Change the Way You Contribute

Step One: Open a retirement account to start your savings pilgrimage.

Step Two: Fund your retirement account systematically every month with an automatic contribution.

You’ve heard me say this over and over again, make contributions automatic every month. But why? Why is it so smart to contribute systematically? 

The long and short of it is Dollar Cost Averaging. I don’t want to scare any of you off with high finance lingo but trust me, dollar cost averaging is neither complicated nor high finance so bear with me.

Let’s say that your rich uncle died and gave you $100,000 - nice! The very next day you take the whole lump sum of money and dump it into the stock market and the day after that, the market falls 40%. Your $100k is now only worth $60k, so you freak out and pull all of your money out of the market because you don't want to suffer any more losses.

Then lets say, one week later the market is up 60% and you missed the up-swing because you were out of the game.

How would you feel? Horrible, You missed your chance!

Guys, this is exactly what could have happened to you last spring if you did not take advantage of dollar cost averaging with your contributions.

Here’s how it works: 

Let’s say you get the same $100,000 from your dead rich uncle. Only this time you divide it into 20 pieces of $5,000 each and invest each piece on the first Monday of the week for the next 20 weeks. If the stock market declines as soon as you invest the first $5k you can take comfort in the other $95k you still have in cash. When the market increases you will be poised to take advantage of the swing because you are systematically investing, no matter what the market is doing.

The other benefit to systematically contributing  to the market is lowering your average costs of shares purchased. For example, your first week you might buy shares of a specific investment at $5 per share, then next week you might buy at $4 per share and the week after you may buy at $4.50 per share. So the average cost of the shares is $4.50. Now you are really taking advantage of fluctuations in  market because you are buying at lower cost than you would have had you put all your money in on the first day.

Buy Low, Sell High

Everyone knows that the ultimate goal of investing is to buy low and sell high but because of emotion and human nature many people do just the opposite. Use dollar cost averaging to help you avoid falling into the trap. Make it automatic and you can create the discipline that you need.

Who would have guessed that after the miserable winter of 2008 to 2009 in the stock market, March was the month to have your money in! I certainly would not have made that prediction, but I took advantage of it because while the market was falling I was buying every month at lower and lower prices. It’s not rocket science but there is an element of discipline that is required. The good news is that you can create the discipline for yourself.

Your Children Want You to Save for Yourself

You want to give your children a hand up in life, absolutely. You want to provide them with all the opportunities and luxuries that you never had, sure. What if you do all these things but never save for your own retirement? Will that help your children in the long term? Probably not.

Sometimes parents get so caught up in “providing” for their children that they never take the time or resources to ensure that they are providing for themselves in the future. I want this article to ask the question: if you stretch yourself financially to give to your children without saving for your own future are you really helping them?

This is a difficult topic, no one wants to hear that they should hold back on college savings to contribute more for their own retirement. There is a basic human element that floods our emotions with a desire to provide for children. I am sure there are many underlying reasons why giving everything to your children is detrimental to their development of character and work ethic but I am not a psychologist, so let’s leave those arguments out of it.

Let’s just focus on the dollars and cents of it.

I have to argue that your kids have a longer time horizon to save and more opportunities for low cost student loan debt than you do. Saving for college in a 529 plan or through some other savings method is a great goal to have – but you have to remember when you start saving for a college goal you are embarking on a savings pilgrimage for someone else!

Why would you start a new pilgrimage if you have not yet made it even half way up the mountain of financial freedom? Let me put it to you this way, if you focus all your efforts on saving for your children’s future then your future will involve living with your children. Maybe your family culture is different than where I come from but when I close my eyes and dream about retirement it does not involve asking my kids for a few bucks to pay my greens fees for the day.

Friends, if you do not save for your retirement thinking that you are doing your kids a favor, your wrong. The only thing you are doing is ensuring that you will be a financial burden to them in the future.

Your kids will have the opportunity for scholarships, low cost student loans and part time jobs to get through college. And guess what, speaking from experience, they will value the education that they earned and paid for far more than if it were free. The other good news is that your children are quite a bit younger than you are. They have a good twenty years to create their own financial freedom.

