How Much Do You Need to Retire?

retirementMany times when planning for retirement people focus on maximizing contributions. It’s often assumed that by doing so everything about retirement will fall into place. That may be so, but how do you know if you’re succeeding until you’ve defined your target?

When it comes to retirement, the target❠is a credible income number, as in how much will you need to live the life you want to live, taking into account your expected living expenses, sources of income, and the effect inflation will have on it. You can do that by going through some steps.

Figure out how much income you’ll need in retirement

To keep the calculations simple, many financial planners advise using a simple method, such as 80% of pre-retirement income, but I think this can also be an oversimplification. The fact is, you don’t live on your gross income, but on your take home pay, so basing retirement needs off of gross income can easily be distorted.

When you retire you won’t have as many off the top expenses, such as contributions to pension schemes, retirement plan contributions, FICA taxes (which apply only to earned income) and cafeteria plan deductions. Instead calculate how much you spend in a typical month based on an analysis of your spending. You may need to review your checking accounts and credit card statements to get a complete picture.

Once you have an average spending number, it’s time to make adjustments. If you plan on having your mortgage and any other debts paid off by the time you retire you won’t need to factor these into your retirement income requirement. Obviously if you have children you can also subtract any expenses related to their care. And if you plan to be fully retired, or at least not working outside your home, you can also deduct work related expenses, such as gas, tolls and higher maintenance owing to more miles driven.

On the flip side there may be expenses that you anticipate being higher because of retirement. It may be hard to estimate, but if you plan to travel more than you do now you’ll have to do your best to calculate how much to add for it. Premiums for long term care insurance are also a possibility, as are a higher allowance for medical costs.

Factor in inflation

Once you have a have a baseline annual income requirement, you’ll have to make an adjustment for inflation. This is a completely necessary step since your retirement is probably decades away.

The idea is to be sure that the income you’re preparing for at retirement will be relevant for that time and not one that’s based on today’s price levels.

Estimating inflation is not an exact science; you have to make what you hope will be a reasonable estimate of what inflation will be in the future and that can be little better than a guess. Perhaps the most accurate way to do this is to take the number of years between now and when you expect to retire, and let’s say its 30 years, then use the inflation factor for the past 30 years to make the projection. You can get the inflation number for previous years by using an inflation calculator.

You might determine from this, for example, that the $36,000 income you need now might be something like $100,000 30 years from now. That’s the income you must prepare your investments to deliver by your retirement.

Consider your sources of retirement income

OK, when you calculate inflation into retirement plans the numbers can get scary. But it’s not really as bad as it looks. You will probably have other sources of retirement income beyond that which will be provided by your retirement investments alone. These sources include Social Security, employer pensions and any earned income you expect to have at that time.

You can actually deduct these from your income requirements before making inflation adjustments, but with questions surrounding the future of both Social Security and employer pension funding, it might be a safer bet to be at least a bit conservative as to how much you expect to receive from these sources.

Your investment retirement choices

Once you have a solid idea as to how much income your investments will need to provide in retirement, it’s time to consider what vehicles you’ll use to hold and grow that money. Fortunately, there’s a wide selection here, and you can work this to suit your anticipated future needs.

For most people, an employer 401k or 403b plan is the best way to build up large amounts of retirement savings. But even if you have these plans to invest in, don’t stop there. Traditional IRA’s often provide greater investment flexibility than employer plans and they can be an excellent supplement to a company plan, especially if you need to accelerate your retirement savings.

Still another choice is a Roth IRA. You have the same contribution limits as with a traditional IRA, but the Roth adds tax diversification to the mix. There is no deduction for Roth IRA contributions in the year they’re made, but you will have tax free withdrawals of both principal contributed and the earnings they accumulate if you hold the plan until retirement. This means that at least some of your retirement income can be taken tax free, which will also have the benefit of reducing the amount of income you’ll need for retirement.
If this all seems a bit complicated, that’s because it really is. That’s why it’s so important to know exactly how much income you’ll need, and to have a solid strategy for how you’ll accumulate the assets to provide it. But once you know what those numbers are, it’s just a matter of setting your plan and sticking to it. The payoff is the retirement of your dreams.

photo by kheelcenter

About the Author: Joe DiSanto is the founder of the firm Play Louder. He is an independent CFO, providing financial management and business consulting to small firms and family offices. You can read more about his ideas on the financial planning process here.

Top 10 Dream Retirement Locations on the Cheap

The dream retirement looks different for everyone but one common theme is the desire to stretch the dollar as far as possible to avoid the scary situation of running out of money.   I know it’s something I think about but at the end of the day I should be trusting in the Lord more!

Like anything in life, there is wisdom that can be applied to a multitude of situations.   One such situation is retirement and what location you choose.   For many that are looking at retirement, such things as cost of living, tax implications, and weather will be taken into account.

For all intensive purposes, I’m going to assume that the United States is off limits.   Believe it or not, the United States as a whole is a bad place to retire if you want to stretch your dollar.   So, where does that leave us?   Well, the rest of the world!

I scoured the internet and have found the top places around the world for retirees who wish to live off their life savings without the worry of running out of money.   If you don’t have much saved up, these are the best bets for sticking it out the longest!


