Month: November 2014

FOMO: Do You Live For Now Or For The Future?

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Do you suffer from FOMO? It’s a generational phenomenon, like absinthe was for the Greatest Generation. For those not in the know, FOMO is an acronym that stands for Fear Of Missing Out. It’s that sensation in the back of your mind that makes you go out even when you’re tired. It’s the reason you go to the concert featuring that band you don’t even like that much because your friends are going. An adventure can happen anywhere, and if you’re not there, you’ll be the one person in the world who missed it.

How much influence does this fear have on today’s millennials? A recent Eventbrite survey found that 78 percent of 18- to 34-year-olds prefer to “invest in experiences instead of things.”  Seventy percent cited FOMO by name as a motivator for their financial decisions. But seeking out adventures, rather than investing in your future, has consequences. Its fine to live a low-maintenance lifestyle, and no one should criticize the decision to not have more stuff than you need. But that’s not always what’s happening in these decisions.

It’s not a coincidence that this same group is suffering financial hardship. Millennials have the highest debt percentage and lowest credit scores, according to Experian. The same study also finds that half of millennials were late on at least one payment last year.

Fighting FOMO is a serious challenge. It may be best to fight fire with fire and think about what you might be missing out on in the future. Let’s look at three ways you can use the Fear Of Missing Out to feed your financial future — rather than your financial fears.

1.) FOMO on retirement

Road tripping with friends across the country could produce some priceless memories. What could be even more priceless, though, is getting to take that trip with your spouse and family once you’ve retired. Cutting your travel budget now and putting the extra into an IRA is the difference between a life of leisure and dying at your desk.

Don’t think of it as not having wonderful experiences. Think of it as investing in future adventures. Consider opening a vacation club account to save for one great excursion a little bit at a time. You’re not missing out on anything; you’re saving for better experiences later in life. Besides, with your savings, you can make arrangements that don’t include 16 hours in the seat of a sedan.

This savings emphasis doesn’t mean giving up on travel or other fantastic events. It does mean you should save and plan for events that really matter. That round-the-world cruise you take with your family later on in life surely outweighs the weekend trip to the mountains right now. Also, consider opening a vacation club account to save for one great excursion a little bit at a time.

2.) FOMO on home ownership

The biggest difference in wealth for older generations is time in home ownership. If you’re renting, your housing money goes out the window each month. You don’t build equity and you have to keep making that payment as long as you live there. With a mortgage, the money you pay each month stays with you as you build equity. Once you pay the mortgage off, your housing costs plummet.

Those opportunities may seem distant if you’re burdened by student loans and credit card debt. Getting out of debt is the best way to ensure you can qualify for and pay a mortgage. That means cutting spending now and committing to paying off loans and credit cards with any extra money.

Don’t think of the nights out that you won’t have. Instead, focus on the wonderful experiences you’ll have in your new home. Think of having a holiday meal at your kitchen table surrounded by family and friends. That’s the experience you’re investing in when you position yourself for homeownership.

3.) FOMO on financial security

Fifty-eight percent of millennials live paycheck-to-paycheck. That’s a stressful life. The constant worry over making rent and paying for basics can contribute to stress and lower quality of life. It’s an experience, frankly, that’s not much fun. Many millennials see this constant scramble as emblematic of their generation’s lifestyle, but it doesn’t have to be that way.

Setting aside money in an emergency fund can help you escape that cycle. A few hundred dollars in a savings account can provide a great deal of peace of mind. It’s a tremendous comfort to know that, even if an unexpected expense crops up, you’ve got rent and other basics covered.

Financial security is an experience just like going to a live show or a craft beer festival. The difference is that it’s an ongoing, long-lasting one. There is no closing time, and there is no last call. Being secure in your finances will never leave you with a hangover or ringing ears the next morning. It will make it easier to have the kind of experiences you want.

Fighting Fear Of Missing Out is a challenge. You only live once, as another generational acronym (YOLO) reminds us. Don’t use that as an excuse to not think about the future. You only get one life to have the kind of experiences you want to have, but that doesn’t mean you have to have them all right now. You can’t go back and study harder or save more for retirement. Live an enthusiastic, out-loud life in a financially responsible way.