If you can afford to put some money away for your children’s education it might be a good idea. I would strongly encourage you to talk with a professional to determine if you can truly afford it.

How about this idea, instead of giving your kids a free education and housemates in their 50’s. Why not give them the opportunity to earn their education and a big fat inheritance when you no longer need it.

Why Worry About Return?

Usually the answer I get when I ask the question above is, “so I can grow my retirement account”. Although this is a good answer, it’s not the real reason why it is so important is to make sure that you are achieving adequate return. The true answer is one word:

Inflation

There truly is no better time than now to talk about inflation and the impact it can have on your goals. With all the “stimulus” and government spending we can only assume that in the future our economy will experience significant inflation. 

So what is Inflation? Well the simple answer is this: The standard assumed average annual inflation rate is 3%, so if I were to go out and buy a box of pencils for $1.00 today, in one year that same box of pencils will cost $1.03. As you can see, the purchasing power of my dollar has been reduced! I can no longer go out and buy a box of pencils for just a buck.

Inflation is caused by many things but the looming cause for our future inflation is monetary policy. When the government passes out “stimulus” essentially they are adding additional dollars to the market which eventually dilutes the value of the dollars already out there.

Let’s use an example, say you are washing your white clothes at home. Every once in a while you will probably use bleach to help restore the whiteness to your clothes, but to keep from burning holes through the fabric you add water to the bleach to dilute it, the more water you add to the bleach the less potent the bleach is.

If bleach is like buying power then adding water is  like adding dollars to the market.

The more dollars you add the less buying power there is! Eventually retailers will have to raise their prices to compensate for the fact that each dollar is now worth less, or the bleach is not as strong as it use to be. And that my friends is inflation.

So why do you have to worry about return… because if you only generate a return that is equal to inflation, your money will only be able to buy you the same amount of stuff that it did last year! If you want to be successful on your savings pilgrimage you have to earn a return that beats inflation.

Let me insert a little disclaimer here, chasing return is a very dangerous thing. This topic is an entire blog post in of itself, but suffice to say that I am a proponent of buy and hold strategy unless you are a professional investor. I’ll write more on this topic at a later date.  As a savings pilgrim I want to always be conscious of the return I am earning on my path to financial freedom. I want to be sure that the investments I am using are falling in line with my risk tolerance and my mountain top goals. The only way to tell if the investments are working the way I want them to is through careful measurement and giving adequate time to let them work. Occasionally, I might have to adjust my path to success.

Inflation is a bear and no one knows when it will kick in from the great recession, but it will. Be aware and prepare yourself for the need to generate increased returns.

Two Things You Have To Do

Several months ago, back when the Dow Jones Industrial Average was at a decade low 6500, a friend of mine who is not a professional stock analyst or broker predicted the bottom of this recession in front of a group of 25 or so clients (bold move!). Turns out he might have been right, although I think it is still too soon to confirm or deny his prediction. But if you had dumped $10,000 into the Dow Jones Index that same day it would now be worth roughly $14250 or about a 42% increase in just 4 months. That’s something you can’t ignore.

Sure, I have been burned just as much as the rest of you in my retirement accounts over the last year and a half, so I understand the sick feeling that comes over you when you have to open your quarterly earnings/loss statement every 3 months.

I also completely understand bulking up the old emergency fund and paying down your unsecured debt – do it! But if you are young (younger than 45 or so) you have got to be taking advantage of the giant rebound in the market that we will inevitably experience over the next several months.  You cannot afford not to!

Friends, the current economic situation we are in is once in a lifetime.

Fortunes are made, missed and lost in environments just like this. If you are disciplined, use the right products and understand your personal risk tolerance, the choices and investments you make could be game changers for your financial future. Your savings pilgrimage will be a lot easier with the initial boost of a 50% return right out of the gate. Talk about a motivation energizer!

There are 2 things you must be doing no matter what your situation is.

First things first, if your company offers a 401(k) with any sort of match, you have to do whatever it takes to get the full match. Scrape every penny together and tighten your belt to take advantage of the guaranteed return. You will not find a guarantee like this anywhere in the market!