Costa Rica

costa rica

photo by bowakon

I’ve heard Costa Rica talked about by some older coworkers and friends as the “best” place to retire and get it all.  Instead of assuming, I did some research and found out that Costa Rica really is an amazing place to retire. First of all, there is a retirement friendly tax structure.  Basically, there is no tax on your retirement income!  For all you California retirees, I’m sorry…  Other business ventures and real estate profits don’t get taxed either in many instances.  Costa Rica has no army and is one of the safest Latin American countries, imagine that?  Couple the financial benefits with gorgeous jungles, a serene water front and you have paradise on the cheap, literally.




photo by matthewhickey

Ahhh Mexico, land of drug cartels and beautiful beaches.  You will enjoy Mexico not only for the beautiful landscape but the extremely low cost of living!  Finding a house for under $100,000 is easy and the close proximity to the US makes it easy to travel across the border or fly to see family once and a while.  Labor is also on the ridiculous end of low priced labor.  It’s not uncommon to pay a housekeeper and landscaper $2-4/hour each for their services.  Very different than the average $20/hour in the US huh?  Climate  wise, it does get hot so you should take that into account.  While you’re going for a long walk during your retirement, you will notice an ample number of clinics. Healthcare is plentiful and very affordable.




photo by ai-cirt

While the Phillipines is a location that is too far away fro most retirees, it’s one of the best ways to ensure that your dollar lasts for the remaining of your life.  It’s not uncommon to hear of retired couples living here on less than $1,000/month.  Beautiful white and, flowers seemingly everywhere, the  landscape  here is just stunning.  If you want to venture from island to island, the flights are always affordable and very easy to book.  In the Phillipines, you won’t be able to own a home so renting will be your next option.  Another huge benefit for American retirees is that there is no language barrier.  Most of the island residents speak English so you will never have to worry about learning a new language.




photo by kmacelwee

After doing some extensive research, Panama is turning out to be a really popular  destination  for retirees who want to watch their dollars.  With a booming  economy  and ample opportunities to start a small business, you won’t be bored in this beautiful country.  The people are known to be some of the nicest and the ability to own a mansion for a couple hundred thousand dollars is appealing. Panama also features a special “retirement” discount program for foreigners.  Once you move there, you will receive discounts on things like movies and public transportation.  Panama wants you to retire there!  With beautiful  rain forests  and US backed hospitals, you will find everything you need to live out your last years in paradise.




photo by over_kid_man

Central America has some violent and unstable countries, but Nicaragua is not one of them. Although this country is known to be communist, that is no longer the case.  In fact, the government makes an extra effort to attract retirees with special benefits.  Some of these benefits include: zero tax on retirement income, friendly retiree discounts, transportation of household goods without tariffs, and you can even bring your own car into the country!  No, none of this is fake, it’s all very very real.  Meals for $2 and world class wine for $3 a glass is not uncommon. Hotels average $25 a night and rent is  typically  a couple hundred a month.  With a diverse culture and beautiful weather, Nicaragua is a fantastic  destination  for Americans not wanting to stray too far away from the homeland.




photo by whetzel

Uruguay is all about providing a relaxing retirement but also providing all the luxuries of our modern world.  You won’t have a problem finding what you need in this hot spot.  Their healthcare facilities are not up to par with the United States, so you will need to fly back for any serious surgeries.  With a mild climate, it’s easy to enjoy the atmosphere year round.  Food is cheap, rent is cheap, and the labor is cheap.  All in all, Usuguay has a lot to offer but the poor healthcare facilities may deter some retirees from choosing this location.




photo by  puuikibeach

Price and cost of living is what attracted me to this country.  You can rent a luxury property near a beach for less than $200/month!  Tack that along with $10 hour long massages and I’m sold!  The weather stays warm to hot year round and their food is top rated around the world.  The healthcare is top rated too so you won’t have to worry about the quality.  With crystal water at your doorstep and a friendly people, what’s not to like about Thailand?  It is a bit far from the US but isn’t getting away from it all part of retirement?




photo by wurglitsch

This country has been toted as having the lowest cost of living in the world for retirees.  Would you like to rent a luxury condo for $250/month and enjoy a temperate climate?  Not only is it cheap to live here, but there are tons of things to do!  Ecuador boasts activities like bird watching, world class shopping, hiking mountains, and relaxing boat rides.  And off of this can be done for pennies on the dollar!  Healthcare wise, you will have to travel to the major cities, but this shouldn’t be as transportation costs are a fraction of what it is here in the United States.




photo by trailsource

Austria is for the newly retired couple who enjoys weather changes and a low cost of living.  With bountiful wilderness and fresh air, Austria is a retirement destination for the adventure minded. Snag yourself a cabin in the mountains and get away from civilization for a while.  Believe it or not, Austria is the cheapest European country to live in and they have the culture to match.  Very few Austrians are trying to move up in their companies.  Most enjoy spending time with family or spending time in nature.  Not only that but Austria is especially friendly to people who want to prevent excessive taxes.  If you retire in Austria, you will not be taxed.  Austria is the place to be if you;re in love with Europe like I am.




photo by brostad

Last but not least, we have Belize.  Belize is one of those special countries that is hard to describe. It’s a fantastic country that has the retired couple in mind.  Being one of the least  populated  countries in the world, you will enjoy peace and quiet wherever you lie and guaranteed to enjoy a laid back retirement.  It;s not uncommon for married couples to retire here for less than $500/month.  While in Belize, you are virtually living the tax free  retirement  most  Americans  only dream about.  With a stable government and a strong currency, you can be rest assured that your assets will be safe in Belize.  If I was to retire right now, Belize would be in my top three picks!


