Friday, March 24, 2017

Invest or Pay Down Debt?

As a financial planner in the Chicago suburbs I've sat down with many new clients who are unsure about how to balance student loans with investing for their future. The ask me whether they should be investing now or waiting and start by paying off their loans. Of course, each person has a unique situation and that will certainly play a role in my advice but more often than not my answer is you should do both.
 
I understand my advice may sound a little counter intuitive at first but if you take a step back and look at the question from another angle it's quite logical. As we know, and I've discussed many times before, time is your most valuable asset when it comes to your investments. When you elect to forgo investing early on you're squandering the benefits of compound interest when they matter most. I've given many examples in the past depicting the astounding differences of investing early or waiting until your late 20's or early 30's and the results speak for themselves. It's for this reason that I always recommend my younger clients begin investing as early as possible but still pay down their student loans along the way.

I can already hear the groans and excuses now, "But I don't have enough coming in to be able to do both". Of course you do, but you're choosing to do other things with your money instead. Far too many people would rather go out to dinner 3-5 times a week, buy a new outfit or waste their money partying with friends. One night out or a new outfit can easily cost you $100 and that's being modest. If you're not willing to give up one night of going out or one new outfit, then you're going to face the harsh reality later in life that you wasted the most important years for compounding all because you considered these material things a higher priority.

Look at your student loans and investment contributions as a tax placed on you by the government. If the government placed this tax on you, you'd moan, you'd groan and you would complain but inevitably you would pay it because you have to. Set up automatic payments for your loans and automatic deposits into your investment account so that you never see the money sitting in your bank or have the opportunity to spend it. I'd venture to guess that your lifestyle won't change all too much because you'll get creative and find alternative ways to continue doing the things you enjoy. I promise a little discipline and self-control now will pay huge dividends in the future, pun intended!

Would you like to discuss this idea further or find the best places to invest your money while you're paying off those student loans? Click below to schedule a phone call, in person or virtual meeting with me so we can determine what solution works best for you!


I'm giving my blog readers exclusive access to my 5 Point Financial Plan completely FREE. The concepts in this plan are one's that I utilize in every new client meeting and set the foundation for proper financial planning. It's loaded with value and not something you'll want to pass up on. Click below to get  your own PDF version!



Tuesday, March 14, 2017

2 Steps To Pay Down Credit Card Debt FAST

Credit card debt is an ugly beast that can be quite difficult to deal with especially when the average interest rate for people with good credit is a whopping 21%! Now I understand that things happen and every now and then you make a late payment or fall a month behind. So long as you make good on that the following month it should be a non-issue and have little relevance overall, but if you let those balances accumulate for a few extra months you'll be drowning in debt quicker than you can say annual percentage rate.
I don't want you or anyone else out there to fall into this vicious cycle but it does happen and if its happened to you then I'm going to give you two quick ways to climb out of that debt and get back on solid ground.
#1 Stop The Bleeding
Yeah, alright that sounds great in theory but what exactly does "stop the bleeding" mean? Look at like you've just been admitted to the hospital with a serious injury the first thing they'll want to do is stop that bleeding. In our situation though, it means use the credit card companies own marketing techniques against them. What's a well known strategy for attracting new card users? Offering them 0% interest for a specified period of time. So objective number one is to find one of these cards, open them and then transfer the balance to this new card offering 0% interest. This is so crucial and an idea that very few people consider when they're drowning in credit card debt. Most people in this situation hate the idea of credit cards so the last thing they're thinking is to open more of them. However, this is exactly what they should do and once they've done so it leads us into step number two.
#2 Go Into Overdrive During the 0% Period
So you established your new credit card and transferred the balance over but now comes the hard part, paying it down in the allotted time for the 0% interest. This is when your self discipline and ability to say no will need to prevail. Do an assessment on your current spending habits and decide where you can make adjustments that will free up more money for you to spend down on your debt. Forcing yourself to live slightly more frugally than you're used to during this time will be expected but keep in mind this is only temporary. This time of living on less than what you're used to should also serve as a good reminder of why you'll never let yourself get into this situation again.

