Do Your Finances Need A Tune-Up?

Source: 123rf.com
Image ID : 111332213
Copyright : Tom Baker

 

This year has certainly been full of surprises, partially from the fear surrounding COVID-19, and partially from the economic upturns which have wracked the entire globe. From long furloughs to unemployment, people everywhere are feeling the financial effects.  We are officially in a recession, which makes it even more important for everyone to review their finances and find ways to protect themselves during the financial downturn.

There are general financial guidelines which should always be followed, such as paying down debt, establishing an emergency fund, finding other means to generate income, and continuing to contribute to retirement accounts.  Another vital component in good financial health is establishing a budget and really examining your spending habits.  Almost invariably, people find out after they create a budget that they are spending money needlessly on frills that they don’t need.  By eliminating those hidden money drains, it becomes easier to cover living expenses, thus reducing some of the stress involved in getting by financially.

I have had a budget in place for over 30 years, and I have seen the power it wields.  By following a budget, I was able to pay down all credit card debt, pay off a car, establish an emergency fund, and put money aside for retirement, so I know it can all be done.  Even at this point, with zero debt, I am acutely aware of my budget, and I review it on an almost weekly basis to make sure I am on track.

Source: pigly.com

 

If you need help in establishing a budget, you can use a budget calculator. I found a wonderful budget calculator on Pigly.com which is very easy to use, and extremely thorough.  It helps you break down all expenses, from the essentials to debts and savings so you can target all your goals and ensure that your income is allocated optimally. All you have to do is plug in your income, and the calculator will automatically generate a low end and high end for all the categories.  So even if you have never established a budget before, you can set one up instantly.

When budgeting, don’t be afraid to contribute to your retirement accounts right now, as long as you have your debts paid down and you have an emergency fund in place.  I am a big proponent of Dave Ramsey’s investing philosophy, and I am grateful that I educated myself on financial wellness and dug myself out of what once seemed like a desperate situation.  It was only after I had paid off all of my credit cards and established an emergency fund back in 2013 that I began aggressively started putting money aside for retirement.

Source: 123rf.com
Image ID : 129764462
Copyright : Romolo Tavani

 

The fact is, we are living in uncertain times and need to be prepared for whatever hits.  By buttressing our financial health, getting creative with income streams, and following a budget, we will be better equipped to survive the ebb and flow of the current economy.

Enough With The Retirement Talk!

Copyright: pinkomelet

Almost every time I look at my computer these days, I’ll see at least one featured article on Yahoo! which discusses retirement.  I’m not exaggerating when I say it happens almost daily, and it’s making me mental.  

I know the population is aging, and that baby boomers and GenX’ers are trying to prepare and plan for their golden years, but this is getting ridiculous.  The media and the internet have unabashedly latched onto the subject, and now there is a constant barrage of anxiety-provoking articles with headlines and titles such as: 

Do you have what you will need to retire?

Are you prepared for your golden years? 

Beware of the pitfalls of investing in an IRA

Watch out for these “retirement killers” 

I’ll read one article which sets me at ease, because I am on track with what it says I need to do.  Then the next day I’ll read an article which either contradicts what I read the previous day, or which has such a doomsday vibe that it basically states that almost everyone is in danger of not having enough money to ever retire.  Does this mean that we will all be living under freeway overpasses, eating dog food?  

Honestly, all these articles seem to do is to stir up worry which affects how I function throughout the day.  And though I can try to let it go, the next day another article will appear which will wash away my feelings of security and accomplishment regarding my retirement portfolio.   

Who else has noticed this trend?

Living Solely On Social Security

I just ran across an article which I was compelled to share. This should serve as a major wake-up call for those of you who assume that you will be able to support yourselves completely with Social Security benefits when you become old enough to draw those benefits. I have included the link to the article, as well as copied and pasted the body of Barbara Friedberg’s article here.

The sad reality is that though the person in this example is able to make ends meet with her Social Security check, people who live in cities like Los Angeles will probably spend the bulk of their Social Security check on rent alone, with very little money left for groceries and healthcare.

Regardless of where you live, put money aside for retirement so that you don’t find yourself in a precarious financial situation when you are older. Roth IRA’s are an excellent way to set aside funds for your retirement, and they grow tax-free over the years.

https://www.gobankingrates.com/retirement/buy-average-social-security-check/

By Barbara Friedberg | September 26, 2016

Somewhere, an older American — let’s call her Alison — is going to retire soon. She anticipates a Social Security check of $1,349.59, the national average as of July. She regrets not saving more for retirement, but has accepted the reality of her situation.