What’s your pick?

So, if it was up to you, where would you live out your dream retirement?  Feel free to comment below if you know of some other cool locations!  Personally, I’m leaning towards Belize right now 🙂


Passive Income: The Road to an Early Retirement

early retirementMost of us are very familiar with earned income these days. We have a job where we have to put in X amount of work to earn X amount of dollars. Then, we save a small portion of each check into an investment account so we can retire when we’re in our late sixties. It’s the common plan, and most people don’t think twice about it (even though it’s not really working that well today).

So what’s the alternative? Passive income. By working on a certain task today, you may ensure yourself a paycheck for the rest of your life, even though you don’t continually work for it. This is the basis of passive income. I realize that the explanation might still leave you puzzled, so let’s take a look at an example. A song writer comes up with a great piece that is purchased and sung over and over for the next 20 years. Each time the rights to the song are purchased, the writer gets a cut of the profits, but they only had to write the song once. This is passive income in a nutshell.


So How Can Passive Income Lead to an Early Retirement?

There are many different forms of passive income: real estate, selling insurance, network marketing, franchising, and even dividends. As long as you develop a system and are able to take yourself out of the business, anything could potentially be a source of passive income!

The real question though, is How could it lead to an early retirement?â

Let’s imagine that you save up your pennies and you’re able to buy your very first rental property with cash! You find a renter immediately and are earning $750 a month on your $80,000 investment. With your regular savings of $1,500 a month and your additional $750 from rent, you soon find that you’ve earned another $80,000 after only 3 years!

Since the first real estate investment worked out so well, you’ve decided to purchase another property and rent that one out as well. Now your rental income is $1,500 plus your regular savings of $1,500 per month â“ this allows you to save at a rate of $3,000 a month! It will take you just over 2 years to buy a rental property this time, and then your income will be $3,750 per month.

If you have 20 years before retirement and you institute this passive income mentality, you could create   a regenerative income that’s beyond your wildest dreams! You might not have $2,000,000 sitting in a 401(k), but you will have over a million dollars in assets, plus you’ll have an income that’s $100,000 per month! I would take that scenario over a slightly larger chunk of money any day.


What Is Your Plan?

If you’re nearing retirement, hopefully you’ve had a plan in the works for a while. If you are still young, I would encourage you to develop a passive income any way that you can. If you have any questions about what might be possible, be sure to send me an email. I would love to help in any way that I can.

(This guest post has been written by Derek from  Creating a Passive Income. Not only does Derek enjoy writing about passive income, but he also makes an effort to create it in his every day life! Be sure to  subscribe to his website  if you’d like to discover some new forms of passive income that you’ve never thought of before!)

Why You Need a Retirement Plan and How to Create a Sturdy One

retirement planningWhether you are just starting out in the professional world or have been working for many years, retirement planning shouldn’t be something that is pushed aside and deemed unimportant. You have only one shot at securing your financial future, so the earlier you start the better.

Even though it is common knowledge that starting to save for retirement as early as possible is the best practice, some still ask, Do I really need a retirement savings plan at all?❠One reason the answer to that question is an emphatic YES❠is that you never know what the future will bring and unexpected and sudden circumstances may arise. For instance, people assume they will be able to continue working as long as they need to live; however, as we age sudden medical issues can creep out of nowhere changing long-term plans. Without a retirement savings plan to fall back on, we could be left without a means to maintain our lifestyle.

Although aging may be beyond your control, one game changer that you have the upper hand in is changing your mind about retirement. As you continue to work, you may realize that you actually do want to retire at a certain age in order to fulfill your life goals of traveling or having more time for your loved ones. For whatever the reason that you want to retire, you will need retirement savings to support your desired lifestyle.

The best thing about this is that creating a retirement plan doesn’t have to be hard or time consuming; here are three ways to create a sturdy plan.

  • Years to retirement:  Calculate the years to your retirement. Determine the age you would like to retire and define the timeframe. You should also estimate how long your retirement years could last (30 or more years in some cases). There are plenty of online calculators you can use for this exercise.
  • Know your risk tolerance:  It is crucial that everyone knows his or her tolerance for risk. By knowing your risk level, you will be able to choose the investments that are right for you and your financial goals. You should pick investments that are personalized to your needs and where you are in life.
  • Contribution amount:  After you figure out the age you want to retire the years your retirement could last and your risk tolerance, you will need to determine how much you should set aside each year to reach your retirement goals. If you decide to contribute to an employer-sponsored retirement plan and your employer offers a match, you should contribute at least enough to receive the full company offering.

Hopefully after reading this, you are now convinced that having a retirement plan is necessary for every individual no matter what stage they are in life. Whether you are only 15 years away or four decades away from the typical retirement age, it’s never too late or too early to start saving. Every dollar that goes towards your retirement counts, so start a retirement plan now to take control of your financial future.

