Financial Advice For The Spending Addicts

Everyone has those moments when you casually stroll around a mall, then all of a sudden, you stop in your tracks, things around you blur, and the world slowly swirls to focus on the big red sign in front of your favourite store: SALE. Everything with a percent-off tag suddenly looks so irresistible and you cannot just let them fall into other people's hands. These are times when we lose control of our spending. It may seem harmless, but feeling this way at every visit to the mall puts your income at risk and can prevent you from reaching more important financial goals. You need a few financial advice to control your spending to save your money from going down the drain.

The first thing you need to do is to set priorities. Make a list of the things you need and make sure to spend money on them first before other things. If you plan on going to the grocery store, for example, bringing with you a shopping list and sticking to it saves time and money but not putting unnecessary items in your cart. Asking yourself questions like "Can I afford this?", "Do I need this?", or "Have I checked if it's cheaper somewhere else?" can also stop you from buying on impulse.

Next is to spend within your means. One way to do this is by patronising the use of cash over credit cards. Only bring with you the approximate amount of cash you need and leave your credit cards at home. In this case, no matter how tempted you are to buy something beyond your budget, you have no choice but to walk away. Think of credit cards as your "debt cards" because you are spending the bank's money every time you swipe. Make sure your debts are a low as possible so you can pay for them fully on time. Every month you fail to pay makes the value of your debt higher.

The third tip is to make a budget diary. This can help identify the trends in your spending and monitor your total expenses. Have a daily limit on the maximum amount you can spend. If you go beyond it, review your purchases and check where you might have bought something you didn't really need.

Constantly spending more than what you earn can lead you to a financial storm. Before you know it, you no longer have savings for your financial goals and all of what you earn goes to paying your debts. If you reach this point, you can always seek the assistance of a financial adviser to pull you out of crisis.

Is Living in Your House Eating You Alive?

Have you ever wondered whether you are spending too much money on your home?

As any homeowner will tell you, running a household involves many bills, such as mortgage or rent and utilities. And of course, there is regular maintenance and repairs, even if not significant, but just for the simple wear and tear caused by day-to-day living. Taking this into account, is owning your home a viable financial proposition or too much for you right now?

To answer this question, you first of all need to find out what the definitions are of "too much" or "sufficient." Traditionally, the rule of thumb as to how much one should spend on a house has always been three and a half times your annual income, with monthly mortgage payments of around 25% of your monthly net salary. However, treat this generality with caution since it relates to the average guy on the street and not to any one individual. For instance, if you think that your job may be at risk or your car is on the fritz, now may not be the ideal time to commit to monthly mortgage payments based on your current salary. Take a look at your own individual situation before you decide.

Another important point to keep in mind is the difference between a new property's price and the total cost of acquisition. The total cost of acquisition includes the cost of the property, lawyer fees, renovations, moving costs, and miscellaneous expenses such as curtains and new towel rods in the bathroom. The hidden costs can really add up, so they should be part of your total housing budget. Don't forget to factor these into any decision you may make.

Once you know what you can afford to spend, consider buying a less expensive property. After all, since the future is always unknown, it may not be wise to overextend yourself financially.

Keep an eye on your current housing costs. If it's difficult to meet your current obligation, it may be impossible (and unwise) to commit to a larger monthly mortgage. Consider your lifestyle: is your family (and by extension monthly budget) growing? Are you planning an expensive vacation? Are wedding bells - and bills - ringing for your children? Make sure that your future financial obligations and goals won't conflict with the property's purchase, since your house needs to fit into your overall financial plan.

Buying a house may be a solid way of building equity over the long term, but before you make the investment, assess whether you can afford it.

Disclaimer: This article is for educational purposes and is not a substitute for investment advice that takes into account each individual's special position and needs. Past performance is no guarantee of future returns. Douglas Goldstein, CFP®, is the director of Profile Investment Services. He is a licensed financial professional both in the U.S. and Israel. He offers securities through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA and SIFMA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company.

The Impending Retirement Crisis in America

Ah, the good old days; the days when one was rewarded with a comfortable retirement after working long years in a solid company with a generous defined benefit pension plan. Back then it was called it was called the "three legged stool". One's retirement earnings were made up of the 1) company pension, 2) social security and the 3) private funds the retiree was able to squirrel away on his own. Most retirees leaned heavily on pension and social security as primary income sources.

