A road map to Financial Independence.

[Shervin]

Most individuals and starting families need a fundamental plan to reach their financial goals...those that do not set goals are not planning to fail... but failing to plan.



Every financial home start's with a foundation, a foundation refers to proper life insurance (income protection). Most agree that anywhere between 8-12 times your income (Net) is what you should have in the form of life insurance, group (employer provided) insurance should not be taken as a secure form of protection, it should also include additional benefit's in the event of a terminal illness. If you have children, a mortgage or debt that can passed on to survivors... you are a candidate for life insurance.

The majority have thought about it but never got around to it, a smaller percentage carries some form of it but either not enough or the wrong kind (Cash Value), some don't think it's important to protect their families standard of living or maybe feel it's too expensive to afford. Ever stop and think about why you pay car insurance... no one enjoys sending that check every month but should an accident occur...you should be getting the picture by now (for questions, comments & concern's, PM me), moving on...

In conjunction with establishing a secure foundation by securing a bread winners income with proper life insurance including terminal illness (@ least 40% your policies death benefit) make sure you also have a will in place, because if you don't (in Florida at least) The state has one for you. If you're familiar with the Terri Schiavo case you know what I am talking about, if you don't, harness the power of google and look it up!

In the middle of your financial home are the window's, in this illustration it's considered debt, think of it this way, if you've got any debt that's pretty much where you money's going...out the window. This is where things go very wrong in planning for a financially independent future, where families think about retirement and future educational expense's when all the while carrying a balance on 2,3,4 even 5 credit cards...high interest (15-29% interest), revolving credit, paying min. balances!!!

If you do not have enough equity in your home to refi and cannot secure a personal load to consolidate all of your consumer debt (credit cars, car loans, and yes your mortgage) then create a debt stacking strategy where you pay high interest balances off first and work your way down until a zero balance. One your out of that rat race it's important that you stay out, remain disciplined and consistent until you reach your goals. Keep in mind that the biggest investment you will ever make is................................................ ...Not your home!

It's your mortgage! So pay if off as soon as possible, it helps to keep your eye on the end result. Just think what you can do with the extra money that would be available to you if you paid off your home in 20-15 years. Bi-weekly payments speed up amortization so implement it, most individuals get paid bi-weekly anyways.

Retirement is an event that for most of us will happen in 10, 20, even 30 years. It's likely that your kids will graduate from college before you retire, wouldn't it make sense to lower, if not completely eliminate your debt (remember 15-29% interest) so where saving (not speculating) at a modest 6-12% would make sense? (I am referring to diversified mutual funds not day trading or buying and sitting on gold folks.)

When it comes to setting aside for your kids future educational expense's keep in mind that you are NOT your children and it is possible that they won't want to pursue your ideals. Invest in a vehicle that allows for the most flexibility with minimum penalties should they decide that the burger shack or entrepreneurship w/o a college degree is good enough.

Lastly retirement....I strongly believe that EVERYONE that can should max out a Roth IRA, the biggest difference between a conventional IRA or a 401k is that if it is held for more than 5 years it grows tax deferred and withdrawn after the age of 59-1/2 is tax free! That can mean the difference in hundreds of thousands of dollars in certain case's! Take the time you have remaining until retirement into consideration as well and don't get into an aggressive fund when you don't have time for volatile swings, be conservative if your in your 50's unless your in it for the thrills. Also keep in mind that that inflation peaked at around 5% in 2008, make sure to factor that in when looking at a funds ROI (Return on investment.)

Einstein said it best..."The most power force in the universe is the power of compound interest" so start early and max it out! ($5k in 2008, $6K for those 50+ in age) 401k's where the employer is contributing are great, put in as much as they match but no more, there is sure to be other vehicles that can get you a better return than your 401k but again don't deny an employer offering free money and put in only as much as they match, invest the difference yourself.

Additional points to remember:

-It's not what you make it's what you keep.
-Discipline is only the beginning, consistency is key to reaching financial independence.
-Stop using your credit cards for big ticket items unless you already have the funds to cover next months bill in full!
-If the problem is with a spouse discuss it or if applicable seek counseling, both must be on the same side for it to work.

[Shervin]

Can't edit polls (bummer) it's supposed to read:

*I feel that I'm on track and review my financial plans periodically.
*Dude! We're out of Miller Lite and Funyons...where's that bowl?

[Cigary]

Good post,,,,seems as though I did this right,,retired at 43 and Im 54 now.

[nativetexan_1]

Cut down on the life insurance. Maybe 2 years net at most. Your wife will remarry and the kids can work their way through college. You are not responsible for their next 50 years if you only live 10. Disability insurance may be the way to go.

Forget the will. Almost ALL wills can be broken if a family member wants to fight it, and probate costs can be extreme. Go for a soundly written revocable trust.

Pay that mortgage off early. Paying for a full 30 years will only make you pay for your home THREE times ($300,000 for a $100,000 mortage). Extra principle payments made early can often pay a year's worth of payments for the cost of only 1 monthly payment. Doubling the monthly payment early can pay off 13 years' worth of principle in 1 year.

I was lucky. I worked in government and have a "defined benefit" retirement plan. If the state runs out of money I'm up a creek without a paddle, but if the state runs out of money, so is everyone else. With 401K's, we have to look at the present economic downturn, Enron, etc. Not always such a good idea. IRA's are also not such a great idea. Congress can change the rules whenever they like. They did that with my IRA and quit giving me a tax break for deposits because I was successful enough to make a certain amount of money. Don't want to pay taxes? Try municipal bonds. Can you spell TAX FREE? AND, you can get your money whenever you want it (which may be a bad plan for some people).