(This has been a guest post by Scott Holsopple.  He is the president and CEO of Smart401k, offering easy-to-use, cost effective 401(k) advice and solutions for the everyday investor. His advice has been featured on various news outlets, including FOX Business, USA Today and The Wall Street Journal.)

photo by 05com

Why Early Retirement Is So Important To Me

why early retirement is importantIf you have ever thought about retirement, I am sure the question of whether you can retire early has accompanied it. With the financial difficulties that this economies brings, many people are forced to work longer than generations before them. While people are forced to postpone retirement, I am planning my early retirement. In fact, I have a crazy goal of retiring by the age of 27. I am 24 right now, so that only gives me about 2.5 years to establish financial security. I want to explain not only how I plan on achieving this, but why it is so important to me.

How I Plan to Retire Early

I know what you are thinking: “If people take 40 years to save for their retirement, how is it possible that a person such as yourself could do it in such a short period?” Before you assume that I have a high paying job or wealthy family, I can assure you that neither of those are true. Instead, I plan on retiring early by shifting the goal of retirement.

Many people in planning for their retirement, save a percentage of their income throughout their long careers. Between the money put away and the compound interest, over the course of their life they are able to save up enough money to live off of during their retirement years. As a result, what happens is that people who are motivated to retire a few years early, make sacrifices in order to get out of their job. This often results in the connected idea that you have to wait until you are retired to do what you really desire to do.

When I started thinking about my retirement, I realized that I didn’t want to wait that long and I didn’t want to have to sacrifice too much in order to retire early. For example, I knew I didn’t want to live on the street just so that I didn’t have to work. Instead of trying to build up a lump sum to live off of, I hope to go about it a different way. I plan on creating passive income streams that will generate enough income to replace my day job. If I can generate enough income from my investments, I won’t be forced to work to earn a regular salary. I am starting by creating an online portfolio of blogs that are earning money. Once I have enough money saved, I will invest this money into real estate for a longer term investment. By focusing on cash flow instead of a lump sum, I am able to retire much earlier.

I recognize that maintaining these efforts will take some time, but I should be able to manage it in 3 days a week. Because I don’t see retirement as sitting around doing nothing, I am perfectly okay with this. Plus, I would rather work 3 days a week sustaining my income than stay in the rat race, working 40-50 hours per week.

Why I Want to Retire Early

If there is anything that I have now become passionate about, it is about my goal to retire early. My early retirement plan isn’t just about making lots of money and sitting around. Instead, it is about so much more. My plan to quit my day job and sustain my income from online efforts and real estate is ultimately about giving myself the freedom to make a significant change.

I don’t just want to be as wealthy as possible or have all of the newest things. I don’t see fulfillment in these things. Instead, I see my goal as a way to give myself two more days each week to volunteer for worthy causes. There is a lot of change that I would like to see in this world and if I can contribute to changing for the good, it is worth every effort to make this happen.

Too many people are stuck in 9-to-5 jobs and can’t be a part of anything meaningful because of their life commitments. I have been in college and now graduate school for the past 7 years and I know the feeling of constantly being busy all too well. Because I don’t want to the person who can’t help with anything, I am working towards financial freedom in order to free up my time while I am still young.


What would motivate you enough to retire early?

(This was a guest post from Corey at Passive Income to Retire and 20’s Finances. He writes to provide important information for young people while generating an income that will allow him to retire by the age of 27.)

Start Thinking Like a Millionaire in 2012

millionaireYou know, it’s funny if you think about millionaires. Did you know that a majority of millionaires literally “thought” their way there by saving and spending less than they earn? It’s easy to come up with excuses for why you can’t earn your first million, but I don’t want you to become part of this crowd in 2012. I want you to break away from the herd and pave your own path toward your first million. 2012 is the year you start getting serious about your finances and achieving your goal of becoming a millionaire.

OK, so you’re excited to become a millionaire, but to get there, you need an action plan! I’m officially challenging you to follow the next few steps in 2012. Write them down if you have to. Read them every day. It’s going to take a 180 in your mind for this to happen. Let’s dig in:


Earn more income

It’s not good enough to stick with your current salary or hourly wage in 2012. Shoot for the stars and get yourself a raise. With rising inflation and an uncertain economy, earning more money is now more important than ever! If a raise is out of the question, stop relying on your employer. Make 2012 the year you start your own side business. It could be a simple side gig walking dogs on the weekends and could be as involved as launching a new blog. Whatever your passion is, follow it and the money will follow. Make it your priority to increase your income this year. No excuses, play like a champion.


Live within your means

Enough with the “I’ll pay it off next month” mentality! In 2012, you’re going to stop thinking like this. No matter your situation, if you can’t pay cash for something, don’t buy it. What’s the point of trying to look like a millionaire when you’re actually in debt? It’s time to hit the Ross’s and Marshall’s of the world, folks. Check your pride at the door because you’re going on a mission in 2012. Start with the little things in your life. Do you own too many cars or too big of a house? How many credit cards do you have? Perform an inventory and give yourself a grade. Once you have your grade, start taking steps toward an A+ grade. After a while you’ll get into the habit of living within your means. The hardest part is taking the first step. Take that first step in 2012.


Diversify your investments

If you want to avoid the financial ruin that so many Americans have gone through in the last couple years, you’re going to need to diversify. Diversification of your assets is essentially reducing your risk, thus creating a better opportunity to reach your first million. If you haven’t already, open a Roth-IRA or invest your money with Betterment. Whatever you choose to do, pick some low cost index funds and start investing for the long haul. Remember to keep a bond percentage that makes sense for your future, keeping in mind the timeline for all of your investing goals. You shouldn’t take any unnecessary risk.