Second, the Roth IRA is the greatest gift the government has ever given to savers! There are some income limitations to take advantage of this program. A single individual with an adjusted gross income (AGI) of more than $95,000 is prohibited to contribute funds into a Roth IRA account. For a couple, the AGI is $150,000, and these limitations change on a annual basis.

If you qualify for a Roth IRA you have to have one! No Excuses!

When you reach retirement the distributions from a Roth IRA are tax free because you contribute with after tax dollars. I don’t know about you, but I am pretty sure than in 30 years taxes are going to be higher than they are today. If you do not understand why this is an amazing deal PLEASE CALL ME RIGHT NOW!

The reason I am so adamant and enthusiastic about these two things is because of this…

In a recent survey, 40%…. 40% of respondents said that their best chance to gain $500,000 in their lifetime is via a sweepstakes or lottery win.

WHAT!!

Apparently 40% of people have never heard the good news about the power of compound interest. I have got a lot of work to do.

Please do not be one of these people. $500,000 is easily attainable if you simply do two things, get the match in your 401(k) and contribute systematically to a Roth IRA.

What is in a Credit Report?

There is a lot of mystery surrounding credit reports and the scores that are generated from the report. I think that bankers and other financial providers try to keep the truth a mystery to aid in their power trip when people come to apply for a loan. Why is it that most people find themselves feeling like they are headed to see wizard of Oz when they go to see the banker for a loan? The truth is that most loan officers are blowing smoke and using your misconceptions to leverage their salesmanship. Let’s pull the curtain back and give you some insight to what really makes up a credit report.

The REAL free credit report link www.annualcreditreport.com

First things first, if you want to see your report the only real free web site that is sponsored by the government is listed above. You are entitled to view your report annually for free – SO GO DO IT!

There are three credit bureau’s that gather data and generate reports. They are:

Trans Union, Equifax and Experian

Essentially these agencies are gathering the same data but to maintain accuracy and to avoid potential conflicts that could arrise from one entity, there are three companies. You can pull your report from each one of the agencies annually for free. So if you are considering paying a third party entity to monitor your credit and send you reports every month, don’t do it any more. You can pull a report once every 4 months for free your self! Pull the Trans Union report in January, the Equifax report in April and the Experian report in August. Boom! You just saved a bundle of money and achieved the same thing that those “experts” are providing.

What makes up the report?

A credit report is made up of data that lenders report. If you have an open line of credit, installment loan, charge card (those in-store cards you can only use at that store), credit card, mortgage or student loan it is on your report. It also might include negative information such as judgments from the court, items sent to collections and accounts that are charged off by the lender.

What is not included on the report?

Accounts at your daily service providers are not included on your credit report unless they extend you credit or they have to send your account to a collection agency. Often people think that their insurance company, cell phone provider and utility services are listed on their report. They are not.

What is the difference between a credit score and a credit report?

Your credit score is an artifact of the information listed in the credit report. The credit score is calculated using a secret algorithm that is proprietary to a company called Fair Isaac, also known as FICO. We do know some basics of what goes into the calculation. By and large the most important thing to do is pay all credit obligations on time over many years. Different credit providers are given more weighting in the calculation depending on their importance in repayment. For example, a long on-time payment history on a mortgage is given more weight than good history with a charge card. Likewise, a late payment on a mortgage will hurt your score more than a late payment on a charge card. The amount of credit out standing relative to the limit of the account is also a factor. A rule of thumb is: Never use more than 30% of the max amount of an account to maintain the best score.

In the past, it did hurt your score to have multiple inquires for credit in a short amount of time. This really put a damper on folks being able to shop around for the best loan. Legislation several years ago changed this rule and now allows for consumers to apply to multiple lenders in a two week period when shopping for a mortgage or an auto loan and it only counts as one inquiry. Always compare lenders just like you would any other product!

There are many nuances to credit reports, too many to cover in one article! If you have specific questions or want more information, please feel free to contact me. A good understanding or credit reports will liberate you and help you maintain a better score. A good credit score is essential to succeed in your savings pilgrimage.

