The Basics of Benefits Enrollment Packages

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Photo courtesy of Brennan Clark on Flickr

When you think about your compensation, do you immediately think of your salary?

Most people do. But your salary is only one part of your compensation — and if you fail to account for the other aspects of that, you might be missing out.

Those other aspects, of course, are your benefits. As open enrollment season approaches, it’s worth considering the basics of your benefits package. By optimizing the benefits you use, you may keep more money in your own pocket — which is money you can then save and invest.

Here’s what to keep in mind.

Get the Right Health Insurance

One of the biggest benefits of working with a company is the fact that you get access to group insurance policies, which are far cheaper to utilize than buying your own private insurance.

The obvious policy you want to get through your employer is health insurance — but what might not be so obvious is the right choice of all the policies you can choose from.

Many people opt for the plan that offers the lowest deductible possible (which can still feel pricey even when it’s the smallest amount available). That makes sense if you want to minimize what you could be on the hook for paying out-of-pocket.

But you might want to at least consider a high deductible health plan or an HDHP. Yes, the deductibles are high. Some run into the thousands of dollars for individuals and even more for families, which can feel like a bad idea to take on if you know you’ll have to pay so much for healthcare.

HDHPs, however, remain a good option for two main reasons. For one, your monthly premium payments will be lower. That keeps more money in your pocket — which you can then use to save into an account that an HDHP gives you access to a health savings account.

HSAs are the second reason why HDHPs make a lot of sense. They offer tremendous tax advantages.

You can deduct your contributions from your taxable income. You can invest the money you contribute so it can grow over time — and those earnings are tax-free, too. And finally, you can spend the money in the account, tax-free, if its used on qualified healthcare expenses.

No other account offers so many tax advantages, which makes HSAs well worth the HDHP required to use them. If you want to get even more value from them, max out your HSA — but don’t spend down the money in the account.

Instead, pay your medical bills out of pocket as long as you’re working and earning an income. Leave your HSA money invested until retirement. Then, you have a specific fund of money to spend on healthcare in your later years (when medical bills will likely be the highest expense in your retirement budget).

As for that high deductible? You can either build in a line item to your budget to set aside a little money each month in case of emergencies. Or you can plan to use your emergency fund should you need to cover a big medical bill before you hit that deductible.

Look at Other Policies, Too

In addition to health insurance, your benefits likely include disability and life insurance. Life insurance policies are usually small, and the benefit paid out to your beneficiaries may only be enough to cover the cost of a funeral.

Still, it’s better to opt into this coverage and relieve your surviving loved ones of being on the hook for such an expense. (It also means any assets you leave behind can go to those beneficiaries, instead of being used on any end-of-life costs).

If you have people in your life who depend on your income for their financial stability (like a spouse, even one who earns their own income, and certainly any minor children), you may also want to buy term life insurance to supplement the small policy you get through work.

Disability insurance is one of the best benefits your employer offers because it protects your biggest asset: your ability to earn an income.

Life insurance only covers you should your life actually end. But if you’re injured or ill and can’t work, disability will kick in to provide an income when you can’t earn one.

You need to look at both short-term and long-term disability. Both these policies cover different needs — and what you get through your employer may or may not be enough.

Look at what they offer and opt-in, as it will likely be cheaper than buying your own policy. Then, consider what gaps that coverage leaves and consider talking to a financial planner about strategies to cover those gaps as necessary.

Take Advantage of Your Retirement Accounts

Retirement plans that provide you with an employer match offer a great way to literally increase the amount of money going into your account. If your match is 3 percent, for example, your employer will match your contributions up to 3 percent.

Contributing at least enough to your retirement accounts to get the full match offered is like giving yourself an instant raise that goes straight to funding your future self. It doesn’t get much better than that.

Keep in mind that this could be an option for you even if you don’t have a 401(k). You might have a plan like a SEP or SIMPLE IRA, but these could also provide your match. If you’re not sure, ask your HR department and get information about what your plan includes.

What If You Already Max Out Your 401(k)?

That last point might not be helpful if you’re already on top of it and contribute not just enough to get your match, but enough to completely max out how much you can put into the account. (That’s $18,500 in 2018.)

If that’s the case, consider other ways to save. Do you have other benefits that allow you to take advantage of tax-advantaged accounts or even equity compensation?

Look into your benefits and see if you can take advantage of ESOPs, ESPPs, or nonqualified deferred compensation packages. These are a great way to build wealth in a different way than just topping off retirement accounts.

What Else to Look for — and What You Shouldn’t Use in Your Benefits Package

As you go through your benefits, you may want to take advantage of additional offers, like stipends or reimbursements for wardrobe or transportation. Some companies offer perks like free (or at least discounted) gym memberships, meal subscription services, tuition,  or childcare.

If you’re not sure, ask HR what kinds of perks might be available. The answer might be, “none,” but it’s worth making absolutely sure if you could opt in and use what the company offers rather than spending your own money on services you use anyway.

But you shouldn’t fall for the so-called “teasers” that may be included with your benefits. You don’t need things like accidental death insurance. You probably don’t need vision or dental insurance either.

A more effective use of money will likely be setting up a comprehensive financial plan that accounts for these kinds of things — and is less expensive than the fees and premiums you’d pay otherwise.

