Tag Archives: Cash Flow

Know Your Net Worth | Financial Literacy

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“What gets measured gets managed.” Peter Drucker

This principle of ‘what gets measured gets managed’ means that examining or quantifying an activity, such as personal finance and net worth, will change the activity and its result by forcing you to pay attention to it.

This principle said another way…’you manage what you measure‘ is pertinent to personal finance. The principle can be applied to help us manage our personal finances and to permit us to get our hands around our personal net worth. Creating a net worth statement, and updating it each year, will help you monitor your financial progress and meet financial goals.

As you prepare to invest, you’ll need to know your net worth. And, it’s simple to calculate. You simply add up what assets you own and subtract what liabilities you owe.

Creating a net worth statement, and updating it each year, will help you monitor your financial progress and meet financial goals. It will also enable you to calculate how much you have (or don’t have) to invest.

www.finra.org/investors/personal-finance/know-your-net-worth

Think Income Inequality Is Bad? Retirement Inequality May Be Worse

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The Urban Institute’s Signe-Mary McKernan says that savings and wealth discrepancies are more critical than often-cited income inequality. By one measure, she found racial wealth inequality, or assets minus debts, to be three times worse than income inequality. Disadvantaged groups are less likely to own homes. Many aren’t offered retirement plans through employers, or they participate less frequently.

Inadequate retirement savings carry serious long-term implications for governments as well as citizens. They create an expanding cohort of residents who have to rely on government services or who might, for instance, miss property tax payments because they can’t pay other bills. “It matters not only for families and individuals, but for their cities and communities,” McKernan says.
— Read on www.governing.com/topics/mgmt/gov-retirement-inequality-savings-gap.html

8 Ways to Help Close a Retirement Income Gap | Wells Fargo

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Have you discovered a gap between the income you’d like to have in retirement and the income you think you’ll get based on your investments and current savings rate? It happens to lots of people.

“They have a number in mind about how much they need to save before they can retire,” says Will Larson, Retirement Planning Strategist at Wells Fargo Advisors. “Sometimes they can get there and sometimes they can’t.”

As concerning as it might be to discover a retirement income gap, knowing it’s there is the first step in closing it — usually by increasing your income and assets, reducing retirement spending, or both.

— Read on communications.wellsfargoadvisors.com/lifescapes/8-ways-close-retirement-income-gap/

7 reasons to consider this little-known retirement saving strategy – MarketWatch

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Despite enjoying the longest-running bull market in history, most preretirees have a substantial retirement savings shortfall.

The average 65-year-old in the U.S. will outlive their savings by almost a decade, according to a new report by the World Economic Forum. And the typical household nearing retirement has only saved enough in their combined 401(k)s and IRAs to provide them at most $600 a month, according to the most recent Federal Reserve Survey of Consumer Finances.
— Read on www.marketwatch.com/story/7-reasons-to-consider-this-little-known-retirement-saving-strategy-2020-01-09

How To Stop Living Paycheck To Paycheck – Fidelity

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Nearly 8 out of 10 workers (78%) live paycheck to paycheck, according to a new survey from CareerBuilder.com.1 That’s up from 75% last year, and it applies even to those making 6 figures: 1 in 10 workers making $100,000 or more say they live paycheck to paycheck.

“In working with many clients over the years, I have found that most people tend to spend their entire paycheck if it is available in their bank account, regardless of whether they are at a low/middle level or are highly compensated,” says Marc Kodomatsu, a financial planner in Lake Oswego, OR.

If you’re putting away adequate savings for your goals and you have a healthy emergency fund, living paycheck to paycheck isn’t necessarily a disaster. But a quarter of Americans have no money saved for an emergency, according to Bankrate, and 20% have less than 3 months of living expenses in the bank.

“The events in Houston are a stark reminder of the perils of living paycheck to paycheck,” says Thomas Balcom, a financial planner in Lauderdale-by-the-Sea, FL. “For those folks who have flood insurance, they may not have the funds available to cover their deductible or tie them over until they return to work.”