Consumer Driven Health Care

Suppose I told you that you could go out and buy something very  valuable that cost $20,000 for $75 a month and a one-time cost of $10. Would you go buy the new item? Absolutely. Would you go buy a new one of these items every year? Sure, it’s only a one-time cost of $10 and you are already paying the required $75 a month.

But let’s assume that sellers of these items are in business to make money (like most businesses are). Wouldn’t you suppose that these business people would try to find ways to make more money as time goes on? Maybe they will raise the monthly cost, or maybe the one-time fee. Or maybe they will do something even more sinister – raise the value of the item.

What is the significance of raising the value of the underlying product? Well, if you can’t or wont pay the $75 per month then you are not eligible for the deal. So now, if you want the item you will have to pay the full $20,000 cost. Suddenly the item seems far more unattainable.

The valuable  item I am referring to is health care. Millions of Americans pay their monthly insurance premium ($75 per month) and when they go to the doctor, simply pay their $10 co-pay. Most health care users never even stop to look at the dollar value of the service they received, if they did they might stop for a second to catch their breath and thank God that they have health insurance.

Insurance companies are in business to make money, a lot of it. In order to do this, they raise the premium cost every year, increase co-pay cost and yes even more sinister – they inauspiciously contribute to the rising value of health care.

As consumers we should be leery of any product that we purchase where the actual value is hidden in the fine print of a statement we receive 6 months after the fact. Think about those paycheck advance shops on every street corner. The mere fact that they are everywhere tells me that they are in business to make lots and lots of money. The truth of the matter is that they do. Why? Because the consumers that use them do not clearly see the actual cost of the service.

Our society has labeled paycheck advance shops as “Predatory” to consumers. How is the health care insurance industry any different?

The only way for us to put an end to the rising cost of health care is to clearly state the actual cost of the services being offered. Would you pay 50% interest for a 3 day advance on a check? NO WAY! You would say “I can wait!” Would you go to the clinic for the sniffles if you knew that it cost $500 just for the 15 minute exam? I wouldn’t! I would only go to the clinic when I absolutely needed to, I would go when the value of the service matched the value I was willing to pay.

Forbes Article on Consumer Driven Health Care

Purchasing health care should be no different than purchasing a new TV at the local electronics store. The value of the item matches the value I am willing to pay. If the TV is more expense than I want to spend then I forgo purchase of the item.

The good news is that there are products out there that promote this logic and will help you on your savings pilgrimage. High deductable health insurance policies offer low monthly premiums and the ability to contribute to a health savings account. This puts the power back in your hands. Health savings accounts offer significant tax advantages and will help you to be a conscious consumer. If you want more information on these types of accounts please contact me! 

Choosing Your Retirement Lifestyle

You might not believe me, but one of the most difficult decisions you will make after completing your savings pilgrimage is how to live in retirement. You will have spent the majority of your life on the path to a goal, financial independence - the ability to do what you want, when you want, for as long as you want. Ah, what a great feeling this will be… but what is it you want to do?

Right now if I were to retire I would want to play golf, drive fast cars, exercise for 3 hours a day and grill out for every meal. Will I want to do these same things in 40 years? Not likely. But I can make some basic decisions: Will I want to work part time in retirement or what about volunteering? Will I travel more or stay around town? Do I want to follow my fellow retiree’s to live in Florida or Arizona?

The answers to these questions will be vastly different for everyone and there will be unique questions for each person’s situation. Your answers might even change after 10 or 15 years. I strongly recommend sitting down with your significant other and think about your ideal retirement lifestyle at least once every 5 years. This is a great way to stay on the same page with your goals and you might even re-energize your savings pilgrimage.

Remember, any financial plan is a living, breathing document. As your financial situation changes so should your plan. As you reduce debt you should look for places where you can put that extra money to work. If you earn a raise at work, make new plans for the extra money.

Retirement is not the same for everyone, you may not want to fully retire or you may choose to spend more in retirement then you did while you were working. The idea behind retirement planning is that you will have accumulated the resources to be able to choose either option. If you don’t have a financial plan or would like a second opinion on your current plan, feel free to contact me!