Good financial planning can also help you evaluate all the benefits available to you, and make sure that you take advantage of the ones that will help you add to your nest egg or help your dollars stretch just a little further.

How to Write a Nasty Email or Blog

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Photo Courtesy of Web Brain Infotech on Flickr

 

At one point or another, you’ve probably opened an email only to find it was full of negative comments or even hate. The person on the other end was clearly angry or upset, and now you’re bearing the brunt of their frustration in the form of this ‘nastygram.’

 

It’s incredibly hard not to immediately respond with a message that’s just as riled up and angry. The same could be said for when someone wrongs you and you feel like going on the attack.

 

Whether you were unjustly the recipient of a ‘nastygram’ yourself and wanted to respond, or if you have something you need to get off your chest, here’s how to write a snappy reply back:

 

Don’t.

 

Take the High Road in Online Communications

 

What a disappointing answer! But it’s the best advice you can receive when it comes to writing a nasty email or blog. Just don’t.

 

The internet makes it all too easy for people to vent, rant, and get their negative emotions out of themselves — and on to other people.

 

There’s definitely a time and place to address conflicts or right wrongs. Through an email or article that you can’t take back, however, is rarely a good channel to use.

 

While you may feel free to say what you really feel and truly unleash all the thoughts you think that other person needs to hear from you, the presence of the screen between us and them creates a strange effect: we start saying things we’d never dare say to someone’s face.

 

How to Tell If You Should Step Away from the Keyboard

 

That’s a good first test to determine if it’s time to hit pause and just walk away (at least for a little while): if you’re about to type something you would never say in person, don’t do it.

 

Assume anything you put on the internet is there forever. Considering this, words you write when highly emotional, defensive, or upset may be ones you regret once you’ve had time to cool off and rethink the situation.

 

Before writing any kind of response to something that gets you worked up, put the email or post aside. Talk to other people about the incident. Or write out what you really want to say on a notepad or in a word document as a way to vent — then delete it and start over from a calmer, more reasonable state of mind.

 

If you still feel like you really need to give someone a piece of your mind, consider this: when have you ever been on the receiving end of a nasty email or blog post and thought, “man, this person has a point! I really am a jerk!”

 

Even if you made a mistake, having someone (digitally) yell at you for it probably wasn’t an effective way of dealing with the problem. That’s a two-way street: if you want to persuade someone, or request they address a mistake they made, or point out where they need to take responsibility for an action, being mean or aggressive will not get you the result you want.

 

Say What You Mean Without Getting Nasty

 

None of this means you have to sit back and let someone run over you. It doesn’t mean that you can’t ever share your opinion or what you think about a situation, either.

 

Here are a few ways of voicing your thoughts or addressing your concern in a constructive way:

 

  • Look at what actually happened, not how you feel about the situation. Focus on facts rather than what you made a certain action mean. Keep your emotions out of it.
  • If you can’t keep emotions out of it because you were hurt or disrespected, first think about what you hope to get out of sending a message about the incident. Do you want an apology or another action? Don’t leave it up to the other person to guess. Explain what happened without making accusations, and then request what you need to resolve the situation.
  • Before you criticize, think of what suggestions you could make for improvements or changes. Instead of just naysaying someone’s effort or ideas, offer a constructive solution to the problem.

 

Again, it might be a good idea to talk through the situation with an objective third-party first. Or at least write out the ‘nastygram’ you want to send, so it’s out of your head, then delete it.

 

When you’re ready to write a calm, unemotional response, go for it. Then ask someone whose judgment you trust and who does not have a vested interest in the outcome of the situation to review the email and edit it for you.

 

Ask them to point out accusatory language, emotional verbiage, and just plain unproductive sentences. Work to remove that from your message, so your response is clear, level-headed, and useful — not nasty.

Before You Kick Back to a Traditional Retirement, Read This

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Photo courtesy of ulvi can @Flickr

 

Dreaming of the days you can sit on the beach, tropical drink in hand and not a thing on your to-do list? Ready to call it quits at your job and walk out to an endless vacation where you never have to check a single email or attend a meeting again?

It’s nice to daydream like this when you’re in the middle of your career, drowning in responsibility at work and home, and feeling like you’ll never catch up on all the sleep you missed in the last 10 years.

After all your hard work, you might look forward to the day when you can quit for good and kick back to a relaxing retirement free of any kind of obligation or responsibility.

But you may want to rethink that plan because more and more research shows that a “traditional” retirement — where work up until full retirement age only to quit and never work another day in your life — can be bad for your health.

The Potential Pitfalls of a Relaxing Retirement

When you simply stop going to work and have nothing on your to-do list, you can quickly run out of reasons to leave the house and interact with others during your everyday routine.

Many retirees become increasingly secluded and lonely without jobs to go to or people to see for a specific reason.

You can always plan trips to visit friends and family, of course. But it’s hard to beat the loneliness that can settle in when that’s not part of your day-to-day life.

A UK study found that loneliness, depression, and physical health issues are common among retirees who kick back to a traditional retirement with nothing on the daily agenda.