I'd be more than happy to send you a spreadsheet I designed to help keep track of all your spending and cash flows. This spreadsheet will act as a tool for you to utilize and enhance your chances for success. It will also aid in preventing you from falling back into this awful situation again in the future. You can email me at Mcirelli@saifinancial.com

I'm giving my blog readers exclusive access to my 5 Point Financial Plan completely FREE. The concepts in this plan are one's that I utilize in every new client meeting and set the foundation for proper financial planning. It's loaded with value and not something you'll want to pass up on. Click below to get  your own PDF version!



Sunday, March 5, 2017

4 Things You May Not Know About Roth IRA's

1.) You Don't Need Much To Start One

One of the most common misconceptions I run into when working with someone is that they think they need to invest $5k or more to get their Roth started. While many of your larger banks or wire houses may require you to have 10/25/50k to get started this is not the case when working with me. I work with many baby boomer clients who this blog may not apply to but I also work with millennials who have questions or would like to know more but are under the impression they need to come to me with a few thousand dollars to ask their questions or discuss their situation. This couldn't be further from the truth. I have many meetings where we both agree that waiting until they have more free cash flow is the best option for their situation. That being said, I have many options for younger clients who know they can't max out their Roth IRA but they at least want to start putting a little something  away every month. In my investment arsenal I have companies who will allow my millennial clients to get started with as little as $250-$1000 and going forward they can contribute as little as $50/month after that. While that may seem like an insignificant amount of money to begin investing with I can certainly show you data compiled over 30-40 years suggesting quite the contrary.


2.) The Government Won't Force You To Take Distributions

As I'm sure many of you know, the earnings in a Roth IRA grow tax free until distributions are taken in retirement. This is the single greatest benefit of a Roth IRA over a traditional IRA who's earnings grow tax-deferred and not tax free. Another excellent benefit of a Roth IRA is the fact that Uncle Sam is not going to force you to begin withdrawing your money at the age of 70 1/2. You may or may not know that if you have a traditional IRA and have reached age 70 1/2 you will need to begin taking Required Minimum Distributions (RMD's). Fortunately for you though this is not a requirement if your money was invested in a Roth. In what situations would this feature be beneficial you may ask? Suppose you retire at 65 and start taking social security as well as receiving a pension from your previous employer. Many people in this situation may not need to take distributions from their IRA accounts but once they've reached the age of 70 1/2 they will be forced to. Traditional IRA's have this mandate, Roth IRA's DO NOT. This means your money can continue to accumulate tax free until YOU choose when is the best time to start using it. I enjoy being in control of my money so I strongly prefer having the ability to decide when is best for me to take my money out as opposed to having the government force my hand.


3.) Income Limits May Not Stop You
Yes, one unfortunate feature of Roth IRA's is that they have income limits attached to them which could prevent you from contributing to one if your income exceeds the thresholds set by the government. This is when working with a knowledgeable financial professional can bring real value. There are ways to convert money into a Roth IRA even when it seems as if you cannot. If you fall into this category, which certainly isn't a bad problem to have, seek a financial advisor who can show you ways to work around  this rule.

4.) You Can Still Make A 2016 Contribution
Yes, it's not too late! Even though it's 2017 you still have until April 15th of this year to make a backdated Roth IRA contribution. It's a little known secret and many people don't even realize it but this allows you to make a contribution now and it doesn't go against your contribution limit for 2017. Meaning you can actually contribute $11,000 this year but you only have about a month to get your 2016 contribution in, so time is of the essence.

I'm giving my blog readers exclusive access to my 5 Point Financial Plan completely FREE. The concepts in this plan are one's that I utilize in every new client meeting and set the foundation for proper financial planning. It's loaded with value and not something you'll want to pass up on. Click below to get  your own PDF version!