If you’re like Alison — facing retirement without a cash cushion — you’re in good company. In January, GOBankingRates.com surveyed a representative sample of Americans and found that among people 60 and older, just 26 percent felt they were financially on track for retirement. The remaining 74 percent within this age group lacked sufficient retirement savings. And among Americans of all age groups, a sobering 33 percent had nothing saved for retirement.

Anyone who tries to get by on Social Security income faces a lean retirement lifestyle. Here are questions to ask yourself before trying to stretch benefits as far as possible — and what you’ll realistically be able to afford.

1. How Much Home Can You Afford on Social Security?

Your Social Security check will stretch further if you find a cheap place to retire. Housing is the biggest expense most Americans face, according to BLS statistics.

Sun-loving Alison hopes to retire to an apartment in Tucson, Ariz. The median rent for a one-bedroom apartment is $575, according to Zillow. But let’s say Alison lucks out and finds an apartment for $540. She will spend 40 percent of her check on rent and will need to kick in a few extra bucks for utilities. So, rounding up, her monthly housing cost to $600 — leaving her with $749.59 of her Social Security check.

2. What Can You Eat on Social Security?

Dining at four-star restaurants is out if you’re living on Social Security. On average, roughly 12.5 percent of a consumer unit’s spending money goes toward food. In Phoenix — close enough to Tucson for our purposes — the average family spent $594 per month to eat in 2013-14, the most recent figures available from the BLS.

Phoenix averages 2.6 members per household, so we can estimate that the average person spends $228 per month to eat. Although Alison can splurge occasionally at a modest restaurant, living on Social Security means she will be eating at home most of the time.

Add up housing costs of $600 and $228 for food, and Alison is left with $521.59 of her Social Security check — a small sum for the remaining spending categories.

3. Can You Afford Healthcare on Social Security?

Alison might qualify for assistance in paying for her Medicare Part B premiums. Such aid would help her cover medical expenses, the No. 1 financial burden in the U.S. According to the government’s Medicare website, Alison’s monthly $1,349.59 check is beneath the income ceiling of $1,357 that qualifies her for assistance.

Medicare assistance benefits vary by state, so Alison should visit Medicare.gov and sign up for a conversation with someone from her state.

It will help if Alison can find ways to save on healthcare costs, such as purchasing generic drugs and using walk-in clinics instead of visiting emergency rooms. Assuming Alison qualifies for government help and is diligent about her medical spending, she can budget $150 per month toward medical costs. Alison now has $371.59 left in her budget.

4. What Type of Transportation Can You Afford While on Social Security?

Owning a car is expensive, especially on Social Security. The cost of operating a car can easily run into hundreds of dollars a month. With that price tag in mind, Alison has joined many other retirees by giving up her car.

Alison relies on public transportation services to get to doctor appointments. When going to the grocery store or meeting with friends, Alison uses the bus. On rare occasions, she splurges for a cab. She chose an apartment located near shops and restaurants. As long as her health holds out, she can walk to the grocery store and pharmacy.

Alison keeps transportation costs low at $100 per month. So, she’s now down to $271.59.

5. Can You Afford to Travel on Social Security?

After paying for necessities, Alison has $271.59 left for extras, which we describe in the next two categories. As you can already see, it is not easy to live on the average Social Security check.

With a tight budget, Alison and other retirees living on Social Security aren’t going on lavish vacations. Maybe Alison can afford a train or bus ticket to visit family, but cruises are out.

If travel is important to you, there are ways to squeeze it into the budget. Pairing up with family and friends can make travel a possibility. Camping vacations in state parks are economical. There are also many free events across the country.

6. Will You Earn Enough in Social Security to Cover Other Costs?

Remember, after spending for necessities, Alison was left with just $271.59 in her monthly budget. The amount of money she can spend in this final category — which includes entertainment — will largely depend on how much cash she earmarks for travel. She might be able to afford the occasional $1 movie at Redbox, but it’s unlikely she’ll be able to pay for the newest iPhone 7.

Finally, Alison will need a small cash cushion to cover emergencies. If she’s especially frugal, she might even have a little money left over to give to her favorite charity.

While Alison can make ends meet on her Social Security check, it won’t be easy. So, if you are a little younger than Alison, try to learn from her mistakes. Save a bit more today so you will have a greater sense of financial security in retirement.