Initially, that relaxing retirement is restful and rejuvenating. But the longer it extends, the more prevalent health issues become as retirees increasingly retreat — consciously or subconsciously — from a more active life.

How to Have a Healthier Retirement

To avoid these pitfalls, plan your retirement around communities, relationships, and experiences. Researchers at Harvard found that you need to organize this new phase of life to include 4 fundamental factors for good mental and physical health:

  • A new social network outside of the job you leave behind.
  • Play, meaning hobbies you enjoy like camping or tennis.
  • Creativity, in whatever form that takes for you — taking up some sort of art, making something by hand, and so on.
  • Constantly seeking to learn new things and keep your mind engaged.

If you don’t have family nearby, consider how you can engage more in your local community, make new friends, and maintain existing relationships with neighbors or coworkers.

You could also consider a move as part of your retirement planning so you can be closer to those you want to have good relationships with as you age.

Play and creativity may be easier to weave into your retirement plan, as these are fun and rewarding activities. The key is to be intentional and make them part of your plan — don’t just assume you’ll naturally fall into something that satisfies these needs.

Retirement planning needs to cover the financial stuff. But you can plan for your actual retirement lifestyle, too. Make sure you give yourself a reason to get up, move around, and interact with other people every single day.  

You’ll Enjoy Financial Benefits When You Switch Your Retirement Mindset, Too

When you consider alternatives to the traditional retirement that include possibilities like working part-time, putting your expertise to work as a consultant, or even starting your own business, you also make retirement planning considerably easier.

For one, you’ll enjoy all the benefits outlined above. Your physical and mental wealth will likely be better than if you kicked back and did nothing at all.

That, in turn, benefits your financial health. Healthcare is the biggest expense for most people in retirement. If you can maintain your health for as long as possible, you’ll likely pay less in medical costs down the road.

Plus, creating some form of income stream beyond just your retirement savings nest egg means you alleviate some financial pressure. If you continue to work — even if it’s just part-time — you’ll earn some amount of income.

That means you don’t need to rely 100 percent on what you saved during your working years to last you through 20 or 30 years’ worth of retirement.

Are You Planning for an Active, Robust Retirement?

Of course, kicking back and relaxing should be part of retirement. But it shouldn’t be the only thing you do in your life after work.

“Retirement” today could simply mean the day you no longer need to depend on a full-time job that provides you with a specific number on your paycheck.

It’s the day when you’re free to explore your hobbies, pick up a part-time job doing something you really love, or volunteer with an organization you’re passionate about.

This could be your chance to start a second act as a freelancer or consultant. You could start your own business — or even learn a completely new set of skills that allow you to start an encore career (with more flexibility and a lighter schedule than your previous job, of course).

Retirement shouldn’t mean you retreat from life. Find ways to stay active, engaged, and productive.

You’ll be happier as a result — and as a bonus, you could make it even easier to fund the retirement you want since you won’t be sitting around, twiddling your thumbs and hoping your savings alone will be enough to fund your retirement lifestyle.

Should You Rent or Buy a Home?

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Photo courtesy of Simon Kellogg @ Flickr

Owning a home is a quintessential part of the American Dream. It’s what you do once you secure a stable career, get married, and settle down.

Right?

That might have been something that felt written in stone in the past. In our culture, homeownership became one of the boxes you felt obligated to check on the “should do” list.

You should go to college and earn your degree to get a better job. You should get married to the right person before settling down and having kids. And you should buy a home as soon as you can afford to quit renting.

The thing is, your life is unique. So are your goals, needs, challenges, and opportunities. What society says you should do is not always the best option for you (or your personal financial situation).

Today, more and more people are realizing that what society says they should do does not necessarily align with the life they want to live. The question is no longer about when you should buy.

It’s whether you need to buy a house at all.

“Rent or Buy” Is the First Question to Ask — But Not the Last

You may have grown up hearing that “it’s always better to buy than rent,” or, even better, “you’re throwing your money away if you rent.”

Neither of these statements is true in all cases. That’s where the question can become a debate that you need to have with yourself if you’re considering renting or buying.

There’s no one right answer to the question, “should you rent or buy?” It all depends on a number of factors — as well as your personal preferences and what your financial situation looks like.

So if you find yourself asking if you should rent or buy a home, here are the other questions to consider before you can come up with the right answer for you.

In Financial Terms, Which Option Is Objectively Better?

You can start by looking at the numbers and facts to see, from a completely objective standpoint, if renting or buying makes more sense for you.

The New York Times has an excellent calculator that you can use to determine which is best for you. It will provide you an answer based on your location, which is important. The best financial option largely depends on the market you live in.

Check out the calculator here and plug in your own numbers to see if renting or buying provides you with the better financial deal.

This will give you a baseline on which makes the most sense, financially speaking. But you don’t necessarily need to stick with what the numbers say.

(Of course, if the result is it’s much more financially sensible to rent, you may want to stick with that for a little longer and take all the money you’re saving by doing so and invest it to grow your wealth.)

After all, buying a home is rarely ever a logical decision. It’s an emotional one. Which is why what you want does matter in this decision.

What Do You Actually Want?

You likely have a preference for renting or buying. What do you truly want for your life?

