are considered reasonable.

Getting to your retirement goals isn’t rocket science, but it does require some careful planning. Educating yourself and knowing what to plan for will help you achieve the comfortable retirement you’ve worked so hard for. 

5 Ways to Keep Household Financial Documents Organized

Let’s face it, staying organized for most people is a pain in the butt, especially when it comes to bills, documents and records.  It’s hard to tell what you need to save or what’s superfluous in your record keeping.  Here’s how to keep it organized as it flows through your mailbox instead of just letting it stack up.

1.  Use your computer.  When it comes to documents that you can’t download via the internet, use a scanner and store what could be a giant stack of paperwork in one tiny folder on your hard drive.  Things like pay stubs or monthly credit card statements, medical bills, can all be scanned and saved to your computer.                                                                                                                                                                                                           

2.  Toss documents the safe way.  With identity theft being such a huge threat to millions of people a year, it’s time to invest in a shredder.  Costing a lot less than you realize (starting around $50), you could potentially save yourself thousands in losses from the careless tossing of personal documents.

3.  Not a shoebox, but a file.  Having your documents organized for tax time is so important.  Charitable donations and business expenses need to be documented and saved to reference come January.  Again, you can scan and save to your computer in a specialized file for just this purpose.  Lots of times you can use an app to scan receipts as well.

4.  Using a digital strategy to keep your paperwork at a minimum requires back up.  Make sure to save all of your documents to an external hard drive or flash drive depending on the size of your data. 

5.  Use old binders.  You can make them pretty, or just use some of last year’s school supplies.  Use these binders to keep around annual statements in case of an audit.  You don’t need your monthly statements.

You can find a way to make organizing easy for you.  The point is to review what you need to hold on to or let go on a somewhat regular basis, usually monthly or quarterly.  If your annual statement comes in, you can throw away the quarterly report.  Just make sure there is a secure place to keep passwords and account information in case you forget and communicate with your partner in the event they need access to the information. 

Put Your Plan Into Action (or Your Next Vacation!)

This month is all about budgeting.  You’ve done your taxes and got an unexpected bill and now you want to plan accordingly throughout the year.  Perhaps you’ve gotten a big return and want to spend it wisely.  Maybe this is just the year you’ve decided to get your finances on track and reach those long term goals you’ve been thinking about.  Either way, this month I’ll be sharing various tips and strategies to organize, budget and spend wisely.  Maybe you can use some of these methods to help you save for that relaxing summer vacation you were hoping to get around to this summer!

     Last week was all about the 50/20/30 strategy.  It’s just a simple guideline to make sure you have enough money to save and enough money to play, without going overboard on either!  Now that you’ve sat down and considered your budget, what’s coming in and what’s going out.  It’s time to start putting it to work!  Here’s a week by week checklist to help you implement your goals.

     Before the 1st of the Month

Set your budget goals by following the 50/30/20 rule.  Decide how much of your budget will go toward necessary expenses. Allocate the leftover budget to your goals, according to priority.  Remember, It is up to you to decide what goals that extra money will go towards.  How quickly would you like to build your emergency fund?  Was there a large purchase you were hoping to save for, like new living room furniture?  That’s the excitement of building your own budget.  They’re your goals, and you get to meet them in a financially responsible and sustainable way.

     Week 1

Follow your spending carefully the first week by downloading a financial tracking app or using your online banking tools.  The first week of following this budget is where you can find the spending that slips out from under you.  Perhaps your Starbuck’s tab is a little higher than you thought.  These things are fine, you can either decide to cut back to save a little extra money for other goals or work it into your “extras” category.  Don’t wait to fine tune the initial outline of your budget.

     Week 2

You’ve been super conservative the first week, trying not to go overboard on spending, and now you’re getting antsy.  Before you blow the rest of your play budget for the month think of the next big expense you have coming up.  For example: That vacation!  There’s no sense in blowing all your play money on new sunglasses, hat and bathing suit for a beach vacation you can’t afford anymore.  Setting aside a little money at a time will save you from the feast or famine financial conundrum so many people find themselves in.  Instead of shopping or eating out, spend that time researching your travel interests and figure out how to spend your well saved money on location!

     Week 3

Check in on your ratio goals.  Now that you’ve almost made it through the whole month, check back in to make sure you’re meeting your savings goals.  Have you made those transfers into savings automatic yet?  Sometimes you can focus so much on not spending, you forget about putting the extra away.  If it’s sheer willpower to not spend your extra dough, make those savings transfers right away so you don’t even see them!  Out of sight, out of mind, until Maui.

