8 Habits for Building Wealth and Health

From working out at the gym and eating right to spending less and budgeting more effectively, millions of people set New Year’s resolutions each year with the goal of improving their fitness and finances. In 2018, why not commit to a resolution that can improve both your health and your wealth? 

Here’s a list of eight habits that might just make a difference in both your wallet and your waistline.

#1 – Get out your bike

The bicycle is a health- and wealth-optimizing machine. Where else can you burn 500 calories while saving $10 an hour1? 

Imagine your hard-core self passing others up as you dash down the street to get to the post office or library as others parade around in their gas guzzling, racing cages.  

A British study of 263,450 subjects took a comprehensive look at the health benefits of bicycle commuting, and the results were staggering. Over the course of the study, the subjects who rode bikes had a 41 percent lower chance of early death on average than those who didn’t.2

“Cycle commuters had a 52 percent lower risk of dying from heart disease and a 40 percent lower risk of dying from cancer. They also had a 46 percent lower risk of developing heart disease and a 45 percent lower risk of developing cancer at all,” the study’s authors wrote.

If there were a pill out there that cut our risk of these horrible diseases by nearly half, we’d be all over it. And yet many of us have bikes in garages doing nothing but collecting dust.

Need more proof that cycling is good for you? Consider the case of Jean Louise Calment of Arles, France.3 She lived until age 122—despite her indulgences in smoking, port wine and chocolate consumption—and  

is on record as the longest living person ever. One of her longevity secrets was cycling, an activity she pursued until she was 100.

#2 – Cut the cable cord

Want instant savings on a big monthly fee? Cut off your cable. You could reduce your annual expenses by $2,000, not including energy costs. In addition, people who forego traditional TV see at least 10,000 fewer ads each year—ads which subtly nudge consumers back to the store to buy more stuff4—resulting in lower spending.

In the Men’s Fitness article, “Watching TV All Day Is Pretty Much Gonna Kill You (If It Doesn’t Rot Your Brain First),” the author cited that “alarming new research suggests that couch potatoes don’t just have to worry about obesity, heart disease, and cancer (which we knew about already). Tuning in for hours at a time also increases the danger that you’ll die from even more diseases, many of which are among the leading causes of death in the U.S.—things like diabetes, influenza/pneumonia, Parkinson's disease, and liver disease.”5

As an even bigger bonus, non-TV watchers naturally burn more calories with alternative activities. A New York Times article reported on a study that confirmed a group who “watched less television moved more, burning an average of 120 calories more a day than the control group.”6

#3 – Stay in for lunch

Not only is going out for lunch every day a huge time waster, it’s also a real crunch on your wallet and your waistline. 

From a monetary standpoint, a single lunch can set you back as much as $20 once you factor in the cost of restaurant food plus gas. Bringing your own lunch is significantly cheaper.

Plus, when making a lunch to take to work, you’re more likely to choose healthy food items like salads or meat and vegetable leftovers from the previous night’s dinner.

In a restaurant, it’s often hard to resist pizza or a hamburger, not to mention a side of fries. One way to ensure healthy-eating habits stick is to cook an extra serving at dinner that you can use for the next day’s lunch.

In the past, one of my colleagues used to cook a large batch of his favorite chili recipe once a month. This allowed him to eat lunches practically free for the next 30 days. Another option is to stock up on pre-made salads, soups, or veggie wraps from your local grocery store.

#4 – Cook at home

You can also improve your body and your bank account by cooking at home more often and eating out only on special occasions. When you cook for yourself, you tend to take nutrition more seriously. Consider working up a meal plan that allows you to choose more veggies, limit meat and bread, avoid convenience foods, and minimize sugar.

Challenge your creativity and internet research skills to come up with 10 new favorite recipes that pump up your nutrition and relieve your grocery budget. Websites like http://www.5dollardinners.com/ or http://www.frugallivingmom.com have hundreds of ideas to share.

#5 – Get in touch with nature

Make nature your primary source of recreation and peace. As author and naturalist John Muir once said, “In every walk with nature one receives far more than he seeks.”

Whether it’s walking the nearest canyon or hiking a trail, local communities offer dozens of free nature opportunities. When the kids are begging you to hit Legoland, plan a trek instead.  

Most city parks also have playgrounds that provide an excellent free resource to families and help develop childrens’ social skills.

Some national parks are free and others charge a fee depending on what your plan is. The fee isn’t much compared to what you gain from venturing around our beautiful landscapes and enjoying Mother Nature.

#6 – Tackle your own tasks

Our society has grown more service oriented since the 1950s. The casualties of our convenience culture are the calories once burned mowing the grass or cleaning the house. A great deal of money can be saved by clipping your own hedges and folding your own laundry. Unsure of how to get started on doing your own household tasks? Turn to YouTube for millions of “how to” videos from mopping the floor to cutting the hedges.   