If you prefer the ease of renting, want the ability to move when you want to, or need to outsource a large part of the responsibility of maintaining a property to your landlord, renting might be the best option for you.

In fact, it could be the financially responsible choice to make if you need to prioritize other saving and investing goals (like financial independence) or if your career is such that you either A. travel often and don’t spend much time at home anyway or B. might leave you in a position where you need to move to a different city or even state within the next 5 years.

There is nothing wrong with renting, especially if you prefer it and don’t feel ready to buy now. The worst thing you can do is feel pressured into a huge financial decision based on what you think you “should” do.

Determine If Renting or Buying Is Better for You

It’s better to rent for now if:

  • It’s cheaper than buying or your budget can’t handle a monthly mortgage payment
  • You’re not prepared to commit to staying in the same town, city, or state for at least the next 5 years
  • Your cash flow can’t handle the regular maintenance and repairs homes require
  • There are no homes on the market in your price range

On the other hand, if you want a place of your own, are willing to put in the work required, and feel you can handle the responsibility — both financial and otherwise — that comes with homeownership, it might be time to start saving for a down payment.

If you’re set on owning, it could make sense if:

  • The cost of owning a home would not jeopardize other financial priorities, like retirement savings
  • You don’t have to empty out your entire savings account to afford the down payment
  • Renting is genuinely more costly than getting a mortgage in your area
  • Your income is stable and you expect to stay in the same location for at least the next 5 years
  • You’re eager to own and willing to accept the responsibility inherent in maintaining a property

Again, buying a house (or choosing not to) can be a highly emotional decision. That makes it even more important to talk through this issue with an objective third-party who isn’t emotionally invested in the outcome.

A fee-only financial planner working as your fiduciary can help you lay out the options and evaluate them from every angle to determine the best path forward for you and your family. A planner can help you look at what you truly want and then map out action steps that will take you there.

How Much Is Too Much College Debt?

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Over 44 million Americans walked away from their time in higher education with some amount of college debt. The total amount of student loan debt collectively carried by college students and grads today is $1.45 trillion, and the average 20-something-year-old borrower pays $350 per month on their loans.

 

There’s no question about it: student loan debt is a serious financial burden for many students, parents, and newly-minted grads.

 

Whether you’re considering college costs for a family member or want to go back to school yourself, you likely want to avoid dealing with student loan debt thanks to statistics like this and harrowing news items that detail individuals who are struggling to handle their tens of thousands — or even hundreds of thousands — of dollars’ worth in college debt.

 

But debt isn’t inherently bad. In fact, student loans can be useful tools to use as leverage. The real question is how much is too much college debt, and when does it shift from useful tool to financial anchor holding you back?

 

Using Student Loans as Productive Financial Tools

 

There’s a lot of fear and uncertainty around student loans. But this kind of debt can actually be useful to you or your student. Here are some reasons why:

 

Student loans allow you to leverage your cash flow. Instead of shelling out for the cost of college in cash — and potentially leaving you vulnerable to other unexpected expenses and emergencies — student loans allow you to gradually pay for college over time in a way that doesn’t stress your liquidity as much.

 

You can pay down debt and continue saving. In addition to not needing to drain your savings accounts, the fact that you can pay back student loans over time allows you to balance that responsibility with the responsibility you have to yourself to save for the future.

 

Student loans can help students build their own credit. If your teenager is headed off to college, taking out a loan can help them build their own credit (which they’ll need as adults in the real world). This is a less risky way to help them than providing them with a credit card, which can be hard to manage and far more costly if they fail to make payments thanks to dramatically higher interest rates.

Still, Debt Is Debt

 

If you’re reading this and thinking you now have the green light to take out all the student loans you want, think again. At the end of the day, debt is debt. And it costs you money to borrow and finance an education.

 

It might make more sense to avoid student loans altogether if you have the financial means to do so (or your student can help pay their own way, so you’re not on the hook for the entire cost).

 

But what if you are….

 

  • Considering emptying your savings accounts to cover college costs
  • Not saving for retirement so that you can save for college instead
  • Able to pay for college out of pocket through your cash flow, but just barely

 

If you find yourself in these situations, student loans can be a reasonable solution. Just make sure you understand how much debt is too much first.

 

How Much College Debt Is Too Much?

 

Let’s be clear on the obvious indicators of “too much college debt.” If you’re looking at debt that reaches into the six figures, it’s too much.

 

Most grads won’t earn anywhere near $100,000 in their first year out of school, making this debt extremely difficult to pay off and a huge burden to handle financially. If your student is aiming for a career path that typically pays $40,000 to entry-level workers, $80,000 is far too much debt.

 

How much of an income you can expect to make after college is the biggest factor in determining how much is too much. Here’s an easy way to start estimating an appropriate amount of student loans:

 

  • Research how much you (or your student) can expect to make after entering the workforce with a new degree. Don’t just look at old data from something like the Bureau of Labor Statistics — go on job boards like Monster.com or Indeed and search for open positions that you might qualify for after school and view what the starting salaries are for those jobs.
  • Look at how much a degree from a chosen university will cost. Include tuition, fees, room and board, and other common expenses like textbooks. Most colleges have information on average costs and expenses that you can use.
  • Calculate how much of that cost you can reasonably cover and determine how much in student loans you’d like to use to help finance your education.
  • Compare a reasonably expected salary to your expected amount of college debt.