Harnessing your Mental Spending

I am as guilty of it as anyone. I think to myself: “When I get my tax return I am going to spend it on a brand new (insert favorite item here).”

For some reason I find myself doing this time and time again. Fortunately, I typically don’t go spend that money before I have it, call it discipline or just the fact that I know better. For millions of people this is where their savings pilgrimage fails and in some cases where their debt habits take off.

It is so easy to spend the extra money you might have coming in before you actually receive it.  Our culture is truly based on instant gratification, after all that’s why the credit card was invented, have something now – pay for it later. Don’t become a victim to self rationalizing credit card spending. If you find yourself justifying credit card spending because '”I will pay it off as soon as I get that bonus”, put the item down and walk away. 

This is a great place to put in a plug for a tool that is near and dear to my heart: The Emergency Fund. If you are saying: “Andrew, the things I am using my credit card for are essential items that I cannot live without.” You need an emergency fund. I will not go so far as to say that credit cards are evil or that you should never have a credit card but if you do not have an emergency fund, you have no business using a credit card. 

If you do not have an Emergency Fund, drop what you are doing and call me to set up a time to put together a plan to get one. 402-938-6800

If you are embarking on a savings pilgrimage, the quickest way to failure is to start mentally spending the money you are saving. One of my secrets to saving success is to “spend” my savings by investing it in an account that is very difficult for me to reach. If I send my savings to a Roth IRA, 401(k), investment club or credit union CD; I spent it. At first it might seem like this tactic would not work but once the savings has left my easily accessible checking or savings account – it’s gone. It works because I can’t spend it again. 

What are some ways that you have harnessed your mental spending to succeed in your savings pilgrimage? I would love to hear your tactics!

When is it right to work with a financial advisor?

Finding the right financial advisor is one of the most important decisions you can make for both you and your money. Identifying a true professional who is honest and loyal is easier said than done. The best way to start your search is by asking 5 to 10 people you trust and respect who they use for financial advise.

Once you identify a few potential candidates you should set up a time to interview them. Ask these advisors questions like:

How are you compensated?

How do you handle conflicts of interest?

What is your investment philosophy?

These 3 questions cover the major issues that set advisors apart from each other. You want to build a relationship with an advisor where you can stay for the rest of your investing career. One of the worst things you can do is jump from advisor to advisor every couple of years.

A great advisor should be compensated directly from the client to ensure that the clients interests are always put first. This type of compensation structure enables the advisor to implement investment plans that can focus on buy and hold strategy for the long term.

Many “fee only” advisors require minimum account balances but many also offer consulting on an hourly basis. This is a way to get the professional advise you need while building your account to the level required for complete management.

Gallup Federal Credit Union now offers financial planning and investment advisory services. Please feel free to contact me to learn more about the services we have to offer!

Reduce Debt or Save

By Ronny Miller

One of the most common questions we receive from credit union members sounds something like this,

“Should I pay off my credit card (car loan/mortgage/personal loan/etc) or should I save the money instead?”

A simple mathematician would tell you to pay off the debt. You are paying an average of 4% more on the debt than you are earning on your savings. It’s simple! Right? Maybe…maybe not.

Simple Math

You have a $100 mortgage charging 7%. That costs you $7 per year. So if you paid off the mortgage you would have an extra $7 to spend.

Your other option is to invest the money instead and earn a rate of return of 3%. This provides income of $3 per year. Now you would have to pay taxes on that. (Let’s assume marginal tax rate of 30%). That means, after taxes, you have an extra $2.10 to spend.

A difference of $4.90. So, mathematically it almost always makes sense to pay off the debt first.

In a perfect world we would all pay off higher interest debt first, but that fails to take into account many important factors.

1) Building an emergency fund which may save you from acquiring more debt later on.

2) Piece of mind in knowing you have a nest egg on which to rely.

3) Waiting too long to start saving may be the worst mistake of all.

The Psychological Factor

How would you answer this question?