#7 – Walk to work

Reinvent your commute by walking the final mile. Whether it’s finding the furthest parking spot in your company lot or parking a mile before you get to work, there are many ways to add walking to your daily routine.

If you really want to step it up, buy a fitness tracker to measure how this subtle change increases your steps, then work on stepping it up each week. For every couple of miles walked, you burn 200 calories and save about $2. If $2 doesn’t sound like much to you, consider the compounding effect of $2 a day over 20 years. At an 8% return, that small amount can add up to $36,000.

#8 – Add fitness to your day

Join a fitness class or craze that lights up your day. Even if your program costs $100 a month, the return in fewer sick days and medical bills over your lifetime could well be worth it.

Avid exercise enthusiasts save quite a bit on healthcare. According to an article in Shape, 30 minutes of moderate-intensity aerobic activity (like walking or mowing your lawn) five days a week, or at least 25 minutes of vigorous aerobic activity (like running, swimming, or aerobics) three days a week—or a combination of the two—can save on doctors’ bills.

The surprising result? The study found that people who met these goals saved on average $2,500 in health costs each year.7 As medical costs continue to soar, this savings could make a big difference in your family budget.

Whatever you decide to attempt for 2018, remember that it takes 21 days to form a new habit. So, what’s the best way to get a new habit to stick? Write down your progress on a daily basis. If you can devote just five minutes each day to this activity, you’ll create a habit that delivers big benefits in the coming months.

 Here’s to more wealth and health in 2018!

Sources:

1. Jonathan. (May 8, 2017.) The True Cost of Car Ownership. Retrieved from https://www.choosefi.com/022-true-cost-car-ownership/. (Stat based on $0.53/mile after considering depreciation, gas, maintenance and taxes on a 5-year-old car.)
 

2. BMJ 2017;357:j1456. (Apr. 19, 2017.) Association between active commuting and incident cardiovascular disease, cancer, and mortality: prospective cohort study. Retrieved from http://www.bmj.com/content/357/bmj.j1456.

3. Newsner. (Oct. 27, 2015.) Jeanne Reached 122 Years. Here Are Her Secrets to Living a Long Life. Retrieved from https://en.newsner.com/family/jeanne-reached-122-years-here-are-her-secrets-to-living-a-long-life/.
 

4. “Herr, Ph.D, Norman.” (2007.) Television & Health. Retrieved from https://www.csun.edu/science/health/docs/tv&health.html.
 

5. Rodio, Michael. (Dec. 3, 2015.) Watching TV All Day Is Pretty Much Gonna Kill You (If It Doesn’t Rot Your Brain First). Retrieved from https://www.mensfitness.com/life/entertainment/watching-tv-all-day-pretty-much-gonna-kill-you.

6. Parker-Pope, Tara. (Dec. 16, 2009.) How Less TV Changes Your Day. Retrieved from https://well.blogs.nytimes.com/2009/12/16/how-less-tv-changes-your-day/.

 

7. Malacoff, Julia. (Sep. 9, 2016.) Working Out Could Save You $2,500 Every Year. Retrieved from https://www.shape.com/fitness/tips/working-out-could-save-you-2500-every-year.

Key Takeaways from my Visit to See Vanguard Founder, John Bogle

Last month, I had the good fortune of attending the annual Vanguard Bogleheads® Summit in Malvern, Penn. The special guest was John Bogle, the man known as the “father of index fund investing” and the founder of The Vanguard Group.  Along with this, he is the author of 10 books and has been recognized for his contributions to the investment world by publications ranging from Time Magazine’s “Most Powerful and Influential” to Fortune’s “Giants of the 20th Century.” Despite these accolades, this down-to-earth investment guru insisted on being called “Jack.”
 
Jack created Vanguard in 1974, serving as Chairman and CEO until 1996. He then took on the role of Senior Chairman until 2000. The largest mutual fund organization in the world with over 300 funds, Vanguard manages assets of $3 trillion. Yet unlike most mutual fund companies, it is owned by its shareholders as a not-for-profit organization. Under this model, it returns excess cash flow to its investors in the form of lower mutual fund fees in future years.
 
The Vanguard 500 Index Fund, which was designed to track the S&P 500 Index, was founded by Jack in 1975. It was the first index mutual fund ever, and it continues to reign as Vanguard’s largest fund today.
 
With contributions like these, it’s not hard to guess why Jack is held in such high esteem. In 2017, in fact, Warren Buffett recognized Jack as the person who has done more for individual investors than anyone else.
 
"If a statue is ever erected to honor the person who has done the most for American investors,” said Buffet, “the hands-down choice should be Jack Bogle."1
 
Along with Jack, there were other investing VIPs among the crowd of 200 at the summit: Jonathon Clements, Bill Bernstein, Christine Benz and Gus Sauter. Yet for most of the attendees, it was Jack they came to see. And from the kickoff reception to the final closing remarks, Jack did not disappoint.
 