 

If your expected amount of student loan debt is more than your expected salary, it’s too much. If it’s the same as your expected salary, it’s also likely too much (if you don’t want to spend the next 10 years paying off those loans).

 

If you estimate that the amount of your salary is more than the amount of debt you plan to take on, it could be a reasonable financial move to make.

 

Even when student loans can be used as financial tools, you need to be very careful about how much debt you take on. You also need a strategic plan for repaying it at the lowest cost possible before you start applying for loans.

Why Average Investors Don’t Beat the Market

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Photo courtesy of http://401kcalculator.org

Most people invest in order to grow wealth over time. It’s only natural to want the biggest returns possible as part of that process.

But focusing on returns isn’t necessarily a sound investment strategy — and it could be part of what leads average investors to perform so poorly.

In fact, average investors don’t just fail to get big returns. They tend to underperform market indices that they invested in, like the S&P 500. In 2015, the S&P 500 index outperformed average investors by 3+% percent and they did the same with the Barclay’s Bond Index!

Theoretically, that shouldn’t happen. An index simply tracks the market. Investors are getting beat up trying to beat the market.

And that’s where they get into trouble.

Why You Shouldn’t Try to Beat the Market

These investors are actively involved in their investments. They constantly watch the market (or the news, or both) and try to predict the best moves to make in order to earn the biggest return.

It’s not just individuals who do this. Some advisors will promise returns, too. If you run into one of these, run the other way. Over time, most active investment managers fail to beat the market just like average investors do.

Again, it’s only natural to want to maximize your ROI. To us as humans, that means we have to work for it and take actions and constantly be striving to earn that return.

But time and time again we see that tinkering with your portfolio — rather than simply sticking to a sound investment strategy that aligns with your goals, risk tolerance, and time horizon — leads to losses, not gains.

What’s going on here? Why can’t smart people use their intelligence to outsmart the market?

There are a few factors at work against you as an individual investor acting alone without a reasonable, fiduciary financial planner at your side to help guide the way. Let’s look at 3 of the biggest mistakes you can make that put your portfolio in the most danger.

1. Trying to Time the Market

Average investors get into a world of trouble when they start trying to time the market — especially when it comes to attempting to sell high.

It’s very simple: no one knows what the market will do tomorrow. We don’t know what it will do next month. We don’t know what it will do next year.

Trying to plan around guesses about what the market may or may not do is setting yourself up for failure. In this case, that means losses.

What we do know is that the market will, at some point, take a nosedive. We don’t know the day, and we don’t know where the bottom will be — so it is entirely pointless to try and time it.

Similarly, we know that once the market takes a tumble, it will eventually recover. But again, we don’t know precisely when this will happen. Say it with me: it’s entirely pointless to try and time it.

Investors tend to wait until they feel very confident to buy in after a market crash, at which point they’ve missed out on most of the gains and buy at premiums. The opposite tends to happen during the pullbacks: investors tend to wait for a ‘bounce’ to sell, and by the time they’re convinced they need to sell the market already tumbled. They sell and experience major losses making it even harder to buy on dips!

You nor anyone else has a clue when exactly market peaks or troughs will occur. Don’t try to guess and leave yourself buying high and selling low.

2. Giving in to Groupthink

You’ve heard that famous Warren Buffett quote, “be fearful when others are greedy and greedy when others are fearful.” It’s an excellent piece of investing advice that almost no individual investor follows.

Why? We’re biased toward influences from our social circles. FOMO. Fear of Missing Out. You can refer to this as groupthink or herd mentality — either way, we tend to let our desire to belong to a group or community override logical (and even creative) thought.

Today, of course, our survival wouldn’t be jeopardized if our “herd” kicked us out or if we chose to strike out on our own. But that wasn’t the case thousands of years ago when being accepted or rejected from our groups could mean the difference between life and death.

We go with the herd because we don’t want to get left behind, miss out, or worse, be shunned by the tribe. This happens in all areas of society — including in business and financial markets.

Groupthink can lead us to simply go with majority opinion while leaving our own critical thought and reasoning processes behind. It’s what drives market bubbles or the desire to buy more and more stocks when everyone else is doing the same.

When others are greedily buying up stocks, and the market is soaring, as Buffett mentioned, there’s reason to be cautious. Similarly, when everyone is panicking and selling shares, it provides the successful investor an opportunity to snap up stocks at bargain prices.

To avoid the mistake of groupthink, turn off the TV. Don’t worry about sensationalized headlines. Ignore your colleague at the water cooler who has the inside scoop on the next hot stock pick.

Stick to your investment strategy, even if it means going against the herd.

3. Not Realizing “No Action” Is a Decision

Sometimes, all the knowledge in the world is not enough to stop investors from doing stupid things in situations where they should know better. It’s not always easy to just sit back and do nothing, especially when you feel emotional.

And investing is a big emotional roller coaster full of very high highs and some terrifying lows. But just like a roller coaster, you need to keep the seatbelt buckled and stay in your seat until you reach the end of the ride instead of attempting to leap off at some point in the middle.