Then, along came that new benefit called 401(k) that was intended to supplement earnings from the retiree's regular pension benefit. All was good, for awhile. Employers then decided that the cost of maintaining two pension plans (defined benefit and defined contribution) was burdensome and unnecessary. Particularly burdensome was the defined benefit plan which was heavily regulated, required significant administrative support, and was costly due to plan funding, actuarial analysis, investment analysis, and PBGC premiums. Of course, we all know what happened after that. Defined benefit pension plans dried up like there was no tomorrow and 401(k) plans became the single primary company retirement funding vehicle for many U.S. employees.

In 1998, 52% of Americans over age 60 received income from a defined benefit pension. By 2010 that figure had fallen to 43%. The decline in the private sector has gone from 38% in 1979 to 15% in 2010 and these numbers will continue to fall; all the while companies are designating 401(k) plans as their pension plan of choice. Notably, a recent study showed that poverty rates were nine times greater in 2010 in households without defined benefit pension income.

Now it has become the personal responsibility of employees, not the employer, to ensure that the necessary funds are in place to fund a quality retirement. Some have taken this responsibility seriously and saved a great deal through their tax-deferred plans and put themselves in a good position to face retirement's financial challenges. Some have not, and many do not today. The Employee Benefit Research Institute reports that 60% of households have a total value of savings and investments less than $25,000, excluding the value of their homes.

The reasons for poor retirement preparation having 401(k) as a primary investment vehicle are many, but certainly insufficient funding, unsteady markets, and unsophisticated investment skills play into the problem. Above all, it appears that people fail to understand how much it costs to live in retirement, and/or lack the discipline to save as much as needed in order to meet their retirement financial requirements. Allianz reports that "transition boomers", those aged 55 to 65, are starting late with their retirement income planning. A recent Allianz survey reported that 43% of people will not focus on retirement income strategies until they are less than five years from retirement. The same report shows that 16% will not begin to focus on retirement income strategies until six months to a year prior to retirement.

Certainly, we're now at the point where serious questions are being asked about the overall preparedness of Americans to move into retirement. Articles abound about the need to work longer and save more in order to fund a comfortable retirement. Many of those that are unwilling to pay the price of later employment and added savings can expect a retirement fraught with financial shortfalls; potentially turning one's retirement dream into a retirement nightmare.

The projected shortfall in retirement funding is compounded by the erosion of home equity; a source of funding that many retirees have seen as a potential income source in the past. And while social security appears to be in no immediate danger, the threat to this benefit cannot be ignored and certainly future changes will not work to better the lot of retirees.

A real danger does exist, however, where Medicare is concerned. This is an expensive benefit and one that, in the minds of many, needs to be amended to save taxpayer money. Unfortunately, this could work to the detriment of future retirees. The Congressional Budget Office has said that most elderly people would pay more for health care with the current Paul Ryan proposal for a Medicare voucher system. With medical expenses in retirement estimated at $240,000 for a 65 year old couple retiring in 2012, according to Fidelity Investments, any takeaways in Medicare benefits will simply add to the retiree's financial burden.

Working longer may not be a reasonable option for future retirees either, because working longer doesn't always come down to personal choice. Many senior employees find themselves caught up in workforce reductions, and finding a new job in the latter part of one's career can oftentimes be challenging, if not impossible. Health problems may also prevent senior personnel from continuing to work and build retirement assets.

The fact is we have a growing problem on our hands. The move away from a defined benefit pension plan to a defined contribution 401(k) plan has changed the retirement landscape in a lot of ways. With the burden now primarily on employees to save for retirement, we know that not enough is being done to adequately fund retirement accounts. According to recent data from the National Retirement Risk Index, the percentage of households that will not be ready for retirement at age 65 has nearly doubled to 50%. This is up from 30% in 1989. And in a recent poll coming out of a senior advocacy group, half of the baby boomers responding indicated they never expect to retire.

Those that choose to drop out of the system before adequate retirement funding is in place, face the burden of an underfunded and unfulfilling retirement; one in which they may become their children's liability and/or taxpayer liability.

Some see the escalating shortfall in retirement funding leading to a retirement crisis in America. I concur.

Author, Mike Miller, writing for Reuters, summarizes the problem this way, "Today's seniors are more affluent than the general population. But the generations that follow them, starting with baby boomers, will not be as fortunate. The decline of pensions, the erosion of Social Security and the housing crash all are pointing toward a new crisis of poverty among lower-class and middle-class seniors in the years ahead."