Below are a few of the golden nuggets of wisdom he shared with conference attendees.
 
On asset allocation
Investors in their post-retirement years typically think they should replace their stock holdings with safer bond options. Not Jack. At the ripe young age of 87, he admitted to a personal allocation of 50% in U.S. stock funds and 50% in bond funds, including some corporate bonds. Yet despite his proven success in building wealth, the genius investor revealed that he often questions his own financial decisions.
 
“I spend half my time worrying that I have too much in stocks and half the time feeling I’ve got too little in stocks.” Apparently, even Jack Bogle is human.
 
On investing internationally
Contrary to most investment thought leaders, Jack believes you can have an excellent investing experience without owning international stocks. During his presentation, he pointed out that half the U.S. company revenues come from overseas. This gives investors global diversification while investing in a U.S. stock fund. He did mention, however, that currency may have some effect on why certain countries do better than others in the short term.
 
Jack also emphasized that the majority of the international market cap centered in three key markets: the UK, which could be sluggish from Brexit; Japan, which is still struggling with an aging population; and France, where he feels there may be too many labor-friendly policies like the 36-hour work week … upon which he quipped that he still works 36 hours in the first few days of the week.
 
To further defend his point, he pointed out that US stock market returns have smoked international since 1997, where the US S&P 500 has averaged annually 7.7% while international developed stocks trailed with 4.2% through 2016.
 
With this in mind, he closed by saying (with a hint at self-deprecation), “It seems logical to me that the U.S. stock market will continue to outperform, but I could be wrong.”
 
On the future of U.S. stock market return
In the long term, Jack said that the math was simple on expected return over time. It’s basically dividend yield plus corporate earnings growth. Knowing the former is 2% and the latter should come in around 4%, that makes for a total expected return of 6% in the coming years.   

To those who questioned his estimations, he quipped, “The math is the math. If you don’t like my prediction, make up your own. Though it shouldn’t be a prediction, more like an expected return and make sure to tell us where your estimation comes from.”
 
On index fund variations
When it comes to index fund variations, Jack said that “there’s nothing quite like market cap weighting.” By this, he was referring to a situation where stocks are weighted according to a company’s stock valuation, though he believes factor weighting like value is a little “nutty.” He doesn’t deny there are long periods where value investing beats growth, and then where growth beats value, but he feels that “it should be called what it is: a reversion to the mean.” Among Vanguard’s funds, the “growth vs. value” winner is unclear. In the large cap space over the past 10 years, growth prevails while among their small cap index funds value has the upper hand, though performance history is limited due to lifespan of the various Vanguard category funds. In addition, dismissing that value stocks offer higher return runs contrary to the Nobel prize winning economist Eugene Fama (U. of Chicago) who along with Kenneth French (Dartmouth) indicated through their research that small cap stocks and value stocks would support higher stock returns over long periods of time.
 
On picking individual stocks
After decades of going against the grain of active fund investing, we now have a lot of data to support that diversified index fund investing really works. In any trade, there is a winner and a loser, and thus, before costs, investing is a zero-sum game. To take this a bit further, half of the stock pickers will win, and half of the stock pickers will lose. The reality is that, after costs, most active fund managers will lose. As an index fund investor, owning most of the market and keeping costs low, you put yourself in the upper half of investor performance in most any given year, and in the top 20% or better over longer periods of time.
 
“Don’t bet your financial future on bad odds,” Jack summed. “Lifetime investing is what we all should be thinking about. What will work in the long run?” 
 
On his legacy
When asked about how it feels to reflect on the impact he has had on the financial industry and so many individual investors, he simply shared a quote by Sophocles: “One must wait until the evening to see how splendid the day has been … my evening has not yet come.”
 
On character and humility
“My wife, Eve, of 60 years thinks that I am bereft of humility. Look, I just want to be the same kind of kid that I grew up as.”
 
On going against the grain
“I have never given a damn about what most anyone else thinks.”
 
What lies ahead
At one point, Jack was asked what the next Jack Bogle would change. This question set him back for a moment. Then he remarked that there are still too many opportunities for Wall Street to unnecessarily extract too much value from Main Street.
 
In fact, he considers some of the practices as borderline fraud. They get away with this, he said, because the markets keep going up. For his part, though, he has enjoyed “doing something right in an industry that often refuses to do the right thing.”
 
On Jack’s heroes
When asked who has inspired him, Jack listed Warren Buffett, Andrew Hamilton and Ben Franklin.
 
On success
Here, Jack kept it short and sweet. The keys to success are simple, he said. You just need to “work a little harder, work a little smarter, and be a self-starter.”
 
The big takeaway
It was a privilege and honor to meet Jack, and I learned much while listening to him present over the two days of the conference. As I sat among the many Bogleheads who make an annual pilgrimage to hear him speak, I now understand why.  As his disciples, they are among those who consider the index fund to be one of the best inventions of our time, and its inventor to be one of the smartest financial gurus of the last half century.
 