Many of the decisions investors make focus around choosing between one of two (or many) actions. What average investors sometimes miss is the fact that not doing anything is also a decision and a choice you can make.

Avoiding the actions that lead to mistakes is sometimes more powerful than choosing all the right moves to make.

In fact, this is one of the areas where a financial advisor acting as your fiduciary can add the most value: reminding you to stay calm, keep your seatbelt fastened, and ride out whatever has you spooked.

Resist Progress at Your Own Peril

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Ask most people who watch TV and cable news if they think the world is safer now than it was 30 years ago, and they’ll tell you no.

But if we look at the data, it’s clear that in most parts of the world — and certainly in America — we’re safer now than we were in the past.

The problem is that we have more and more access to hearing about the bad stuff. 30 years ago, if something terrible happened across the country, you might never have known about it.

But today, we live in a world of 24/7 news cycles. There are more media reporting on more stories for more periods of time.

It’s not that bad stuff happens more. It’s just that you hear more about it than you ever did in the past.

 

Dealing with Negativity Around Financial Markets

The media is always looking to sensationalize stories and trigger the emotions of their audience. That’s how they keep people engaged (and sell advertising.)

If you pay attention to the media, you’ll start noticing that doom-and-gloom headlines tend to dominate the news. The press continually make forecasts about what the markets will do next –and those forecasts are almost always ominous (and wrong.)

Why? They get more viewers that way.

When they’re wrong in their predictions, there’s no one to hold them accountable for the fact that they got it wrong. And when they’re right, they have a field day hyping up the negativity.

This is the reality of the world investors need to navigate. One of the best investing skills you can develop is the ability to tune out the news and talking heads and to ignore all the media hype.

 

The Consequences of Resisting Progress

There’s real danger in letting the media scare you away from investing or opting to hoard your money in cash.

It might feel like the safe bet today. But you still face serious risks when you refuse to move money into more than just cash.

 

One of the biggest? Inflation.

If you keep all of your money in cash, you will lose purchasing power. That dollar that is earmarked for retirement will buy fewer goods every year as inflation strips the value away from your cash.

There are real risks in investing haphazardly or without a plan. You increase your risk every time you act emotionally, fail to diversify, forget to rebalance to keep the right asset allocation, or simply invest in places that don’t align with your needs or goals.

But “playing it safe” is a risk too. And you’re far more likely to fail to reach your goals if you don’t take appropriate, measured risks inherent in investing strategically.

 

The Real Risk Is Staying Scared, Not Staying Invested

Think about it for a moment: how many times has the media predicted we’re all headed for a massive crash that we might not be able to recover from? How many times have we heard that we’re driving straight for a cliff and investors in the market will lose it all?

Now think about how many times either A. nothing happened or B. we experienced a market downturn… followed by a recovery.

There’s no denying that it is painful and difficult to live through a tough economic period. The Great Recession hurt many, many families.

But if you stayed invested in the market, that pain was temporary, and you wouldn’t have lost anything if you didn’t sell. In fact, you would have dramatically increased your wealth by staying invested and riding the market all the way up to new record highs.

The next time you’re tempted to tune into the media hype and react to what you hear on the news, take a step back. Set your emotions aside. Stay the course.

If all else fails, call your financial planner to talk through what’s on your mind or how you feel.

How to Make Room for Your Passion in Your Life and Your Budget

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Most of us have something that we absolutely love to do — and it’s usually a passion that allows us to express ourselves and our creative sides. Whether it’s music, art, writing, volunteering, or consistently picking up something novel and learning something new, we all have a passion or two that’s important to us.

But as you’ve probably noticed, life often gets in the way of that passion.

Why don’t we do what we love more often? In most cases, there are two major roadblocks that get in the way of pursuing your passion: time and money

If you want to overcome both these obstacles, these 4 tips will help you make room for what’s important to you both on your schedule and with your budget.

Evaluate How You Spend Your Time Now

It’s hard to make time for something if you don’t know where your time goes right now. Try tracking your time for a few days to a week and find out exactly how many hours you spend:

  • Working
  • Sleeping
  • Doing chores or running errands
  • Having free time

…and so on. That last one is really important. How do you currently spend your free time when you don’t need to work or complete tasks?

If you’re anything like the average American — who spends 3 hours per day watching TV — you likely have more time for leisure than you initially thought. It’s just that you pack it full of activities and feel constantly busy.

But look at what those activities break down to be. If you simply stopped watching TV on weekdays, you could have 15 hours per week to devote to a hobby or passion project.

Evaluate how you spend your time right now. Get really granular with it. And then cut out what’s unimportant or not valuable. It’s all about getting intentional with how you spend the time you have.

Cut Out What’s Not Essential

This idea applies to your budget, too. If you struggle to come up with money to spend on your passion, take a look at your current spending. Do you make purchases that align with your values? Or do you find you often suffer from buyer’s remorse?

It’s always easier to spend money than it is to save it. But cutting back doesn’t need to be painful if you start by identifying where you spend money on things that are not important to you.

Carefully track your spending for a month. Then, look back at your purchases. Moving forward, eliminate anything that you didn’t get a lot of value out of, made you regret your purchase, or did not enjoy as much as you would enjoy pursuing your hobby.