Breaking the paycheck-to-paycheck cycle takes discipline and a plan. Here’s what top financial experts recommend as the best steps toward more financial independence:
— Read on www.fidelity.com/mymoney/how-to-stop-living-paycheck-to-paycheck

To Retire in Harmony, Get Your Plan in Sync

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Must have a fundamental knowledge of all the investments and strategies available, as well as the ability to put together a comprehensive retirement plan that addresses each individual client’s needs, goals, strengths and weaknesses.

There are five important parts in a comprehensive retirement plan that should play well together.

— Read on www.kiplinger.com/article/retirement/T047-C032-S014-to-retire-in-harmony-get-your-plan-in-sync.html

Cash Flow is King

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Happiness is Cash Flow

Cash flow is about understanding where money originates, according to Brian Skrobonja, founder of wealth management firm Skrobonja Financial Group LLC. and originator of the Common Sense podcast . Further, Mr. Skrobonja states that cash flow is about strategically using money to not only live your life but to create more income sources for yourself. Essentially, when you put your focus on cash flow, it solves hundreds of other personal financial challenges, according to Mr. Skrobonja.

The confusing part about cash flow is that too few people understand what this really is. They believe that a monthly budget represents cash flow. It doesn’t. A budget is used to track expenses. It focuses on limiting expenses to stay within your means (income) in order to save money.

Cash flow is essentially the money that is moving in and out.  Additionally, cash flow focuses on where your money needs to go to fulfill the long term goals that you have for your future. It allows you to direct money toward creating wealth and ultimately more income. It is a financial growth mindset.  Thus, the cash flow between your current lifestyle desires and your future lifestyle requirements is the most important financial decision you can make.

The purpose of cash flow awareness is not simply to make ends meet, but rather to properly organize the flow of money, which allows you to create wealth and avoid debt.

When you think of your cash flow, break down your annual expenses into five groupings:

  1. Debt payments
  2. Tax payments
  3. Regular monthly expenses
  4. Savings and insurance transactions
  5. Irregular expenses throughout the year

Then list in chronological order the big-ticket items you plan to spend money on in chunks over the next five to 10 years. (This would include education, transportation, home improvements, etc.)

It is important to include the assets you plan to purchase or invest in to create more income on this list. Use debt to leverage investments by acquiring assets and grow cash flows. Do not use debt to buy things that make other people richer. These leveraged investments may be assets such as a business, rental property or some other income-producing asset you plan to acquire.

Don’t think about how you will pay for these big-ticket items, just list what they are, and then circle back later to work out the details.

Stable, reliable cash flow is the only true measure of personal financial success.  Individuals cannot thrive financially, let alone feel financially secure, without positive cash flow.  Cash flow is king in personal finance; cash flow should rule everything around your personal finances. Keep an eye on your cash coming in and your money going out.  Keep in the forefront, cash flow provides an unvarnished glimpse into a person’s overall financial health.

 

Net Worth and Measures of Financial Health

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Source: MyMoney.gov

For many households, financial health is measured by income. While income is an important component of financial health, it is only part of the equation.

Some experts and academics believe that an individual’s net worth is a better measure of financial health than income. Net worth or wealth can determine if a family has the wherewithal to deal with a financial crisis, such as the loss of employment or long-term sickness.  And it also allows for investments in a home, small business and higher education. In other words, a household with no wealth or negative net worth may not be financially healthy despite a high salary.

euro-seem-money-finance

Photo by Pixabay on Pexels.com

The type of assets held by a household also affects its financial health, with illiquid assets and short-term liabilities a greater potential risk than liquid assets and long-term debt.

For many financial educators and households, assessing a household’s net worth is the start of the conversation. It allows financial advisers or households to create a financial plan that considers assets and liabilities which can lead to better financial health and outcome.