For many, the work of Jack Bogle and Vanguard has led his followers to afford first homes, put kids through college, manage career changes, experience grand life pursuits and ultimately master retirement.
 
In a world with so many challenges, it’s comforting to know that there’s a man like Jack, whose life’s mission has been “to help individual investors build wealth without paying excessive fees, guide them into investments which will yield the market return without additional risks, and promote suitable asset allocations that match individual risk tolerance.”2
 
As investors, we can all use a hero like that.
 
Sources:
1 - http://www.businessinsider.com/warren-buffett-praises-vanguards-jack-bogle-in-annual-letter-2017-2, Feb 25, 2017, Levy
2 - https://sites.google.com/site/bogleheadsmeeting/
3 - http://money.cnn.com/2017/03/08/investing/vanguard-jack-bogle-stock-market-not-in-bubble/index.html, March 8, 2017, Long, Heather
 

 
All investing involves risks.
Past investing performance is no guarantee of future results.

Should You Worry About A Stock Market Correction?

The financial community defines a stock market decline of more than 10 percent in value as a “correction.” Such an event, both before and when it actually happens, can cause you to feel alarmed to downright terrified.
 
Despite this, I suggest that investors, particularly the buy-and-hold type, put their fears aside and not be overly concerned about a so-called market correction.
 
Corrections won’t crack a balanced nest egg
 
For starters, the “market” we are talking about is the one for stocks, not bonds. Assuming that your portfolio features a moderate asset-allocation as described below—somewhere in the range of a 60% - 40% stock-bond split—market corrections will only affect a portion of your overall nest egg.
 
Corrections are a certainty...just like death and taxes
 
Secondly, market corrections are an inherent part of the investing process and occur on a fairly regular basis. Simply stated, a stock market correction is an inevitable part of stock ownership. However, as an exception to the rule, the U.S. stock market has been pretty tame on the downside since 2011. As a result, investors have had little experience lately with a down market.  

 
MARKET FLUCTUATIONS: A HISTORY OF DECLINES 1900 – 2015
 
% DECLINE                  AVERAGE FREQUENCY        AVERAGE LENGTH    LAST OCCURRENCE
 

              -5%               About 3 times a year                 47 days                                      August 2015
            -10%               About once a year                      115 days                                   August 2015
            -15%               About once every 2 years         216 days                                   October 2011
            -20%               About once every 3.5 years     338 days                                  March 2009

 
As I write this article, some stock valuations are hitting historical highs on a regular basis. So it comes as no surprise that the financial media is full of predictions about when, not if, a market correction will occur.
 
And, based on historical trends, one could reasonably assume that we are overdue. On the other hand, one could also argue that we have been here before. Recall the year of 1996 when we had 15 years of steady growth behind our backs, resembling our recent S&P 500 run. Who would have ever guessed we would see another 4 years of strong stock market return?  Bottom line, we simply cannot predict a correction. When it happens, you’ll know it. No need to spend time and energy worrying. Instead, invest with the long term in mind.
 
If you have high-quality investments, don’t be tempted to tinker with your portfolio. Experience shows that a correction’s “bark” is worse than its “bite.” Long-term investors can actually view a correction as an opportunity to add new money to proven investment positions at favorable prices.
 
Corrections can be erratic . . . like temperamental toddlers
 
Thirdly, just as market corrections cannot be predicted, no one has ever been able to predict how long they will last or how deep (percentage decline) they will go. The takeaway here is that you should not try to time the market. Getting out when the market falters and getting back in when it rebounds is a losing proposition.
 
Corrections offer a second chance to rethink your holdings
 
Fourthly, tracking how your stocks and stock mutual funds perform (loss and recovery of value) during and after a market correction provides investors with an opportunity to assess the defensive and offensive strengths of individual holdings. It’s also a good time to revisit why you bought and continue to hold the various holdings you have in your portfolio.
 
It’s not easy to decide what to do, or what not to do, when faced with a market correction that affects you directly. My advice is to first make sure the situation is being analyzed by using the reflective, left side of your brain. Restraining the brain’s reflexive, right side will take the emotions out of the decision-making process.
 
Limit worries with a balanced portfolio
 
If you have a reasonable asset-allocation for your time horizon, you’ll have less to worry about than investors with stock-heavy portfolios who need to begin withdrawal within a few years. To illustrate this point, let’s look at the historical performance record of a moderate allocation mutual fund in relation to some notable stock market declines.
 
The fund in question, Vanguard Balanced Index (VBINX), maintains a steady 60% - 40% stock-bond portfolio mix by following total stock and bond market indices. The Fund is highly rated by Morningstar and has a solid long-term track record: A 10-year annual average total return of 6.23% with a below-average risk and an above-average return category-comparison rating.
 