“I want a debt reduction plan to pay off my credit cards. How should I go about paying these off?”

Most people would recommend listing the balances from highest rate to lowest rate and start paying extra on the highest rate card. This is excellent advice, but not what we would recommend.

First we say “Save!” If you are truly putting together a debt reduction plan, the best thing you could do to set yourself up for success is to have an emergency fund. Without question you will have an emergency at some point during your effort to pay off debt. A lot of people depend on credit cards to fix these emergencies.

Imagine just starting a debt reduction plan and then having to go into more debt due to a medical problem, car repair, or other emergency. How frustrated would you be? For most people this is all the reason they need to give up on the plan and go back to their old ways.

This is a great example of when you should save first to pay off debt second.

The time value of money

You can’t afford to wait. The power of compounding interest is a miracle of personal finance and the sooner you start the more benefits you can reap. Actually, the benefits are exponential. This is the reason Albert Einstein referred to compounding interest as “the 8^th wonder of the world”.

So, how does this apply to debt reduction? If you are choosing not to save in order to pay off a mortgage in 20 years instead of 30, you are losing 20 years of compounding interest. You cannot afford to lose that time.

Compound Interest Equation

P = C (1 + r) ^t

where
    P = future value
    C = initial deposit
    r = interest rate (expressed as a fraction: eg. 0.06)

    t = number of years invested

The “t” is the exponential part of this equation and it makes all the difference. Let’s look at two examples:

Let’s say you are 20 years old with 45 years to retirement. Saving $1200/year (100/month) and you average a 10% rate of return. You’ll retire with $948,954.38. Who knew $100 a month could almost make you a millionaire.

Now, let’s say you are 50 years old with 15 years to retirement. Saving $_________/year and you average a 10% rate of return. How much would you need to save to get your million dollar retirement? Go ahead, take a guess.

The answer: $28,000 a year. ($2,333/month). Ouch.

By the way, if you just saved $100/month for 15 years you would need to earn a rate of return of 45% to hit the millionaire zone. Not very likely.

The Bottom Line

Paying off debt is never a bad idea, but sacrificing long term saving to pay off debt is. Look at your personal situation and ask for help if you need it.

Conquering the Tall Mountains

Many Americans are finding themselves embarking into new, strange territory.

Saving

Maybe you have traveled this road before but somewhere along the way took a detour for a decade or so. Don’t feel too bad – the national savings average from 2001 to 2007 moved from 1.8% to 0.5%. That’s right – negative savings!

Over the last 18 months or so Americans have been re-energized to get back on the path to financial freedom by saving more than they have in the last several years. Blame it on looming job loss, potential pay cuts or the new rebirth of the required down payment but everyone is looking for ways to save a few more dollars each month.

As I talk to people every day, I find that it is really easy to start getting jazzed up to embark on the savings journey. It is easy to think of a goal that you want to save for, maybe it’s that new car, a down payment  for a house, college or even just retirement. But when that first tall mountain in the path comes, it is really hard to push through.

I like to think I am a savings pilgrim.

Imagine starting your journey as a pilgrim at the Missouri river and trekking through Nebraska or Kansas where the path is incredibly flat – you started your savings plan putting away a few bucks per month building a nice balance. But then your journey eventually takes you to Colorado and the Rocky Mountains.

I like to think I am a savings pilgrim that will brave the rocky mountains.

  On the other side of those mountains is freedom, an ocean of endless future. Over the past several years only a brave  few have set out on the journey to reach financial freedom. Today is a great day to start your journey, team up with other savings pilgrims and push each other through the tallest mountains.

I would like to hear about your mountain top savings victory and what your financial freedom looks like. Contact me or leave a comment about your success!

