By now, many have given up on their New Year’s Resolutions to eat healthier, go to the gym or remove vulgarity from their speech, but there is another resolution not to give up on so quickly – to begin (or restart) saving toward your goals. The United States Personal Savings Rate has recovered from historic lows prior to the last recession, but is still short of the long term average. Whether it is for a dream vacation, a child’s wedding, or simply for a “rainy-day,” savings is essential to the financial health of all, young and old. In an era of credit card dependency, the only way to greater financial freedom is to deliberately plan for and save for the future.
Savings is both short term and long term in nature. Earmark which accounts are short term savings accounts (the savings you have setup to cover checking account overdrafts and dining out money) and which accounts are long term savings accounts (dream vacation fund or retirement savings). Many people do not have the discipline to save as those in previous generations did, but there are numerous strategies to ensure you meet your goal(s) including the following:
- Clearly establish your savings goal(s). What are you saving for? When will you know you have met your goal? Why is it important for you to save for this goal? Not all goals have a clear dollar amount, but make it clear up front, as it will provide you additional motivation to stay the course.
- Set aside a predetermined amount to be transferred into a “special account” every time you are paid. Your bank can most likely set this up to occur automatically, or better yet, set it up with your employer using direct deposit. Alternatively, you may consider setting up regular investments into a mutual fund for longer term savings goals. The underlying point is as long as the money is not in your checking account, you are less likely to spend it on superfluous items. Begin saving an amount you know you can manage, and then gradually increase it. Many experts recommend you save at least 5% of your after-tax income.
- Your “special account” can be your workplace §401(k)/§403(b), your IRA, a brokerage account, your Christmas/Vacation Club account or your “general savings account.” Depending on your situation, you may be saving in several of these accounts at once in various amounts.
- Setup ground rules for when the funds can be withdrawn from the account. If you are directing your savings to a retirement account or club account, the withdrawal penalties will most likely discourage you from prematurely dipping into the funds, but since you have increased access to your “general savings account” it is essential you set withdrawal parameters so you do not fail. Consider deactivating the ability to take ATM withdrawals from your savings account or deactivate the ability to move money online. By forcing yourself to go to a bank branch to make a withdrawal, you will resist the impulse withdrawal to purchase the latest technology gadget.
- Review your own progress towards your savings goal(s) periodically. For some this may be as little as annually, but for most it should be monthly.
The American Institute of Certified Public Accountants (AICPA) has launched the “Feed the Pig” initiative to improve help people increase their savings. It is filled with interactive tools and resources to motivate you to make a savings commitment. Please visit www.feedthepig.org. There is also a site geared exclusively towards “tweens” (and their parents/teachers) who need to learn healthy financial habits before they are bombarded with credit card offers on their 18th birthdays. Please click here to visit FEED THE PIG
By sitting down and revisiting how you are intentionally spending the money you work hard for and establishing a savings strategy, you will not only keep a New Year’s Resolution, you will increase the level of control you have over your finances and will feel significantly more empowered and gratified when you can comfortably pay for your dream vacation, or your child’s wedding, or the latest life-changing technology gadget…with CASH!
Please contact us to learn how a regular savings plan is only a part of our Chronos Wealth System.
According to a well-known gauge of the U.S. housing market, home prices have been on an upswing. The latest S&P/Case-Shiller 20-City Composite Home Price Index, which was released in May, posted its biggest gain in seven years. This improvement has spurred renewed optimism about housing’s role in the country’s economic recovery.
What does the latest S&P/Case-Shiller home price index reveal about home prices?
The 20-city index–one of several S&P/Case-Shiller housing indices–showed a 10.9% gain between March 2012 and March 2013, the highest increase since 2006. In addition, all 20 cities tracked by the index had gains for three straight months.While the numbers certainly give homeowners and real estate investors cause to be optimistic, it’s important to note that not all cities saw the same price increases. Both San Francisco and Phoenix saw large price jumps of more than 20%. However, New York and Boston had smaller gains of 2.6% and 6.7%, respectively. What factors are driving the recovery, and what do rising home prices mean for the economy as a whole?A variety of factors are driving home prices up, such as low housing inventory, low mortgage rates, and a decline in foreclosures/short sales.As for the economy as a whole, rising home prices often serve as an indicator that the economy is performing better since it generally demonstrates increased consumer confidence. And while this latest report is good news for homeowners looking to sell, it also provides welcome news to underwater homeowners who may now see an increase in their home equity.
It is important to note, however, that other economic data–such as the large number of institutional investors buying properties to rent–suggests that there is still a ways to go in terms of a full-fledged housing recovery.
Could this all lead to another housing bubble?Today’s economic environment is different than the one that led to the housing bubble burst in 2006. Those differences include a tighter mortgage lending environment and houses that are still undervalued at prices that are significantly lower than they were at their 2006 peak.
IMPORTANT DISCLOSURES Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
With the Markets daily hitting new highs with little pullback, it may make you remember the “go-go” late 90’s. Then the “new paradigm” of stock valuations justified the high prices despite zero or negative earnings. The market went so high most of us ended up with ”nosebleeds”. This time is very different.
Most substantial bull markets are accompanied by new theories trying to explain the market and why traditional valuations using P/E multiples no longer seem to be valid valuation metrics. In the current rally, P/E multiples on stocks remain in-line with historic average levels. The market is hitting new highs, but valuation multiples are not! Thus, we believe the fear of nosebleeds at this market level might be a bit premature. We would expect P/E’s to rise dramatically if we were going to see a significant drop, but currently stocks seem to be fairly priced.
If the muddle-through economy continues, stocks should continue up on a reasonably trajectory. We still have some worries about the weakening effect that the sequestration and cutbacks in government spending will have on our nascent recovery, but this is precisely why we re-balance portfolios and stay invested in our asset allocation to reduce overall portfolio risk.
We have received several inquiries from clients about re-balancing their portfolio now that the market is reaching new highs. Rest assured that as part of our normal process, we review each portfolio at specific intervals and recommend re-balancing when the portfolios are out of alignment with each client’s long-term goals. Even when markets are volatile, we keep an eye on the allocation drift and, as we monitor it, we may make a recommendation to re-balance the portfolio more than our customary semi-annual re-balance.
It is important to note that a proper re-balance strategy is done at set intervals and must balance the need to keep things in alignment with the need to keep transaction costs low. The near-impossibility of perfectly timing a market bottom or top is why we stick to our knitting and follow the plan. Remember, you must have a long term perspective to be in the market. A reasonable approach to asset allocation and re-balancing will do well for the vast majority of investors and help avoid the fears of nosebleeds and market crashes.
If you are having a market “nosebleed”, give us a call at 877-448-3400 and we can help you with the proper cure!