If you’re interested in your financial future, get in touch with Destinations Credit Union.  The friendly, knowledgeable staff can help you plan for home ownership or retirement. Any great experience, whether it’s living debt-free or retiring early, can be a little easier when you get help. Call, click, or stop by Destinations Credit Union today, and get help overcoming FOMO.

 

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Three Tricks To Retire Rich

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The difference between working yourself to death and retiring to live a life of comfort is smaller than you think. We like to believe in the simple caricature that rich people retire rich and poor people don’t retire. The truth is, much of the difference between retiring and continuing to go to work every day comes down to a few simple choices. Let’s take a look at three tricks that separate the successful retirees from the workers who are too insecure to retire:

1.) Timing your retirement

Investment professionals like to tell you that successful investment is about time in the market. Timing the market, they insist, is far less important. That’s true for putting money in. The more time you have to take advantage of the power of compound interest, the better off you’ll be.

When it comes time to retire and start making withdrawals, though, timing does matter quite a bit. Consider identical workers who made the same median income. Each saves 10% over their 35-year careers. Yet, they end up more than $200,000 apart in retirement savings.

How? One retired during the height of the Great Recession in 2009. The other waited four more years until 2013 when stocks had rebounded. It’s not just that stock prices rebounded during that time. It also gave the one who worked longer four more years of buying dirt cheap stocks that shot back up in value.

The lesson here is simple: if the market is down, keep working and investing. Wait another few years for things to rebound and reap the rewards. If our early retiree worked four more years, his retirement savings would have doubled. Market prices tend to even out over time, so prices that are low now will return to normal. Waiting until they do can make your retirement much better.

2.) Don’t over commit, especially when things are good

You may already know you should save between 10 percent and 15 percent of your income. Aim to split your savings between conservative and aggressive investment options. However, many people forget one important part of that split: some part of your aggressive investment needs to remain in cash.

As stock prices rise, you need to be leaving yourself more and more cash on hand. This is so you can take advantage of the inevitable retraction that follows these expansions. “Buy-low, sell-high” isn’t a well-kept secret. But it’s still sound advice for retiring with enough money to support a luxurious post-work life.

How much cash should you keep in your aggressive investment portfolio? The frustrating answer is that it depends on a variety of factors. If you’re not heavily involved in your portfolio, you likely don’t need to keep more than 5 percent cash in your account. If you’re an active participant in your retirement investments, keeping a little more cash on hand isn’t a bad idea. This will let you pick up undervalued stocks and reap the profits of your savvy judgment.

3.) Get professional help

Spectrum Group conducted a survey of households with more than $1 million in net worth. They found that only 20 percent of them see themselves as experts on investing. About 40 percent of respondents are adviser-assisted or adviser-dependent investors. That means they consult with a financial expert before making most of their investment decisions. Another 30% are “event-driven.” They get professional help before major life milestones, like retirement or home-buying.

There seems to be one big difference between millionaire investors and less successful ones. The millionaires recognize their weaknesses and find help to compensate. They devote their effort and energy to what they’re good at: their job or small business.

There’s no harm in getting some help for your retirement savings plans. Our knowledgeable representatives are standing by to assist you with opening or funding an IRA, rolling over a 401(k), opening a certificate, or saving money in any one of a dozen other ways. Call, click, or stop by Destinations Credit Union today!

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Q And A – Election Results: What Should We Expect?

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Q: I have a lot of friends talking about making serious financial decisions based on the results of this week’s election. Is there anything I should worry about? Do I need to change where my money goes?

A: On November 4th, the country elected a Republican majority to the Senate, expanded Republican control of the House of Representatives and chose a majority of Republican governors. Like all elections, this one is significant because it was an expression of the will of the people — but whether the election outcome can break the logjam in Washington remains to be seen. That said, let’s look at three areas where there could be implications based upon current public debate and the election results:

1.) Energy policy

One of the core priorities of the new Republican majority will likely be a move toward energy independence. Several candidates ran on platforms that included increases in domestic oil production. Domestic oil exploration is an issue that members of both parties have supported and may likely reach consensus on forming legislation. It’s expected that some increased subsidy, fast tracked permit process, or deregulation of fracking will pass the new Congress. Several Republican candidates also campaigned on lifting the ban on exporting US-produced oil and natural gas, and several others championed the Keystone XL pipeline. Both of these projects will make it profitable to dig fossil fuels from deeper underground.