Net worth considerations would also provide policymakers with a more accurate picture of financial health to assess middle class economic security across different demographic populations.

There are other reasonable approaches to considering overall financial health or well-being. For example, the Center for Financial Services Innovation (CFSI) looks at four components (spending, saving, borrowing, and planning) and eight indicators of financial health as well as data that can be collected to make the financial health assessment. The data collected to measure the financial health for each component range from the difference between income and expenses (for spending) to the debt-to-income ratio (for borrowing) to the type and extent of insurance coverage (for planning).

The type of assets also matters for financial health. For example, CFSI distinguishes between liquid and illiquid assets by pointing out that liquid assets are “important for coping with an unexpected expense,” while [illiquid] long-term savings promote financial security.27

Financial well-being has been identified as a common outcome goal of financial education efforts.28 CFPB has developed a robust and validated scale to measure a person’s sense of financial well-being, which CFPB defines as the “state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future and is able to make choices that allow them to enjoy life.”29 While this measure is subjective, a number of trackable and objective factors are strongly associated with a person’s level of financial well-being, most notably having liquid savings.

27. Parker, Sarah, Castillo, Nancy, Garon, Thea, and Levy, Rob,“Eight Ways to Measure Financial Health”,Center for Financial Services Innovation, May 2016, available at: https://s3.amazonaws.com/cfsi-innovation-files-2018/wp-content/uploads/2016/05/09212818/Consumer-FinHealth-Metrics-FINAL_May.pdf.

28. For example, see Financial Literacy and Education Commission, “Promoting Financial Success in the United States: National Strategy for Financial Literacy 2011”, available at: https://www.treasury.gov/resource-center/financial-education/Documents/NationalStrategyBook_12310%20(2).

29. “Financial Well-being: What it means and how to help”, Consumer Financial Protection Bureau, 2015, available at: https://www.consumerfinance.gov/ data-research/research-reports/financial-well-being/.

Five retirement income planning tips. | New York Life

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Save, invest, start early and delay retirement as long as possible are the conventional points of wisdom about retirement planning. But an investor should also consider what their income needs will be in retirement.

Here are some tips to move your thinking from saving for to living in retirement:

THINK INCOME, NOT JUST DOLLARS SAVED.
Instead of focusing on a target number (i.e., “I want to save $500,000 by age 60”), think about income. 

  • What are your monthly expenses and are you able to cover them?
  • Do you plan to downsize? Or would you like to treat yourself to some luxuries in retirement? Do you want travel?
  • Do you want to leave a legacy to your family?
  • How will your savings fare against inflation?
  • There are many great online tools to help you nail down those details—take a look at some of our planning tools.
      • REVISIT YOUR INITIAL WITHDRAWAL RATE.
      You may start off your retirement with certain needs, but those needs inevitably will change. Make sure you evaluate your withdrawal rate with your financial professional at least annually to make sure you are not drawing too much or too little, and are taking life changes into account.
      TO TAKE OR NOT TO TAKE SOCIAL SECURITY.
      Deciding when to take Social Security varies by individual. Conventional wisdom suggests taking Social Security as late as possible, but that may not be the best decision for you, depending on your health, marital, and financial status. A financial professional can help you determine your ideal time.
      TRANSITION YOUR PORTFOLIO FOR RETIREMENT.
      Build in time to make necessary changes to your portfolio before you retire. That way you are ready and are not making any unnecessary shifts during retirement. In general, a retirement portfolio is less about growth and more about income.
      PLAN FOR A LONG LIFE.
      Life expectancy is on the rise, thanks to advances in health care. This means your money will have to last longer. Consider long-term income vehicles, such as fixed immediate annuities, that provide a steady stream of income for life.
      Making sure you have enough income to live comfortably can help ensure that you don’t tarnish your golden years. By using these tips, you can plan today for a better tomorrow.
      — Read on www.newyorklife.com/articles/5-retirement-income-planning-tips