Automate everything

Look, part of the problem these days is too much involvement in finances. Instead of wondering if you’re investing enough or covering your bills, why not automate everything so any money left over is spending money? Going into 2012, I want you to think about what you can automate. What about your 401k and Roth-IRA plans? Put those on autopilot so your future million is secured. Assuming this money is being invested in a diversified portfolio, your first million will be easy if you don’t even have to think about it. The same goes with expenses and bills.


Ignore the noise

Much of the success of numerous millionaires comes from the habit of ignoring the noise. What do I mean by this? It’s things like business television, avoiding instant gratification in stores, and owning your vehicles instead of taking out loans. In 2012, I want you to ignore CNBC, turn off the news, and focus on increasing your wealth instead. Stop worrying about the day to day market trends and attempting to “strike it rich quick.” Slow and steady wins the race towards a million dollars. Ignore what your neighbors are doing and avoid “following the herd.” Pave your own path to success and go about it quietly. A million bucks is closer than you think.


Going into 2012…

Take these steps and start developing your action plan. Stop stalling and following the crowds, it’s time to start thinking long term in 2012 and achieve your dream of becoming a millionaire by retirement. Who’s with me?!


After the Crash – How to Survive a Stock Market Freefall

stock market freefallIn today’s rocky financial market, do you have days when you wonder should I still be investing? Trust me. I do, too.

Most of us have had that passing thought at one time or another and even more so in the last few years since the big stock market crash.

It seems one day the market goes up only to go back down the next day. Even though the market continues to have its ups and downs it is still important to look to the future and while you should possibly make some tweaks in your investment planning, you absolutely should still continue to invest. Here is a lowdown of what you should be doing to protect your financial future.


Keep Funding Your 401(k) And Your Roth IRA

While you may not be seeing huge returns right now, that does not mean you should stop funding your investment accounts. Make sure your funds are allocated in such a way that you feel comfortable and at the very least make sure you are contributing the maximum yearly amount to your Roth IRA and any employee match to your 401(k).

Even if your company pulled the plug on the 401k match, that doesn’t mean you should stop contributing. Remember: if you’re not saving for your own retirement, then NO ONE is.

If you’re a small business owner, now is a better than time than any in opening a business retirement plan. A very inexpensive option is the SEP IRA. The rules of the SEP IRA allow you to invest up to 25% of your income (depending if you’re a LLC or individual) each year. That’s a huge business expense as well as investment in your retirement!



Yes you have heard it before, make sure you diversify your investments. Even young investors probably don’t want to put all of their funds into risky options today, but at the same time you shouldn’t have your entire portfolio in bonds, for example. Carefully consider your age, your financial goals and work to create a portfolio that will make sense for you.

If the stock market isn’t your thing, then consider Peer to Peer Lending. Companies such as Lending Club and Prosper allow you to act as the bank loaning small increments to those in need and collecting on the interest.


Consider A Roth Conversion

If you did not jump on the opportunity in 2010 to convert a traditional account into a Roth IRA you still have time. Prior to 2010 you could not make such a conversion if your AGI was $100,000 or over.

In 2011 just like 2010 your income does not matter and anyone can convert. For many, now is a perfect time to convert as account balances are still down which means you will owe less tax dollars on the conversion.

Applies to old 401k’s, too. You have the ability convert old 401k’s into Roth IRA’s, too. This is only an option if you are no longer with that employer.


Perform A Check Up On Your Retirement Plan

Periodically you should review your retirement plan, after all times and circumstances do change and your plan may need to change as well. Being proactive will help to make you aware of any possible shortcomings, etc.

Planning for retirement is serious business and if you do not plan accordingly you could be scrambling once you do hit retirement age. Take the time now to review where you are and what you need to do here and forward to be financially ready to retire when the time comes.


Everything Else You Should Be Doing

In financial times like today, it is increasingly important to make sure you are on top of your finances and seize every financial opportunity that comes your way, no matter how small. Be smart about your money. For example, if you have credit card or other debts, pay them off. Make sure you have an emergency fund and find an account to keep it in where you are at least making more than 1% return each year. Make sure you are contributing to matching employee accounts and watch your spending habits. Bottom line, every financial decision we make today can make a difference in our future.

(This has been a guest post by Jeff Rose, an Illinois Certified Financial Planner  and also offers term life insurance in Illinois who authors the blogs Good Financial Cents and Soldier of Finance. He is a father of 3 awesome boys, husband to the coolest chick on the planet, In-N-Out Burger junkie and Crossfit addict.)

Start Your Long Term Savings Before It’s Too Late

long term savingsDuring an economic downswing, many people shy away from investing. After all, when spending decreases, and unemployment rates increase, investing in your future may seem like a giant leap of faith.

Historically, the stock market has always recovered from every economic downturn, and generally can be relied upon as a safe place for long-term investment. Consider investing as part of your plan to save money for your future.


Long-term vs. Short-term Investments

Short-term investments often don’t pay off during an economic downswing. They can have high returns in a few weeks or a few months, but entail additional risks not usually found in long-term investments due to sudden fluctuations. When the economy seems volatile, you don’t want to expose your capital to the risks found in short-term investments.