If you still need to cut back, you may need to make a few sacrifices or tradeoffs. Would you prefer to go out to eat three times per week, or cut back to once so you can spend that money on your passion instead?

It doesn’t need to be about depriving yourself or eliminating things from your life entirely. What’s more effective is to recognize what’s essential and invest your time and money in whatever that is for you.

Schedule Everything

Once you make room in your calendar, schedule in time to spend pursuing your passion! If you don’t fill in that extra time intentionally, other nonessentials are sure to start slowly creeping in and stealing your time away again.

Even if you can’t free up large blocks of time, organizing your current schedule to spend your time more efficiently may help make room for a hobby or pursuit that interests you. Can you bundle tasks together? How can you structure your days so you’re more productive, and therefore necessary tasks get done faster?

Explore different ways of organizing your time, tasks, meetings, and other priorities.

Monetize Your Hobby

These ideas can help you reallocate the resources you already have. But sometimes, you don’t simply need to reorganize. You need to make more.

If pursuing your passion would be easier if you had more money to devote to it, consider how you can monetize that hobby.

Musicians can look for small, weekly gigs that pay a few bucks. It may not be enough to live off of, but it’s a nice bonus to in addition to spending time doing what you love.

The same can be said for any kind of artist or skilled worker. You can sell what you produce or even spend some time using your abilities to freelance. You could also get paid to teach others something you love and feel passionate about.

There’s no need to feel limited when it comes to engaging in activities that light you up and allow you to express who you are. When you take the time to look at your what’s essential to you, the way often becomes clear.

Put those things first and make them a priority. Cut out what doesn’t contribute to your values, and allocate those resources — be they time or money — to what does.

Why Your Retirement Is More Important Than Saving for College

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Yes, it sounds harsh. But this is an important financial reality to understand: you should prioritize your retirement savings over saving for your kids’ college expenses.

This isn’t about loving your kids less. It’s about knowing how to prioritize your financial goals in the best possible way for both your sake and theirs.

And remember, putting your retirement needs ahead of saving for college doesn’t mean indefinitely choosing one over the other. You can balance both these competing goals and fund each at the same time.

Here’s why your retirement savings is that important — and how you can balance your desire to help your kids by saving for college while also making sure you take care of yourself.

There’s Only One Way to Fund Retirement

Our kids have countless options when it comes to higher education and paying for it. We give them whatever help we can. They can contribute themselves by earning scholarships or working part-time as they go through school.

There are plenty of ways to reduce the cost to make college more affordable, too. They can choose a lower-cost, in-state university. You can help educate kids on how to live frugally and limit their expenses while still in school.

And while it might not be ideal, students can take out some student loans to help fill the financial gaps. This is not the same thing as taking out far more than they can reasonably expect to repay once gainfully employed after graduation, or taking out more loans than they need to pay for tuition.

The point is, our children have several ways they can fund higher education or reduce the expense of college.

But when it comes to retirement? We’re mostly on our own.

We need to take responsibility for funding our lives after work. Social Security and other benefits can help, but these aren’t guaranteed (or likely to completely fund what you need for the rest of your life).

There’s not much flexibility on where to get this money — or how long we have to fund our retirement goals. If we don’t save and invest now during our working years, we may need to keep working or dramatically change our lifestyles.

Saving for Retirement Helps You and Your Kids

Still, many parents feel averse to the idea of saving for their own needs ahead of helping their children. But it’s just like the idea of the oxygen mask on an airplane: you need to address your own needs before you can realistically help anyone else.

You do no one any favors — least of all your children — if you fail to plan for your retirement and end up needing someone to help you. That burden will likely fall on the very children you wanted to help in the first place!

By prioritizing your retirement ahead of financial goals like saving for college, you ensure that you take care of yourself after you stop earning an income. Your adult children won’t need to use their own income to financially support you.

How to Save for College Without Neglecting Your Retirement

None of this is to say you shouldn’t save for college to help your children. You should allocate money to fund your own retirement goals first. But you can contribute what you can from your cash flow to college savings after that.

Make sure you take advantage of employer benefits and packages that are available to you. Contribute at least enough into your 401(k) to get the match, and fund tax-advantaged accounts that can lower your year to year tax burden.

By doing what you can to save on taxes, you might have more money left over throughout the year to use for college savings.

You can also make the most of college savings dollars by investing them into an appropriate vehicle for long-term growth. If your kids are younger than 10, they have nearly a decade to go before starting their freshman year at a university.

Take advantage of that timeline by investing into a 529 plan or another brokerage account. As they get closer to attending college, you’ll want to adjust the plan to keep that money as safe as possible.

Don’t put pressure on yourself to fund 100% of your child’s higher education, either. As your kids get older and can better understand financial realities, make them part of the conversation. Giving them the knowledge that you agree to fund up to 50% or 75% of their university expenses can help them make informed decisions about which schools to apply to or what programs to consider.

And don’t forget to encourage your kids to participate and make their own contributions. That doesn’t need to be financial. They can do their part by achieving academic success that secures scholarships and grants. Or they can commit to certain sports or programs that provide a path to a subsidized university education.