Never, never, never pay interest on a credit card. If you can't afford it, don't buy it.

The standard rules are not automatically good for everyone. I paid off the last of my debt (mortgage) at 42, didn't retire until 52, but what I did was a good plan, for me.

Happy saving/investing!!

[nativetexan_1]

Oh, yeah. Your poll left off "It's done."

[Shervin]

Well the demographic that a plan like this would work for is a 25-45 year old, married, with kids and a mortgage and a certain income so I would assume that some of the people that frequent this forum probably don't fit in that genre.

This post was a response to a thread in another forum that was discussing debt and I decided that I would re-post here and share with my fellow errrr fish... guess I should have specified who I was speaking 2 a bit better.

Well Jerry I'm glad you're doing great, and if your "done" then that would mean that you feel that your on track and you review your financial plans periodically. A Revocable Trust is a good route for some but not for everyone. Up front costs are high, and once your trust has been signed, that's when the party starts. You'll need to call your banks, investment & insurance companies, transfer agents to change account and stock ownership and update beneficiaries, issue new stock certificates or assign partnership or LLC interests for closely held businesses re-title cars and boats and sign and record new deeds for real estate. For many people, this is the major drawback to using a Revocable Living Trust if it's not fully funded, then it's really not worth any of the money spent on it.

A common myth about a RT is that it eliminates all of the work after the Trustmaker dies, all it does is streamline the process by avoiding probate & you'll still need a Last Will and Testament even though you've taken the time to create a RLT. Why? Because if you get frustrated or side-tracked or you simply don't have enough time and your trust is only partially funded when you die, then you'll need a special type of Will, called a Pour Over Will, to "catch" your unfunded assets and "pour" them into your trust. And what's so bad about that? Your Pour Over Will must be probated, which is another reason why funding your trust is so important and a factor you'll need to consider when deciding if you should use a trust since you'll still need a will anyway. Lastly, a Will and Testament can only be contested for 90 days max whereas a Trust can be contested as far as 5 years or more after the Trustmaker dies depending on your state laws. (In Florida it's 6 months after the Trustmaker passes.)

Municipals are a great conservative way of leveraging but some younger (25-45) can afford a little more risk/return because they have time on there side allowing compound interest to do it's thing. If you needed the money, you could withdraw the principal at any time (although you'll pay penalties if you withdraw any of the earnings your money has made). When you reached retirement age, you would be able to withdraw all of the money 100% tax free (Which can mean a couple hundred thousand dollars of a difference for some people). The Roth IRA is going to make more sense in most situations. Unfortunately, not everyone qualifies for a Roth. A person filing their taxes as single can not make over $95,000. Married couples are better off, with a maximum income of $150,000 yearly.

[Shervin]

I personally think they should take Home Economics out of schools and replace it with common fundamentals on how to manage your finances, what good is baking a cake if you can't balance a checkbook!

[mrreindeer]

Originally Posted by Shervin

I personally think they should take Home Economics out of schools and replace it with common fundamentals on how to manage your finances, what good is baking a cake if you can't balance a checkbook!

Totally. Good thread. Gee...I wonder how we got into this whole mess in the first place....

[Shervin]

Originally Posted by mrreindeer

Totally. Good thread. Gee...I wonder how we got into this whole mess in the first place....

And that's not including the other variables that led this country to where it is!

[nativetexan_1]

First, let me thank you for your previous rebuttle (sp?). You were very pleasant.

I totally agree with your comments here. Way too many kids get out of high school (many than leagally adults) without the slightest notion of how to handle money, finance, etc. In my opinion, retirement planning should begin imediately. But, no, the schools are more interested in making every kid a college entrant, which many do NOT need. Seems that a little individual financial understanding would be more important.

[Vagrant]

Actually, here in Nebraska, they had a class like that for sophomores in high school. Or at least I got it when I was a sophomore. I think for most student's it's optional here in Nebraska, not mandatory though. Throughout the class, I made a certain "wage" and chose your expenses. For instance, I chose an efficiency apartment, no cable/internet, I drove a motorcycle(cheap on gas, and cheap on insurance), and saved up because if you had over 20k towards the end of the semester, you could buy your way out of the final.

Honestly, thinking back, it seems like the option of skipping the final is a bad one for the teacher to offer, but I can say I picked up on some things. Now, I'm 18 and am pretty much debt-free, and own the place I live in. *shrug* I slipped by pretty lucky though.

[strider72]

Had a plan... then got married... there went that plan... got divorced.. plan still on backburner... got married to a new one and she is better with money.. the plan is back. Now if the economy would cooperate.

[cowboy kilroy]

I am doing my best to follow Dave Ramsey .I have no credit cards and am debt free except the house and a car payment. So that make being unemployed for now a little easier to handle.

[Shervin]

Originally Posted by Vagrant

Actually, here in Nebraska, they had a class like that for sophomores in high school. Or at least I got it when I was a sophomore. I think for most student's it's optional here in Nebraska, not mandatory though. Throughout the class, I made a certain "wage" and chose your expenses. For instance, I chose an efficiency apartment, no cable/internet, I drove a motorcycle(cheap on gas, and cheap on insurance), and saved up because if you had over 20k towards the end of the semester, you could buy your way out of the final.

Honestly, thinking back, it seems like the option of skipping the final is a bad one for the teacher to offer, but I can say I picked up on some things. Now, I'm 18 and am pretty much debt-free, and own the place I live in. *shrug* I slipped by pretty lucky though.

I think they should make them a requirement to graduate!