VBINX accomplished this respectable performance while enduring three market corrections in 2008, 2011 and 2015. If you invested in this Fund during those years, you would have had to live with annual total returns of – 22.21%, + 4.14%, and + 0.37%, respectively. Just remembering the negative 39% stock market drop in the 2008-2009 period should be sufficient evidence to substantiate the value of asset-allocation when it comes to protecting financial asset values.
 
In summary, I believe it’s a waste of time to worry about market corrections. Not because they won’t come – they will. However, following Vanguard founder John Bogle’s advice to “stay the course,” a reasonably balanced portfolio of high-quality stock and bond investments will lessen the damage, strengthen a recovery of value, and justify a long-term, buy-and-hold investing strategy.

Source of Market Fluctuation data:

American Funds website. “Market Declines, A History”, Source: The unmanaged Dow Jones Industrial Average, https ://americanfundsretirement.retire.americanfunds.com/basics/volatile-market/market-declines
All investing involves risks. Past performance is no guarantee of future results.

A Mortgage Forever? Think Again

Nervous about the stock market? Frustrated by low bond yields? Consider taking some of your investment dollars and using them to pay down your mortgage.

Now I know what you’re thinking: “My mortgage interest rate is only 4%. I can make a better return by investing.” 

And you’re correct…kind of.

It’s true that you can earn more by investing your money wisely over the long term. In fact, there are certainly things you should do before chipping away at the mortgage—like paying off credit cards, investing in your 401(k), and setting up an emergency fund. 

It’s also true that making extra mortgage payments won’t earn you dazzling returns. If your mortgage rate is 4%, your effective rate of return is going to be . . . 4%. 

But there are still some very compelling reasons to minimize your mortgage.

1 - Put your cash to work

Are you putting your hard-earned cash to work? Many people aren’t. In fact, it’s not uncommon to find upper middle-class Americans holding anywhere between $50,000 - $100,000 in cash. This occurs despite emergency fund requirements that are much lower. (The CFP Board encourages 3-6 months of spending needs in an emergency fund). 

Others let their money sit idle in CDs or money market funds. Yet cash sitting in these investments loses value to inflation every day. Instead, use that money to make 1 or 2 extra house payments per year and attain a guaranteed return.

2 - Earn a higher return rate

Not all investors invest wisely. According to Dalbar’s annual study1, the average investor from 1996-2015 achieved only a 2.1% return. During this same timeframe, S&P 500 investors saw gains of 8.2%. The reason for this large gap was investors’ inability to stay the course with a low cost well-defined strategy, combined with futile attempts to perform market timing. 

With this in mind, a guaranteed return of 4% by paying off the mortgage sure beats the 2% average by many investors. And, for conservative investors who would otherwise buy bonds or money market funds, the 4% guaranteed rate of return might sound rather appealing.

3 - Enter your golden years debt-free

Not that long ago, retiring with a mortgage was unthinkable. When that last payment was made, homeowners celebrated. Neighbors even held mortgage-burning parties.

For investors with 30 years of retirement ahead of them, the number one fear is running out of money2. If you work to pay off your mortgage early, you can retire knowing your biggest expense is soon to be eliminated or is already gone.

4 - Increase your tax savings

If you’re concerned about losing your mortgage interest tax deduction by paying off your home loan early, I’ve got good news. As it turns out, the interest tax deduction is highly over-rated when it comes to retirement. By not having a mortgage payment at all, you could save even more on taxes in your golden years.

How does this work? Consider this example.

Mary and Bob are in their late 40s and have a 30-year, $500,000 mortgage. It saves them $4,000 a year in taxes. If they pay off their mortgage gradually between now and retirement, they could still save $3,000 in annual taxes now. Once in retirement, assuming they are using IRAs to cover a large part of their expenses, they would save closer to $7,500 a year due to reduced IRA withdrawals. 

In the “keep paying for 30 years” scenario, the tax savings from mortgage interest over the life of the loan equates to about $60,000. In the “pay off the loan early” scenario, the tax savings would be closer to $110,000—nearly twice the savings of keeping the loan.   

5 - Retire early

Studies show that Americans are 20% more likely to retire before age 65 if their mortgage is paid off.3 No doubt this is due to the confidence in knowing your home—which amounts to 20%-30% of your pre-retirement spending—is paid off.

If you’re feeling conflicted about what to do, start by making one extra mortgage payment this year. With some lenders, you can do this by paying a little extra on each mortgage payment, or by paying more payments each month.

As an example, let’s say you borrowed $500,000 using a 30-year loan at 4% interest. If you added $300 to each mortgage payment, you could save yourself $77,518 in interest and pay off the loan 6 years early.

If that one extra payment a year feels pretty good, next year take part of your pay raise or annual bonus to make two extra payments. 