Instead, invest money to save for retirement, focusing on investments with more robust gains garnered over the long-term rather than trying to gain from short-term volatility.

You can invest smaller amounts of money over a long period of time when you focus on long-term investments. Slowly but surely, your investments grow, and by the time you reach retirement you can have a tidy sum set aside to supplement your other retirement income.


Important Investment Strategies to Consider

If you have never invested before, the process may seem intimidating. Working with a professional financial advisor can assist you in planning for retirement. Financial advisors help assess risks and the amount of money you have available to invest, and recommend the wisest investments for you and your family.

Some strategies to help you begin investing include:

1. Begin Saving for Retirement With an IRA
Traditional IRAs and Roth IRAs each have a different set of benefits and drawbacks. Investigate both options before choosing the best one for you.

2. Strongly Consider Investing in a Mutual Fund
American-based Vanguard offers mutual funds for investors. The company has an excellent reputation and offers many investment options. A Vanguard funds manager can work with you to determine your financial goals and to help you with your investment choices. Thoroughly research any mutual fund before investing.

3. Open a College Savings Plan
If you have children or plan to have children, open a college savings plan. The two most popular options are the 529 college savings plan and the Education Savings Account (ESA). The plans provide tax benefits for participants saving for their children’s college education.

4. Diversify
You may have heard this tip before, and it still rings true. Make sure you have a well-balanced, diversified portfolio. Spread assets around, rather than placing all of your savings in one type of investment. Invest across a mix of stocks, bonds, cash, and international funds. Within your investments, diversify between different sectors and industries. Diversifying your portfolio helps you to manage your investment risk and protect your savings in the event of an economic downswing.

Don’t set up your portfolio and then forget about it until retirement time. You need to review your portfolio periodically, at least quarterly, to make sure no revisions need to be made to your plan. Meet with your financial  adviser  annually on a more frequent basis, depending upon your needs. Your investment portfolio needs regular care and maintenance in order to flourish.


Final Thoughts

These tips can help you begin saving for your future, but you need to conduct additional research before investing your savings. Further educate yourself by meeting with a financial advisor, taking classes, or joining an investment club – or simply do research online or at your local library. Your willingness to learn helps ensure that your investment portfolio will pay off during your golden years.

What’s your strategy for investing for the long run?

(This has been a guest post by David Bakke who is a contributor for the  Money Crashers  personal finance blog. He covers financial topics including budgeting, finding the best shopping deals, investing, and planning for retirement.)

10 Steps I’m Taking to Become a Millionaire

become a millionaireI’ve seen one too many blogs talk about 5 or 10 steps that people can take to become a millionaire.  Well, I want to do something different and share with you ten steps I’m taking to reach my first million.

Instead of giving you another list of general steps you can take, the steps I’m making are going to be personal and much more specific than what you’re probably expecting.  I really believe that sharing my story and specific events will impact you far greater than a general article about “becoming a millionaire.”

If you want general steps, I highly recommend my 7 day e-course “Retire a Millionaire” (yes, you should subscribe!).  I know not everyone is going to want to know my more specific steps related to my personal life, so this course might be right up your alley.

Before I get started, I want to make it clear that I’m young (23) and have no debt.  These two things alone are on my side.  Now, I’m not saying that if you’re 40 it’s impossible to become a millionaire.  It’s very possible, just much, much harder.

Let’s dig in, here are ten specific decisions I’ve made or plan on making to become a millionaire and retire early:


1. Create Multiple Streams of Income

This one is huge.  Unless you’re a doctor, lawyer, or work in the government, it’s going to be hard for you to become a millionaire.  With salaries freezing, skyrocketing inflation, and a US economy that is headed nowhere, one income is not going to be enough.  I came to realize this living in San Diego.

I make an above average salary and I still feel pinched for money!  All the more reason to be frugal I guess.  However, that’s not the life I want, constantly worrying about the cost of coffee or buying the cheapo toilet paper.  Not me, no thanks!  I’d rather increase my income and live comfortably.

So, what is my second income stream?  Well, this blog of course!  After graduating college, I wanted to start a business that could go with me where-ever I traveled and it had to be something that I was interested in.  A personal finance website just made sense.  Since starting in December of 2010, this site has grown exponentially and it has made a huge impact on my finances.  As the income from this blog grows, the sooner I can retire and the sooner I will be a millionaire.


2. Investing 20% of my Income

Twenty percent might seem high to the average American, but guess what, it’s a reality!  We don’t know what taxes are going to do in the coming years and we don’t know where inflation is headed.  Save tons of money and start saving now.  For me, 20% is a nice chunk of change that I invest regularly through Vanguard.  I also recommend brokers like Options House and Betterment.  Money is automatically taken out of my paycheck so I don’t even think about it.  If you don’t know what automating you finances is, go here for a great resource.

Although I invest a large percentage of my income, don’t be turned off if you can’t do that!  You have to start somewhere.  Whether that is 2% or 7%, start investing now because compound interest is powerful.  Do make it a goal to invest 20% of your income at some point.  You really need to ask yourself how bad you want to retire.  Do you really want to be working the rest of your life?


3. Building up a $10,000 Emergency Fund

I’m half way there and I’ll hit this goal by the end of next year.  Having a hefty emergency fund is critical in times of distress.  If you lose your job, what are you going to do about income?  If your car is totaled, what now?  These are events that are more common than not.  You need an emergency fund to protect yourself from debt during these times.  Avoid debt and making your first million will come easy.