If you live in an area that may have natural gas, this is great news for your property values. Gas and oil companies will pay big money for the mineral rights under your home. While there have been some concerns about leaking and subsidence, fracking technology has improved dramatically. The increased incentives to drill will make selling your home that much easier.

If you don’t live in such an area, you can still take advantage of the wealth of natural resources our country has to offer. Domestic oil production will lead to somewhat decreased prices at the gas pump, but it’s more likely you’ll see the savings in your gas and electric bill. Cheaper access to coal and natural gas will drive down the costs of heating and generating electricity. It’s not likely to come soon enough to help with this heating season, but it might be a little less painful to run the AC next summer.

2.) Market responses

In the aftermath of the election, stocks did appear to be improving. Some of this valuation may be a response to expectations of a business-friendly Washington. More likely, though, this is the market responding to more predictable conditions. The election was credible and peaceful without widespread reports of fraud or intimidation. This is a signal to the market that things are likely to continue as normal and business as usual.

Some experts have suggested that Republican lawmakers will roll out a pro-business agenda. This regulatory climate will encourage stock growth. This is far from a sure thing, though.. Democrats still control enough of the Senate to filibuster any sweeping change and President Obama still has to sign legislation for it to become law — unless enough lawmakers band together to override a presidential veto. Legislative priorities, therefore, may lean toward less divisive topics, like eliminating the medical device excise tax.

There is a correlation between Republican control of Congress and defense contractor stock prices. Minor increases in value are possible there. On the whole, a more cautious approach is prudent. Wait and see what the new Congress does before overreacting to non-market events.

3.) Tax planning

Tax reform is likely to be considered by the new Republican Congress. Many candidates won elections on anti-tax platforms at both the state and federal levels. This is one instance where it might make sense to make plans based upon the results of an election.

If you’re considering making a move that would expose you to significant tax liability, it might be a good idea to wait until January 1. Affected moves might include making an early withdrawal from an IRA or selling a significant quantity of stock. Income tax rates are not that high now, but they’re not going to get higher with a Republican House and Senate. Waiting two months won’t cost you anything and it might produce a significant tax savings.

There’s no guarantee that you’ll pay less in taxes next year, but there’s the possibility you might. When the risk is negligible and the possible rewards could be significant, it’s a good idea to take a wait-and-see approach. Consider holding on to your stocks or putting off tapping into your IRA just a little longer. It may pay dividends.
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Family Finance Games For Kids

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Usually, paying bills is one of those adult chores that takes time away from family time. It doesn’t have to be that way, though! Getting your kids involved in the family finances can let you take care of your responsibilities and spend time with your children at the same time. It’s easy to say “get your kids involved,” but getting them out of their phones, tablets, and video games for dinner is hard enough. Making financial fitness a game can help it be more of a fun activity and less of a chore. Try these tips to get kids involved in money matters:

1.) The memory game: If you’ve ever played the card game, “Memory,” you know how this works. Put the bills you’re working with face down on the table, then go through each category – ask your child to find the electric bill, then read off the amount to you so you can write the check. This can also be a chance to talk with your child about savings strategies – “What do you think we could do to lower the electric bill?” While they may not have a firm grasp on the solution, getting them thinking about savings early will help build good habits.

2.) The party budget: The next time you’re hosting a sleepover or planning a family activity, set a budget with dollar amounts and walk through the steps involved in setting priorities, allocating funds, and finding cheaper alternatives to expensive activities. Let your child make the decisions as much as possible. Even if it’s $20 that they have to allocate between pizza, movies, and candy, it’ll help them understand the basics of budgeting. This exercise helps your child understand scarce resources and can make it easier to include them in family budget talks.

3.) Play “What If”: Ask your kids questions like what they would do if they found incrementally larger quantities of money. Start with a small amount – $5, for example. Work your way on up to $1,000 or whatever point your child starts to struggle with thinking of the dollar amount in real terms. This can be a great way to get to know where your kids’ financial priorities are at and to start a conversation about saving a portion of financial windfalls. It can also be a great way to talk about what things really cost.