Paying off a mortgage early is not for everyone. First, you’ll want to ensure you have eliminated all higher interest debt, are maxing out tax shelters like 401(k)s (LINK TO TAX SHELTER ARTICLE), and have college savings completely on track. 

If all other savings opportunities are going well and are invested wisely, then take a look at reducing your mortgage. For those who are conservative and contemplating a CD at 2% interest, lopping off a chunk of your mortgage might be a much smarter move. In the hunt for guaranteed return, your answer might be literally at your front door.

1.  Dalbar.  Quantitative Analysis of Investor Behavior Study, 2015. utilizes the net of aggregate mutual fund sales, redemptions and exchanges each month as a measure of investor behavior. Returns are annualized (and total return where applicable) and represent the 20-year period ending 12/31/15 to match Dalbar’s most recent analysis. 

2. AICPA, American Institute of CPAs, “Running Out of Money is Top Retirement Concern, Says AICPA Survey of Financial Planners”, Oct. 6, 2016

3.  Urban Institute.  “Older Americans in Debt Are More Likely to Work.” May 2016 Powerpoint. 

All investing involves risks.

Historical investing performance does not guarantee future returns.

Santa's List for Wealth

Are you Being Naughty or Nice with Your Critical Money Decisions?

Why does Santa check his list not once, but twice? It’s to make sure he’s made the right decisions.  If you can get the big decisions right in your financial life, wealth will follow.

Here’s a list of the 10 most important money decisions you will ever make.   

#1 - How much ownership should I take with my finances?

In this busy world, it may be tempting to put off your financial planning until later or assign the task to someone else. But is this wise?

Consider your physical health for a moment. Would you let someone else choose what’s best for you if you got ill? Would you let someone else make key decisions for you like electing surgery or taking medication without your say? Probably not. Then why would you give up control of your financial health?

How engaged you are in growing your wealth truly matters, so take charge now. Start by reviewing or creating your financial plan. By taking responsibility for your own financial well-being, you increase your odds for success.   

#2 - How much should I save?

This is the biggest driver of your investment growth. After all, if you don’t save, you can’t invest. Aim to sock away at least 10% of your salary every year—more, if possible.

Not good at saving? Then you probably shouldn’t buy that new gas-guzzling SUV, pay for top-of-the-line cell phone or cable plans, or eat out daily. Make it your goal to spend less and save more in 2017, so you can set yourself up for financial security.

#3 - How much should I put into stocks?

The more you invest in a diversified mix of stocks over your lifetime, the higher your return will likely be in the long run.

So what’s considered long term? According to the September edition of JP Morgan’s “Guide to the Markets,” the 10-year rolling return since 1950 of the S&P 500 ranges from -1% to 19%, so 10 years might serve as a good guide. In addition, you should expect negative returns in the stock market at least 1 out of every 5 years; so, each time you hit a pothole in your investments, don’t jump ship. 

While there is a greater chance of short-term losses with stocks, the game of stock investing will be won by the patient and disciplined.  

#4 – Should I be an investor or a speculator? 

It’s not an easy choice. Research has shown that “market timing” most often does not work. But the daily headlines telling you to “buy this stock” and “sell that one” can challenge your investment discipline.

It’s also easy to fall prey to “hot stocks,” even when you know reliable investing results depend on diversification. The trick is to keep the speculative portion of your investments as small as possible. That way, if they do go cold, your temporary losses will be minimal.

#5 - Where should I live? 

Think carefully before picking the mansion over the modest home. If you buy the biggest house you can afford, you’ll have less money available to pay for college or retire early. And here’s something else to ponder: wealth is often found in neighborhoods with old cars and tall trees.

Just look at Warren Buffet. He lives in a 5-bedroom, 2.5-bath house in an old neighborhood in Omaha, Nebraska. Not in a beachside mansion or country manor surrounded by acres of land. The lesson here? Just because you’ve got money doesn’t mean you have to flaunt it. When you’re sitting on a sizable nest egg in retirement, you’ll be glad you didn’t.   

#6 - How can I manage my taxes more effectively?

You are surrounded by investment account options that offer many tax advantages—like IRAs, Roth IRAs, 401(k)s, 529s and health savings accounts (HSAs). Yet very few people maximize these tax shelters. This is a mistake.

When you use them, tax shelters can help you keep more money in your pocket so you can create a more stable financial future. For more on this, read my recent article on tax shelters.

Also, tax strategy should be reviewed carefully with a CPA or enrolled agent in order to ensure smart tax moves.

#7 - How many kids should I have? 

The Department of Agriculture now predicts it will cost $250,000 to raise a child. In California, this figure is closer to $350,000. Eighteen years of childcare, medical bills, groceries, clothes and shoes, summer camps, and piano lessons can really add up.

And don’t forget about college. Four years at a top university can run well over $150,000. As you’re thinking about how large a family you want, keep this in mind: Having kids can be exceptionally rewarding, but it’s also enormously expensive.