Every parent wants to help their children succeed and have a better life than they enjoyed. While saving for college is one of the primary ways you can do this, remember that your children can appreciate your help after graduation, too.

The best way to make sure they can live out adult lives in which they get to prioritize their own financial goals over your financial needs is to fund your retirement first. Once you’re on track there, then you can turn to saving for college and other goals.

Make the Most of Your Vacations: Save for Travel, Not a Vacation Home

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A vacation home works for some people and can provide a lot of benefits. It’s wonderful to have your own place to escape to when you’re ready to relax and unwind. And if you make good decisions about where and what you buy — and get a little lucky in the process — a second home can be an asset.

 

But the key point? It works for some people and certainly not all. In fact, for most people saving for travel instead of a vacation home makes much more financial sense. It also ends up better for you in the long run regarding happiness and enjoyment.

 

That being said, it’s well worth understanding how to make the most of your vacations, you’re better off saving your money for trips, experiences, and various destinations — not a second home.

 

Vacations Are Fun and Games — Vacation Homes? Not So Much

 

Buying a vacation home often makes you a second-home owner. With homeownership usually comes with a second mortgage, property taxes, insurance, the responsibility for repairs, managing a property that may be far away, potentially managing renters (or paying someone to manage that process for you), and so on.

 

In other words, it may sound fun and exciting. But don’t get swept away thinking about all the benefits. Vacation homes come with all the downsides — and potentially even more — of any property you own, pay for, and are responsible for taking care of throughout the year.

 

Add in handling those responsibilities over distances, and a vacation home is often a fast-track to frustration (and a lot of work, to boot!).

 

Make the Most of Your Vacations by Maintaining Your Freedom to Choose

 

Those downsides don’t even account for the fact that owning a vacation home tends to mean you’re locked into the same vacation year after year. Again, that might be fine for some folks — but for most people, the freedom and flexibility to vacation in various places and explore new things is worth a lot.

 

You may remain stuck with one type of vacation for as long as you own your home. And even if you’re not, that begs the question: why bother with the vacation home in the first place? Keep the freedom and spend that money on taking dream vacations wherever you choose to go.

 

The Benefits of Saving for Travel

 

Still not convinced? Consider these reasons you should save for travel instead of plunking your money down in another property that you’ll only use a few weeks (at most!) out of the year. You’ll get:

 

  1. The opportunity to explore and visit more places.
  2. The option to take different kinds of vacations (cruise, beach house, camping, etc.).
  3. Increased flexibility (where you go, when you go, how long you go, how many people go, etc.).
  4. The ability to budget for “that one big trip” you’ve always dreamed of (maybe three weeks in Southeast Asia, or a month in Europe) by spending less on travel in the year or two leading up to the trip (such as a camping and hiking trip at a national park).
  5. Fewer unexpected expenses, since you don’t have to worry about vacation home repairs, furniture, the air conditioning going out…
  6. The freedom to follow the deals and to pick vacations based on deals you find online, without being locked into any one place.
  7. Simplify your life with greater peace of mind.

 

Travel Can Keep Your Other Wealth-Building Goals on Track, Too

 

Traveling, as opposed to a vacation home, can keep your other financial goals on track because you can spend significantly less on travel (even luxury travel) than you would buying and maintaining a property. Travel gives you more flexibility in how you use your money, even to the point of choosing not to travel.

 

As your life circumstances change — you suffer an injury or illness, get married, have kids, take care of an elderly parent — travel may not be the right fit for a few years. And that’s okay. You can save your money and explore places closer to home while you need to prioritize other things in life.

 

While you can choose how and when you travel, you can’t choose to not pay your mortgage on your vacation home if another savings goal or family need becomes a priority that year. When purchasing a vacation home, you lock yourself into those expenses year after year — even when your goals, financial situation, and interests change.

 

What to Think About If You’re Set on a Vacation Property

 

If you do choose to forge ahead with a vacation home, here are just a few points you’ll want to keep in mind:

 

  1. Make sure you know the neighborhood and surrounding area. Is it a place you are going to want to visit for the next 30 years or more (assuming a 30-year mortgage)?
  2. Are you going to have renters? Keep in mind that you have to a rent a vacation property for large chunks of the time if you want to receive the tax benefits. This usually means making the most popular weeks available to renters — not your family.
  3. Renting a vacation home often requires hiring a management company, or managing it yourself. It also means more wear and tear on the furniture and property. Account for this when you look to see if your budget can handle a second home.
  4. A vacation home is more than the price of the home. It needs to be furnished, maintained, repaired, and insured (and often vacation homes are in costly areas, such as a beach house on the water). Again, account for these expenses when you consider the financial aspects.

 

There are so many benefits to saving for travel rather than tying money up in another property. Remember, you can’t buy your freedom – and a vacation home certainly takes some of that away.

 

At the very least, if your heart is set on a vacation home, do a lot of research, planning, and consideration before jumping in feet first. Understand all the pros, and more importantly, all the cons before committing. A vacation home may make sense if you fully understand the consequences and downsides and feel those sacrifices are worthwhile.

Whichever way you choose to enjoy the money you use for vacations and other fun experiences, make sure it aligns with what’s important to you and your values.