A Survivors Guide to Weathering a Financial Storm

Work force reductions and layoffs are a lagging indicator of the tough economic environment that businesses are operating in these days. With more and more companies forced to reduce their payroll expense to meet budget this year, many families are finding a family member back in the job market. Here is a list of some pointers that will help your family weather the storm.
1. Don’t do it alone
Many people find themselves attempting to manage the stresses of job loss and the ensuing job search on their own due to our cultural norm of individualism. We tend to hold to the idea that people succeed and fail due to their individual efforts; the reality is that success depends on relationships as much as it depends on the individual.
Look to family, friends and peers for coaching through the struggles and victories. Find opportunities to network with other professionals, you may even consider seeking out a professional job coach or counselor to help you identify your future career path. Listen to people when they tell you you’re good at something.
2. Find out about benefits available after you lose your job
One of the first phone calls you should make after the job loss is to the benefits department at your former employer. For health insurance, coverage usually expires the last day of the month in which your employment ends. Ask about continuation of medical coverage through a program such as COBRA, you will be responsible for the full cost of the coverage but it may be an expense worth taking depending on your specific situation. Also ask about your flexible spending account or health savings account. In most cases long term disability and life insurance coverage ends on the last day of the month in which your employment ends as well. For more specific information regarding your plan options please contact your benefits department.
You should automatically be sent a distribution/rollover packet from the 401(k) department that outlines all of your options. Typically 60 days are allowed before you must rollover the balance to an IRA or other qualified plan. Please contact me with rollover questions and options offered through the credit union.
  3. Get Organized
Getting organized and staying organized are essential to success in a new job search. Brush up that resume and put together solid references that can be called upon to give rave reviews. Determine and write down how far you are willing to go to find work, will you do part time or temp work? Research and keep files on the companies where you are applying, be sure to have a polished presentation of yourself specifically tailored to each position.
Getting your financial house in order is also essential to be able to focus the necessary attention on your job search. Sit down as a family to determine your new household budget; you may want to consider seeking the help of a professional to act as a sounding board for changes or to help you identify other areas where you could save. Please contact me if you would like help in this area!
4. Remember where your satisfaction comes from
Resist the temptation to cut out the gym membership and social events with friends, unless of course you cannot put food on the table for your family, but it should not be the first thing you cut. Look at this time as an opportunity to re-invent your career path and dive into opportunities that appeal to you. Stay positive and remember where you find your personal satisfaction.

Gallup FCU Investment Services

Gallup FCU is now a fee-only Registered Investment Advisor! This new piece of our business will allow us to offer client-centered comprehensive financial planning services to our members. From basic portfolio reviews to complete asset management, this new service expands our ability to assist you in achieving your financial goals. Please contact me to set up a time to review your financial positions!

Finding Satisfaction inside Your Means

Finding satisfaction in your life and in your finances is one of the biggest hurdles you must overcome to be financially free.
What is Satisfaction? Webster’s defines the word as “fulfillment of a need or want; a source or means of enjoyment.”
Think of a child at the store with mom or dad when they walk past the toy section. Immediately the child gets a glimpse of a new toy and starts the ‘I wants.’ Inevitably the parent gives in and buys the child a new toy. But what happens next time they walk past the toy aisle? It’s the same story, the child cries for a new toy – because she has not found fulfillment with the other toys in her life. How many times do we fall into this trap as adults?
“If I could only make $50,000 a year, then I would be set.” Then a few years later, “Okay, so I am making $50,000, but if I could only make $60,000 a year, then I would be really set.” And the cycle continues on and on. Many of us live in this rollercoaster for our entire lives never finding satisfaction, always looking for fulfillment from the next dollar. Maybe I could blame the American culture for pushing us to this mindset but that would not take ownership of the problem.
The bottom line is, if you enjoy life and find fulfillment with a modest income; when you earn more, you will continue to find satisfaction. However, if you cannot find satisfaction with modest means, no amount of money will drive you to a fulfilled life.
Where do you find satisfaction? What will you do to break the cycle and overcome the hurdle to achieve freedom?

Diversification in Uncertain Times

If there is one thing to be learned from the last year in the stock market, it is the value of diversification. I think that when most people hear discussion of diversification they immediately tune out because they believe they already know what it means. After all, clearly all it means to be diversified is to own multiple stocks or mutual funds, right? – Not quite.