#8 – Should I pay off my credit cards every month? 

Carrying credit card debt is an act of financial foolishness. Yet so many of us do it. The average credit card debt in the U.S. is $15,675 at an average interest rate of 15.1%. Ouch! Debt of that size will derail all your other smart financial moves, so put a stop to it before it snowballs out of control. Buy only what you can afford each month, and pay your bills immediately.

#9 – How should I prepare for financial emergencies? 

A rule of thumb from the CFP Board is to have 3-6 months of your spending set aside in liquid, cash type investments like a Money Market Fund or CD. You should also regularly review your insurance coverage like medical, disability, umbrella, life, home and car to make sure it reflects your current needs. 

#10 - Where should I get financial advice? 

Newspapers and money programs are designed to entertain, so it’s easy to get caught up in the hoopla. Sensible investing, on the other hand, is often rather dull. Rather than following “hot stories,” read books and articles from the best investment gurus on the planet like Charlie Munger, David Swensen, and Warren Buffett.

Aside from the misleading financial media, people often turn to family or friends for investment ideas. Unless your cousin is investment legend Jack Bogle, you may want to look elsewhere.

And then there are local financial advisors, who very well might be a great place to start. Just make sure their motives are in line with yours, and be sure you understand how they are paid.

• Do they make more money by generating trades?

• Are they compensated to sell certain products over others? 

• Are they limited to certain products through their firm that carry high fees, such as mutual fund fees over 1%? 

  If so, you may want to look for an independent, fee-only “fiduciary.” This is a professional who has specific credentials such as CFP (certified financial planner) or CFA (chartered financial analyst). Before investing, be sure you’re clear about the fees you’re paying for both the advisor and his or her recommendations.

  As the year comes to a close, take a few moments to consider the critical financial decisions that you have made. The decisions above should not be taken lightly: these are the most important money decisions you’ll ever make. If you are married or someone else is active in your financial life, sit down together and review where you stand. Santa might bring you plenty of nice things, but only you can give yourself the gift of a strong financial life. 

Painless Ways to Live Below Your Means

Spending less than you earn is quite simply how everyday Americans get rich.

Yet for a lot of people, there is nothing simple about it.  Many find it nearly impossible to live within their means.  So what should you do? Here are 9 ideas:

1. Start by knowing where your money goes. Track your spending with one of the plethora of tools that are available today: mint.com, Personal Capital, online bank account summaries, or an old-fashioned spreadsheet.  It’s like dieting. If you write down everything you eat, you will eat less.

2. Crack an axe at reducing re-occurring monthly services like cable, internet, phone, newspapers, and other online memberships by putting on your chief negotiator hat. After doing a little research, dial them up and have the following call, “Mrs. CS agent, I have been a loyal customer for XX years; and I am in a financial bind and need to drop (or replace) your service.  I thought before I did that I should call you and see if you can help me reduce my costs.”  Be willing to drop their service for 3-6 months and then see what discount they will offer to lure you back.  Want to maximize your negotiation, have this call with someone else on the phone with you like your spouse or financial advisor.

3. Reduce the frequency of services like house-keeping and gardening.  Perhaps investing in lower maintenance plants or indulging in a good vacuum cleaner and hiring your kids to pitch in can lead you to drop these services altogether.

4. Hunt for the lowest prices, especially with big ticket item purchases; and the biggest store in the world is right at your fingertips.  It’s called Amazon for a reason.  You will be amazed at what you can find on Amazon and Ebay these days, and you will also save gas money and time.

5. Change your life for the better.  Do you need exercise? Consider riding your bike work. Do you need time? Reduce eating out at lunch.  Are you all about saving the planet? Find a carpool or rideshare near you at https://www.erideshare.com/carpool.

6. Slash your insurance costs.  A good place to start is the internet.  Try quickquote.com. There has been a feeding frenzy for cheap term life insurance, which is making rates incredibly competitive.  Rebid auto, home, and umbrella policies, and search financial bloggers like “MMM Recommends” for best places to start.  Also look into saving money by boosting deductibles on your auto and home insurance.  Consider whether collision insurance makes sense on your vehicle with the help of a good agent.  

7. Take full advantage of health savings accounts and retirement savings accounts.  With these employer-sponsored plans, you get to save and spend out of pre-tax dollars.  In many cases, an employer match is also offered, which is the easiest way to get free money. 

8. Free entertainment abounds. Whether it is the beach or our beautiful libraries, keep a list of favorite “free things to do” and focus your time on those activities.  Free stuff can bring more joy, peace of mind, and less hassle.

9. The best way to save on expenses is to move to a place where the cost of living is cheaper.  It may be difficult if you are working now, but it certainly should be a consideration as you move into retirement. Sometimes a lower cost of living is less than 15 minutes away.  And, if you really want to hit the jackpot of lower living costs– pay off your mortgage. One extra payment a year can reduce a 30 year mortgage by 5 years or more. 