4. Living as a Minimalist

I’ve only been a minimalist for about a year now.  I graduated college and realized I had tons of useless junk and things I kept “just cuz.”  Well I decided to become a minimalist and own very little!  I’m 23 and all my personal belongings still fit in my car!  It really does feel good but I have a feeling that’s going to change when I get married next year haha.

Living as a minimalist will help me avoid unnecessary purchases and free op more of my money for investments.  I’ve already seen this lifestyle save my butt a couple times.  I’m sure it will save me many more times.  If you aren’t a minimalist yet, what are you waiting for?


5. Cashing in on Credit Card Bonuses

Seriously, what is the scare with credit cards these days?  I place part of the blame on Dave Ramsey.  The rest of the blame goes on people’s ignorance.  Credits cards are not of the devil and shouldn’t ruin people’s lives?

I believe the opposite.  I enjoy playing a game called the “credit card shuffle.”  Basically, what I do is open a couple credits cards in a year and space them in intervals.  I hand pick certain credit cards with the highest bonuses.  For example, I will be singing up for the American Express Starwood Preferred Guest card.  Earn up to 25K bonus points ” 10K with your first purchase and another 15K when you spend $5K within the first 6 months of Cardmembership“ enough for a weekend getaway to a Category 4 hotel like the Westin Savannah Harbor Golf Resort & Spa.  This is one example of literally dozens of cards that offer similar bonuses.

I typically over four cards over the course of a year and just keep doing that every year.  My credit score stays high and I make close to $5,000/year using this money scheming strategy.  Credit card companies may hate me, but I love them.


6. Driving my Car into the Ground

If you don’t know my story about paying my Acura TL off 52 months early, check out the article here.  Looking back, I shouldn’t have taken out that loan, but I did anyways.

Thankfully it all worked out and I was back to living debt free again.  I originally purchased that car to be my ride for years to come.  I wanted something reliable, powerful, and fuel efficient.  The TL provided that.  And guess what?  I’m going to ride it into the ground!

I plan on taking care of the paint and always doing regular maintenance on it.  The plan is to baby this car and drive it until it dies.  By avoiding expensive car purchases, I avoid taking on debt and a reduction in my cash flow.  Instead of money going towards a new car I can invest it towards retirement.


7. Living Debt Free Until I Die

This never seems to be a hard one for me.  I don’t know if it comes from the way I grew up or something that has developed over time, but living in debt is not something I’m personally fond of.  I will steer clear of situations where I could get into financial trouble.

I’m always looking out for deals and shopping at discount retailers.  To be honest, the word “debt” is not in my vocabulary.  You also won’t see any stories about me getting out of debt, I really do hate it that much.  I hate it so much that I refused to graduate college with debt.  Please feel free to check out how I did it.

With a positive cash flow being a benefit of living a debt free life, more of my money will be available to be invested and multiplied.  I believe this is a critical component to my long term goal of reaching my first million.


8. Marrying a Frugal Wife

I don’t know if this is politically correct or not, but I’m marrying the most beautiful, amazing, and frugal woman in the world.  You can see a picture of us on my about page.  If you are reading this and searching for that special someone, I would recommend you finding someone frugal!

Not so frugal wives can wreak havoc on your finances and destroy your dreams of retiring early.  You have to find someone who shares your passion and vision for the future.  If you’re worried, just ask to see her wallet.  One glance will tell you what her spending habits are like.

Because I’m marrying someone who is just as frugal as me, not only is it easy to save money but we both have fun doing it!


9. Reading Financial Blogs and Publications

Like anything in life, you never want to stop learning.  I’m always on the lookout for new information and money saving tips.  I choose to read various personal finance blogs and publications.  For finance blogs, my “go to” sites are ChristianPF, Bible Money Matters, and Consumerism Commentary.  When I’m in need of something more in depth or more numbers based, I always head over to Morning Star.

I would never want to be in a position where my goal of retiring a millionaire was in jeopardy.  Being “in the know” not only protects my investments but helps me make better financial decisions.


10. Living Below my Means in Every Area of my Life

This is just common sense.  Take housing for example.  I would say most Americans choose to live beyond their means and live in luxurious apartments or homes.  Why not take it down a notch and live somewhere humble?  Yes, it will hit your pride, but your wallet will be super happy.

I could have followed the crowd and chose to live in a condo requiring two paychecks a month.  Instead, I found a modest house and found some roommates.  I ended up paying 3/4 of a weekly paycheck.  It’s not the nicest place or the nicest neighborhood, but I’m definitely living below my means.

This type of mentality will make a huge impact on how soon I reach my first million.  If you ever see me straying from this, shoot me and email and tell me to shape up!  Let’s keep each other accountable.


Join the Millionaire Club

Join me on this journey!  Hopefully my ten steps above will help you on the way to reaching YOUR first million.  I know that your steps will be different, so comment below with your top tip.  Sharing is caring 😉

Roth-Ira, Making Your First Million

It  boggles  my mind how many people out there have no idea what a Roth-Ira is. They simply assume the only tax efficient way to invest is through company sponsored 401k plans.  Oh how people are wrong!  Roth-Ira’s are the bread and butter of any wise investment plan.  It is the only investment vehicle where you invest post-tax dollars and will never be taxed again on the money you initially put in or future earnings.