I have been hearing a lot of this lately: “I am never going to be able to retire; my broker told me that equities were the best place to put my retirement savings, now because of the economy my retirement account has shrunk to half of what it used to be.” This logic reminds me of a 14 year old who while mowing the lawn lopped off the sprinkler heads and then told his dad that it was the lawn mowers fault. The market doesn’t make mistakes, just like the lawn mower doesn’t drive itself over sprinkler heads – in both cases the problem is operator error.

First off, let me say that when it comes to investing for retirement you have options, every retirement planner or broker has a “sure-thing” strategy that will make you filthy rich and secure your estate for generations to come. A few of the most recent strategies I’ve heard about involve complicated bond and treasury investing (I could write this whole article on reasons to be leery of these guys and their “strategies” but I digress). Many people have sworn off of stocks because of the last decade and maybe rightfully so.

You don’t have to invest in equities to generate enough money for retirement. To perform accurate planning you will want to use a lower assumption for your lifetime rate of return and you will want to think about some other options to help you reach your goals. You could:

1.) Delay retirement a few years
2.) Choose to live on less in retirement
3.) Save more pre-retirement
4.) Leave less to your children
(Or there is the more humorous fifth option… die earlier.)

Whether or not you choose to invest in stocks is a complete individual choice. For the average investor, equity type returns can be captured through mutual funds. It’s important to keep an eye on the expense ratios but mutual funds are nice because the stocks or bonds held within the fund are being actively managed by professionals who spend all day making sure your investment is performing.

By looking through your mutual funds prospectus you can see what individual stocks or bonds make up that fund. When determining whether or not your total portfolio is diversified look and see if your funds overlap in their holdings. Often large mutual fund companies own similar investments in multiple funds. Also look to make sure that a wide array of business sectors as well as different market capitalizations are represented in your holdings. Of course you should also re-assess your risk tolerance as you reach new milestones in your life, your investment profile will not be the same at 50 as it was at 25. If you would like to learn more about diversification or if you would like to have a comprehensive review of your portfolio, please contact me.

Would diversification have shielded you from any losses over the last year? Probably not, the market as a whole moved too substantially to avoid all losses; but if you were properly diversified according to your age and risk tolerance you would have mitigated your total loss and ultimately preserved your nest egg.

Lend Me Your Ear

Over the last year our economy has been plagued with bank failure, rising unemployment, looming national debt and social unrest. Even in Omaha, which is typically insulated, we have felt the effects of deteriorating markets to the east and west. Many people speculate that the underlying cause of all the gloom and doom stems from greed found at the highest levels of industry. I would have to agree.
Almost daily Gallup associates ask me the question “What is the benefit of joining the Credit Union? “
Of course I have a typical response that emphasizes the amount our members save on loans and our higher dividend rates on deposits, however, just in the last several months I have realized that the benefits we offer to Gallup employees and their families is much greater than just dollar savings.
I am employed by Gallup; in fact, all of the associates in the credit union are employed by Gallup. This is part of the reason why our business is able to offer services at reduced cost. More importantly this is why I don’t have to worry about hitting monthly loan processing metrics.
You see, a typical banker is paid according to how many loans he writes, no matter how good or bad they are. This is one of the major reasons that the mortgage industry is in such a predicament and is sinking the entire financial industry. The more loans the banker pushes through the system, the more he makes. It costs the same to process a $100 loan as it does to process a $1M loan, so every banker who works on a retail floor will try and sell as many $1M loans as possible because they get paid more. Is this system evil or bad? Not inherently, but truly the system is flawed. It’s flawed because the banker does not have any reason to care whether or not the customer can repay the loan, it simply does not matter to him; he is getting paid either way.
I am paid by Gallup to provide our members and non-members with honest, accurate, applicable information to help them make decisions with their best interest at heart. I am not paid to push loans or drive up volume. I have the privileged of knowing many of our members personally and I see them on a daily basis.
If you are still reading this article you must like the idea of working with people that have your best interest in mind.
The bottom line is, if you are tired of being worried about whether or not you are getting a good deal at your bank, or if you feel like you are not getting the straight talk (to steal a line from governor Palin) you want at your financial institution; I can guarantee you that you will get a good deal and the honest truth at Gallup FCU.