More often than not, wealth is the result of smart spending, a lifestyle of hard work, discipline and good planning. In the words of Thomas Stanley, author of the Millionaire Next Door: “Many people who live in expensive homes and drive luxury cars do not actually have much wealth…Many people who have a great deal of wealth do not even live in upscale neighborhoods.”
― Thomas J. Stanley, The Millionaire Next Door: The Surprising Secrets of America's Wealthy

Put More Money In Your Pocket, Not Uncle Sam's

Taxes are everywhere—federal, state, retail, investment, estate—and they can easily eat up over 50% of your income. That’s more than half your money going in Uncle Sam’s pockets.

Wouldn’t you like to keep more of your money in your own pockets?

Luckily, there’s a way to do just that: use tax shelters.

Now I’m not suggesting you fly to the Caymans to open a secret off-shore bank account. The tax shelters I’m talking about are completely legal. In fact, our own politicians created these special account types. The idea is to encourage investors like you and me to save money by offering us certain tax benefits.

To find out which shelters are the most common and what you need to consider when selecting one, read on. I’ll even tell you about the most widely misunderstood option, and why it’s also the best tax shelter of all.

Save Taxes Now - Tax-deferred 401(k)s and Traditional IRAs

The advantage of a 401(k) or traditional IRA is that you can save on taxes now and grow money tax-deferred. The downside is that you’ll pay taxes on this money upon withdrawal. In fact, once you turn 70½, the law requires you to start taking this money out. 

Today many companies offer a 401(k) plan and most match the first 3% - 6% of your contributions. Between the company match and the tax savings, contributing at least up to the match is a no-brainer. For those who don’t have a 401(k) at work, the traditional IRA or a self-employed IRA offers similar tax advantages. Just be sure your CPA gives you the green light before proceeding as income limits do apply.

Lastly, keep in mind that a 401(k) or IRA is a retirement savings tool. That means, with a few exceptions, you won’t be able to take this money out before age 59½. If you do, you’ll pay a 10% penalty.

Save Taxes Later - Roth IRAs

A Roth IRA lets you save after-tax money now, so you can let it grow tax-deferred and never pay taxes on that money again if you play by the rules on withdrawal. 

The real beauty is that it lets you take advantage of a lower tax rate now than you may have in retirement. Often this is the best option if you are younger, starting out in your career, or experiencing low income due to a layoff.   

What most people don’t know about the Roth IRA is that the after-tax money you contribute—what a tax professional calls your “basis”—can be accessed before age 59½ without paying a penalty. But this only applies if the Roth has been open for at least 5 years.

More Ways to Save Taxes Later - 529 Plans

529 plans—the education “gold standard”—offer tax savings for money that will be used in the future for qualified college education expenses. This includes tuition, room and board, and books. Like the Roth, you put after-tax money aside today that grows tax-deferred over many years. 

You can even move this money between family members or use it for yourself. Plus, the accounts never expire.

Save Taxes Now and Later - Health Savings Accounts

The health savings account (HSA) is a tax shelter that is both widely misunderstood and your most appealing option. That’s because it lets you save on taxes now AND later!

This type of account lets you save money for medical expenses over your lifetime. Here’s how it works:

·         You become eligible when you enroll in a high-deductible health medical plan (with a minimum annual deductible of $1,300 for individuals and $2,600 for a family).

• There are annual contribution limits: $3,350 for individual plans and $6,650 for a family plan. 

• Individuals over 55 can contribute another $1,000/year for catch-up. 

• If you’re under 65 and withdraw money for a non-medical use, taxes and penalties will apply. If you’re under 65 and use HSA funds for medical expenses such as co-payments, deductibles, and other non-covered expenses, then taxes and penalties don’t apply. This makes these plans more age flexible than the retirement plans mentioned previously. 

• HSA money can be used to pay for Medicare premiums in retirement or for insurance premiums while on COBRA.

  The money rolls over from one year to the next. 

Since many retirees will spend 30% or more of their income on medical expenses, having a sizeable HSA account as you enter retirement can be a very smart financial move. And it will save on taxes now, too, as a deduction from your current income.  

How to Get Started

Tax savings abound if you’re willing and able to shelter your money. But you need to act fast. Many of these options with annual limits in essence “expire” at the end of the year, meaning you can participate next year, but the annual amount of $18,000 in a 401K for this year of your life expires. As with many aspects of money management, procrastination is not your friend.   

Here’s what you need to do:

• Consult an HR professional for help with logistics.

• Discuss the options with your CPA, preferably before the 2016 tax season hits so there’s time to process the paperwork.   

Using tax shelters can help you keep more money in your pocket and set yourself up for a stable financial future. Happy saving!

All suggestions above are based on current tax law and are subject to change. Investing involves risks. This article is not intended as tax advice. Please consult with a CPA for your particular situation.