Now, to make this clear, let me back up.  When I say a Roth-Ira is an “investment vehicle,” I’m saying that’s it’s a method for holding other investments.  A Roth-Ira by itself is not an investment.  One would utilize a Roth-Ira for a wide variety of investment choices.  It’s one awesome investment tool!

Let’s get down to the basics:

– A Roth-Ira is an investment vehicle that holds investments within it. It’s a vehicle for other investments.  Think of a Roth-Ira like a car.  The passengers within the car would then be your investments like CD’s and stocks.  A Roth-Ira is only an account that holds investments within it.  You can invest in a wide range of investment choices including: stocks, mutual funds, CDs, money market funds, index funds, and ETF’s.

– It can be opened virtually anywhere. Banks, online brokers, mutual fund companies, pretty much anywhere you look you can open a Roth-Ira.  For banks, I recommend a small scale credit union in your local area.  For discount brokers, I recommend the Vanguard Group.  And for mutual fund companies, I recommend the Vanguard Group again haha.  Yes, Vanguard is pretty much “baller status.”  They have the lowest fees by fast and have the widest range of fund options out there.  Just do yourself a favor and start investing through Vanguard.  They truly are on your side.

– You get your choice of investments to place within the Roth-Ira. This is where the beauty is!  You can have literally ANY type of investment in your Roth-Ira account.  If you are conservative, I recommend CD’s though your local credit union.  If you’re a little riskier like me, I recommend index/mutual funds though a discount broker.  And if you’re seeking adrenaline, you can purchase individual stocks through a broker.  Isn’t freedom amazing?

– Roth-Ira contributions are post-tax dollars, so you never pay tax on your investments ever again! People get this confused all the time.  A Roth-Ira is the only investment vehicle that take your post-tax money, invest it, and is never taxed again.  Yes, you heard me right.  Even your capital gains are never taxed.  This means your money grows tax-free indefinitely, so start investing TODAY.

– You can withdraw your  contributions, penalty and tax free. This really is an awesome benefit to a Roth-Ira.  It’s a peace of mind for me when money gets tight.  I almost see it as a backup emergency fund.  Although I have an official emergency fund, it’s nice knowing that I can take out money from my Roth-Ira tax-free unlike 401k plans which you can never touch.  I want to make it clear though, although you can take out your contributions, you may not touch the interest made.

– Catch up contributions available. This is an added benefit for older investors.  If you;’re age 50 or older, you may contribute an extra $1,000 to your Roth-Ira account.  The federal government understand that one may not have invested in their younger years so they provide a way to “catch up.”

– Relatively high income limits. Unless you make an obscene amount of money, Roth-Iras are great for millions of American investors.  The government has set income caps for investors, preventing high earners from tax sheltering their money.  As a single, you can contribute to your Roth-Ira if your income does not exceed $122,000.  If you’re married, your household’s income cap is $179,000.  It is highly improbable that you will ever make this much, so the average American does not need to worry.  If you were making that much money in the first place, who needs a Roth-Ira anyways right?!

– Ability to open multiple Roth-Ira accounts at multiple locations. Although the maximum you can invest to a Roth-Ira is $5,000 for 2011, you can have multiple accounts at various institutions.  However, this is not wise.  It can get complicated and messy when it doesn’t have to be.  Also you run the risk of exceeding your yearly contribution cap.  And this means huge tax implications!  So keep things simple and open all your accounts in a single location such as a local bank or online broker like TradeKing.

– Low or no management cost. This is a huge selling point for a Roth-Ira.  They have little to no management and upkeep fees.  Many brokers and banks have a minimal annual fee on an account but many waive this.  And if you keep it relatively low cost with index/mutual funds, you’re looking at fees ranging from .01-1%, depending on what you choose.  For example, I like to stay widely diversified, so I hold a “fund of funds” in my Roth-Ira.  It’s the Vanguard 2050 Target retirement fund.  It has a fee of .19%, which is  negligible  to me.  I recommend you search out the lowest fees possible in your quest for Roth-Ira funds.

Now, where to open a Roth-Ira account?

You have a  myriad  of investment choices.  You literally can open one almost anywhere.  It all comes down to what investments you want to make.

If you’re looking for strictly conservative investments like CD’s, I would say just walk down to your local credit union and open an account with them.

If you’re looking for mutual funds, ETF’s, and index funds, I would recommend Vanguard.  I use them for the majority of my retirement accounts.  They have the lowest management fees out of anyone I know.  Also, ETF trading is FREE with Vanguard.  I’m an advocate for ETF investing vs. individual stocks picking, which I also call gambling haha.  There’s no such thing as easy, quick money.  Investing for the long haul is the only way to do it!

If stocks is your game, go with TradeKing.  They are rated one of the top three online discount brokers.  I have a personal “play money” account with them.  They have low trading fees ($4.95) and no hidden fees.  Their trading platform is great and they have a wide variety of investments including stocks, mutual funds, bonds, real estate funds and many more.

Well, that concludes my introduction to Roth-Ira accounts.  I hope it was informative and useful for you.  This is the easiest way to make your first million and take a giant leap toward securing your financial future.  Take this knowledge, go out and start investing in the best financial vehicle out there, a Roth-Ira!