     Week 4

Congratulations!  You made it through the month.  Now check your monthly statement.  Did you fine tune your budget enough?  Make sure to adjust your goals for next month as well as reward yourself for your success!  Try that new restaurant you’ve been hearing about.  See, goal oriented budgeting isn’t so hard after all!

Take a sigh of relief and repeat.  

3 Habits to Improve Productivity

Most business owners when they first start out are excited to be their own boss.  They’ll be their own best boss ever!  When in reality, they wind up being their own slave driver because they’re passionate about what they do, and that’s what it takes to get things done.  Those days, weeks or even months of burning the midnight oil can take it's toll on anyone, and could actually be diminishing your productivity.  Keeping healthy and reasonable habits amid your demanding lifestyle could help make the most of your efforts and keep you sane in the process.

1. The early bird really does get the worm.

     Staying up late to get work done may seem like a good idea, sometimes it seems easier to stay up later than wake up earlier.  However, not all 8 hour time blocks are created equal.  Staying up late creates more obstacles to productivity, even biological reasons, like your body producing melatonin once the sun goes down to make you sleepy.  Waking up early gives you the advantage of mental clarity and energy for your work day.  Staring at a computer screen in the dark, or even worse, taking work to bed with you, interrupts your work AND your sleep so you don’t get good results from either.  Your brain needs it’s rest and recuperation time to be able to handle tomorrow’s tasks.  Unapologetically enforce your own bedtime.

2.  Straighten out your goals before meeting others'.

     How often do you wake up to missed phone calls, urgent emails and even before your coffee is done brewing, you have already jumped into work like yesterday never ended?  Take a moment for yourself to get off the phone call/email treadmill.  Take 10 deep, slow breaths or heck, light a candle and mediate, whatever it takes to get you focused on the goals YOU want to achieve for the day.  It may seem too simple to matter, but taking a moment for yourself is stress relieving which helps you better handle the day ahead.  Focusing your energy on specific goals you set for yourself also helps drive your day more productively rather than just reacting to what’s going on around you.  Take the wheel.

3.  A healthy mind starts with a healthy body.

     Everyone hates this one.  But the simple fact is that exercise consistently keeps you feeling great physically and emotionally while boosting your energy level.  Yes, it’s hard to tear yourself away from work, but at least 30 minutes a day isn’t that big of a sacrifice for the payoff you reliably get.  It keeps you balanced and energized and your brain functioning at top capacity.  An added bonus, it will most likely help you know when bedtime is as well.  

     Incorporating these things into your daily routine might be difficult at first.  The temptation to fall back into your long but only partially productive hours can seem easier, but only because you’ve been practicing bad habits for too long.  Think of your new habits as an investment in your business.  If you’re not doing well, how will your business thrive?

     

What Does Stephen Do After Tax Season? (The Four Things An Accountant Does During Off Season)

     What I personally like to do, is lay back on some tropical island, order myself a Mai Tai and relax until about February when I get all the frantic emails and phone calls.  JUST KIDDING!!!  While I do like to plan a little getaway after the stress of tax season, there’s still work to be done throughout the year.  So what do I do?  I’ll tell you...

Financial Consulting and (light) Advising

     If I had to name at least one of my skills, it would be analyzing cost efficiency.  I can help you increase your company’s profits by seeing where some spending may be extraneous, or I can help you with ways to decrease your tax liability.  Believe me, these plans cannot just be implemented overnight. Having a tax strategy throughout the calendar year, before April 15, will save you more money than last minute deductions.  Not to mention monthly, weekly, if not daily general accounting, bookkeeping and payroll tasks.  If you have me doing these things throughout the year, it is easy for me to give you quarterly updates on your company’s finances.

Handle Extensions

     While the pressure gauge drops after April 15, that doesn’t mean the work is over.  Often I recommend filing extensions for those who need more time to organize their financial documents.  While you still need to estimate and pay the appropriate amount by April 15, the extension gives people more time to play catch up in order to avoid filing for additional extensions.

Off Season Assistance

     Those who didn’t file tax returns for previous years often seek my help during off-season hours.  For any businesses who are dealing with audits, I may be asked to prepare various financial statements or compilation reports. 

Workshops and Continuing Education

     In the off season, I seek opportunities to continue my education and do any training or seminars on tax strategy and preparedness.  In fact, I did a Lunch and Learn this past March with the Richmond Business Alliance. I'm already looking to do more in the near future! 

While it’s true that my mailbox is full during those busy months of filing, my plate is still full throughout the year.  However, if you have any tax questions, it is more likely that you can reach me more promptly before the hysteria begins.